The Truth About Business Lines of Credit

Business lines of credit can be incredibly useful for businesses of all sizes and shapes, however they are not all sunshine and rainbows for the companies involved. In addition to adding some security for slow times and another buffer for the cash flow of your company, there can be significant hurdles to securing a line of credit and it can end up costing you more than you can afford in interest and fees. Some Requirements Getting a business line of credit is not as easy as walking into the bank with the right paperwork and walking out with a shiny new card. Credit institutions of all kinds will require documentation of your business and credit history, as well as copies of your books to establish how much of a risk it is to extend you credit.

 Three Major Keys To Obtaining Credit Lines.

Creditors will look at three major things before deciding to extend you a line, collateral, cashflow and credit. Sometimes you will not have enough of a history to qualify for a card. Sometimes your history will only qualify you for higher interest rate lines. Your cashflow may be too little to pay monthly fees in addition to your other bills or your collateral may not be worth what you want to borrow. Some Positives Lines of credit can be easier to secure than a loan in most cases. While they can also help you build your credit history so that you can obtain a loan in the future. These credit lines can also help you purchase some of the starting equipment and supplies that you need to open or expand your company. Since this is a revolving form of credit, you can pay off your start up costs and keep the line open for future emergencies. Some Negatives A business lines of credit can have some negative impacts on your company as well as some good ones. These negatives can include high interest rates, establishing poor cash flow habits, and even an over-reliance on credit instead of profit for paying bills.

 Overview

Business lines of credit are not always good or  bad for your company. When used right, and properly researched, they can be the best way to finance various aspects of your business. If you can overcome the hurdles to secure a credit line, and payback the line regularly on time. Then, you can grow your credit history and more easily secure financing in the future. When used properly, a business credit line will not overextend your company’s cashflow and will help you better weather emergencies.