Having generous cash flow is crucial when it comes to running a business, especially a small one. Considering this, a lot of business owners prefer Business Lines of Credit. Even though lines of credit come with amazing financing source, it is quite important to know the advantages and disadvantages of this solution before you actually go for it.
The first thing is first, what is Business Lines of Credit?
A business line of credit is just like a credit card that you can use it whenever you want to as long as you don’t go beyond the established limit. But, there is an exception and it is that you are able to withdraw the cash in order to cover your expense you have to pay for in a line of credit. This exception makes the line of credit quite different from a credit card. Being a borrower, you will get cash in order to cover the costs, which couldn’t be purchased using a credit card.
The Advantages of a Business Line of Credit
Working capital is referred to current assets you own minus current liabilities you own. In simple words, it is cash that your business own minus short-term debt obligations. Being a business owner, you are going to see situations when working capital is a quite tight and real issue. Plus, it let you run your business, enabling you to afford payroll, and much more.
Following are some of the advantages of a business line of credit for small business-
- A line of credit is the perfect solution to balance cash flow. More importantly, it is more appropriate for small business or startups.
- When you get a line of credit, you only need to pay interest on that amount you use. In addition to it, you can pay off the balance anytime without a pre-payment penalty and it depends on the agreement you have with your lender.
- With a business line of credit, you won’t risk to miss out any amazing chance to save bucks in the long-run.
- Another advantage of a business line of credit is that it can help you to develop your business credit history.
The Disadvantages of a Business Line of Credit
The Business Line of Credit also has cons, which include –
- A business line of credit is as helpful as you make it. Therefore, it needs to be utilized as an insurance policy for your cash flow shortages. If you use it excessively, then it could turn out to be a disaster.
- As compared to other financing solutions, lines of credit come in quite low borrowing amounts.
That’s all on about Business Lines of Credit. In brief, this solution has more advantages than its downsides for small business.