Be Prepared With A Business Line of Credit

In the business world, emergency expenses will arise. Opportunities will become available with a short window to act. Some businesses experience seasonal cash flow short falls. Equipment fails. When obstacles or opportunities arise, businesses need a quick infusion of cash. Having a business line of credit in place is the answer to the access of that quick infusion of cash.

Having to wait for a loan approval could cost a business a large amount of capital. Whether the loss is from a business closing for a period of time, loss of the use of money making equipment, or the loss of a lucrative opportunity, the availability of funds is critical. Time is of the essence.

A business line of credit should be in place before one is needed. A business will then be prepared to act when capital is needed. Otherwise, a business will have to scramble to raise the needed capital. the wasted time will add to its cost and risk.

How does a business line of credit work?

A business line of credit makes an approved amount of money available to use when and how it is needed. Instead of paying interest on the total amount of money available, interest is paid only on the amount being used, and only when it is being used.

In contrast, interest must be paid on the entire amount of a business loan, whether all of it is used or not. Time is involved applying and being approved for a loan, each time one is needed. Both time and capital can be lost.

A business line of credit can be thought of similar to a credit card, (similar, not the same). With a credit card, you are approved for an amount of credit. Instead of paying interest on the total amount of credit approved for, interest is only paid on the amount of credit being used. Once the used amount is paid back, no more interest is charged until more credit is used.

Similarly, with a business line of credit, an approved amount of capital is made available. But instead of paying interest on the full amount of credit available, interest is paid only on the amount being used. Once the used amount is paid back, then no more interest is paid until more of the reserve is used.