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Line of Credit: Pros and Cons

A small business owner securing a line of credit

You need ample cash flow to run a small business successfully. It doesn’t matter if you’re just starting out or your business has been around for a while, you need the resources to either start off or expand your business. Though most people don’t think about seeking a line of credit, it can prove helpful to get your business on track.

This business loan option is useful for businesses to meet their working capital needs. That’s why we’ve rounded up the advantages and disadvantages of a line of credit.

A Business Line of Credit

A business line of credit is a flexible loan extended by a bank or a financial institution. You get a limited amount of funding that you can use whenever you want, as long as you can pay it back immediately or later on.

Though they seem similar, a line of credit is different from a business credit card because you’ll receive funding to cover expenses that you wouldn’t get from business credit cards. These include funds to purchase inventory, finance a market campaign, repair equipment, etc.

Pros of a Business Line of Credit

As a business owner, sometimes you might be in a pinch when it comes to working capital. Your working capital is the cash or something equivalent to cash that your business has sans debt obligations. A line of credit can help you out when you’re in a pickle.

  1. You get access to money faster in unexpected financial situations.
  2. You get cash flow during slower seasons when you need it the most.
  3. You only have to pay interest on the amount you use.
  4. It becomes easier to transfer cash, whether it’s online or over the phone.
  5. A line of credit helps build your business credit history, which is extremely helpful for small businesses to be able to secure future loans.
  6. It’s available for a longer time than regular small business loans. This means you wouldn’t have to reapply.
  7. It’ll help you seek out and take advantage of opportunities. Such as your supplier’s costs are suddenly reduced when you don’t have the cash to afford it, a line of credit can help you out.

Small business owner signing papers

Cons of a Business Line of Credit

Before opting for a business line of credit, you have to know how to make use of it.

  1. You have to be prepared for additional charges. Though it seems ideal to pay-as-you-go, the fee costs can be hefty. This is especially true if you miss a payment. So, it’s crucial you find the right line of credit lender.
  2. It can be difficult to apply for. You need to provide your business’ annual revenue and financial statements. Even if you meet the requirements, your bank may demand that your business is two years old before you apply for a line of credit.
  3. Lines of credit come in low amounts in comparison to other financing options.

Small businesses often struggle to secure financing and business loans. Let QuickAssist help you out! We are a leading business financing firm that offers small business loans and financing solutions to small business owners and helps you connect to lenders.

Apply now or get in touch with QuickAssist to learn more

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