For most companies, the cycle of exploring opportunities, taking action on the best ones, and harvesting returns is the simple recipe for business success.
How is your pipeline of promising opportunities? Is your company skilled at making informed decisions on the best ones to pursue? Most importantly, does your company have access to the cash necessary to act?
Without cash, your business could miss out on lucrative prospects. What if a raw material supplier is overstocked and offers you a one-time discount for a cash-on-delivery purchase? What if you receive a large order with a fast turnaround, but you must front manufacturing costs? What if your top customer falls behind on payments and asks for a one-time extension?
If using your cash reserves isn’t an option, a line of credit may offer a simple solution. A line of credit can provide an affordable and flexible way to ensure your business is prepared to act on opportunities and equipped to handle the unexpected.
A line of credit allows your business to:
- Finance ongoing working capital when receivables are slow or late.
- Take advantage of unexpected opportunities.
- Purchase inventory when offered special pricing.
- Balance fluctuations in business or seasonal reductions in sales.
- Pay bills early and receive discounts.
- Prepare for downturns where you may need to access additional funds.
A line of credit can offer your company flexible operating capital. Whether it’s slow paying customers, a spike in sales, or a seasonal cycle, a line of credit can provide your business with cash to meet demands.
Know the facts about lines of credit
A line of credit is some of the most flexible funding available, providing:
- Cash—the exact amount you need—when you need it
- Pre-authorization to borrow capital, up to a specific amount
- Quick ability to transfer funds to your company's business checking account
- Flexible, repayment schedules with monthly payments
- Interest accrued only on your outstanding balance
- Interest rates generally lower than most other types of credit
- Access to cash as long as your minimum balance has been paid
Aspects to consider
A line of credit can be useful, but there are a few things you should consider before applying.
Fees – There are usually fees you’ll have to pay up-front when applying for a line of credit, and you’ll be charged a fee each time your business draws from that credit. No one likes surprise fees—keep them in mind while securing your credit line.
Repayment schedules – Your repayment schedule may fluctuate based on the total amount drawn from your line of credit and your variable interest rate. Make sure your budget accounts for repayment.
Tax Issues – Interest paid on a line of credit can qualify as a tax deduction if you provide documentation proving that the funding was used to cover business expenses. Consult your company’s tax advisor for more information.
Compare a line of credit to some other alternatives before deciding which is best.
Term loans – With term loans, payments are calculated based on the total loan amount, not just the amount used at any given time. It might take time for a term loan to be approved, which means you could miss out on a specific opportunity.
Credit cards – While offering fast access to capital, credit cards can be expensive. Terms include high interest rates and rigid monthly repayment schedules.
Inaction – Letting opportunities pass could mean lost sales, missed acquisitions, or extra years getting to your goals. Hard costs could mean late payment fees, customer dissatisfaction, losing customers, or having to infuse personal assets into your business.
A dependable line of credit can be both a tool to chase opportunities and a safety net—providing simple and affordable access to cash when you need it. Don’t miss out on chances to expand your business and keep it healthy.