Using Business Lines of Credit
If you look at most business financing products, it’s easy to come to the conclusion that unsecured debt simply isn’t used in the business world. That simply isn’t true, though. While many businesses use secured debt for as much as possible, even lines of credit, there are options out there for short-term financing without asset collateral. Most often unsecured debt is in the form of a credit line, but sometimes working capital loans are also available.
When To Apply
Unlike loans and cash advance products, credit lines are reusable. All you have to do is pay down the balance you draw to be able to draw it again, and if there is a partial balance available, you can use what’s there. That means you don’t need to wait until you need capital to apply. It’s probably better if you don’t, actually. Getting approved when the credit isn’t needed means being able to draw from it without delay when that time comes.
It’s usually not wise to finance equipment or other assets with lines of credit because they can be high priced expenses and securing the debt with the equipment’s value saves a lot of money. There are times, though, when the machines you need aren’t worth financing. Credit lines can be used to cover small items like hand tools, replacement toner cartridges, or even an economy-class printer without disrupting your cash flow or depleting your petty cash.
The most popular reason for pursuing business lines of credit is for cash flow management. From supplies to labor costs, a credit line can can as a buffer between your checking account and your outgoing expenses. Pay the line down as money flows in from customers paying off invoices, then use it as the payment source for anything going out. If your business is profitable and your credit line is the right size for your income, this method should make it easy to avoid cash flow crunches.
Credit lines are fairly easy to access compared to many other types of debt, but you do need to provide proof of your company’s income and cash reserves to most lenders. If you’re pursuing secured debt to keep interest rates down, you’ll also need to document the available collateral. That path can lead to a larger credit line, but unsecured lines of credit are typically processed faster. Keep that in mind if time is an issue. Your credit score will come into play, even if your business has its own score, but many credit line programs have options for those rebuilding business credit. All you need to do is ask.