Give Yourself Some Credit
Sometimes in business, what you need is not a specific amount so much as a flexible, short term line of credit. You don’t want to pay interest or make payments on money you’re not using yet, but you also want to have immediate access to capital when it’s time to make an important purchase or handle an unexpected situation. If you need a nimble source of business finance which frees you up spend more time growing your business and less time making predictions about what you may or may not need next week, a business line of credit loan may be just the thing.
A small business line of credit isn’t intended for major purchases or long-term needs. Instead, much like a credit card (but more adapted to the needs of a growing business), this short term line of credit lets you spend what you need, on what you need, when you need it, up to a preset limit as negotiated between you and your choice of business loan companies. Your minimum monthly payment is typically limited to the interest on the amount you’ve actually used to date, making repayment terms extremely flexible – although some agreements specify a “closing” date for your operating line of credit, at which point the balance is expected to be paid in full. Unlike a traditional loan, as you repay the amount you’ve borrowed, that money becomes available again – you can borrow and pay it back as often as you like on the same flexible terms.
So what are the most common uses of a small business line of credit loan? One of the most efficient is using it to pay contractors or purchasing supplies essential to your business. Because of your business line of credit, you’re able to keep suppliers and contractors happy – and you never know when that might turn out to be important down the road. A short term line of credit can help manage normal operating expenses during slow periods, especially if your business is seasonal and you know it will be picking up soon. Sometimes it’s a simple as avoiding credit card fees some suppliers add on to offset their own costs. Anything you can pay with a check or cash, you can pay using a small business line of credit.
This type of line of credit financing is typically unsecured, meaning you don’t have to put up part of your business or any of your personal property as collateral.
Business lines of credit with lower credit limits are typically unsecured, which means collateral such as real estate or inventory is not required. Unsecured loans of any type sometimes carry higher interest rates than secured loans, but this will vary based on your personal and small business credit history. In other words, you won’t know for sure until you apply. Small businesses with enough equity – usually in the form of real estate – can often negotiate more favorable rates by leveraging that equity. In extreme cases, you may consider putting up your home or other personal property to secure a short term line of credit for your business, but this is not encouraged as a general rule.
Many traditional institutions like banks and credit unions offer some variation of a working capital line of credit, but as you may have suspected, there are numerous online business line of credit options as well. When you’re doing small business loan shopping, you don’t want to take any options off the table until you know who’s most likely to make you the best offer and do the most to establish a long-term relationship with your small business.