If you are seeking financing for your business, one of the best options is a revolving line of credit. It is one of the most flexible forms of funding that a business can use. Plus, it is an option that many businesses can tap into, even relatively early in their growth. Understanding how lines of credit work can help you make informed financial decisions for your business.
What Is a Line of Credit?
A line of credit works a lot like a credit card (in fact, credit cards are even sometimes described as LOCs). There is a credit limit associated with your account. You can draw money against that limit. You will have to make minimum payments whenever you have an outstanding balance. However, you can also pay more than the minimum at any time. The current balance will accrue interest according to the terms of your credit line.
So, unlike a term loan, there is no set timeline for repayment, and you can continue to draw money provided that you have sufficient space in your credit limit. However, unlike a credit card, you don’t need to use a payment card to use the line of credit. Additionally, you draw the money directly to your bank account (in most cases).
How Can You Use a Line of Credit?
Your line of credit can be used for almost all business needs. This includes buying inventory, equipment or supplies. You can also cover payroll or make investments. In short, it is a very flexible form of financing. Most businesses can benefit from having a line of credit to help cover unexpected expenses or cash shortfalls.
What Are the Benefits?
This is a very useful form of business financing. These are some of the key benefits:
- You can get access to money quickly whenever you need it. Most draws happen in 24 hours or less.
- You can keep using the line of credit for whatever expenses you may have, as long as your balance doesn’t exceed your limit.
- You can be ready for the unexpected such as sudden costs or slow sales periods.
- The requirements for a basic credit limit tend to be accessible, even for startups.
- You can repay your current balance on your own schedule other than low minimum payments.
Learn more about lines of credit today. Securing one for your business may be the best financial decision you can make.