As a business owner there will come a time when working capital is needed. Whether you are adding a new location, need to pay staff during the off season, or need to purchase additional inventory, you are probably considering several different financing options. The below article will detail the pros and cons of business lines of credit and how you can get one for your business.
What is a Business Line of Credit?
A business line of credit functions much like a credit card but is better suited for small business owners as you can easily withdraw cash without steep cash advance fees that credit cards carry. Business lines of credit are also better for tax purposes as you can write off interest.
A business line of credit gives you access to cash whenever you need it as opposed to a term loan which provides one lump sum of cash upfront. A business line of credit allows you to borrow cash from your established credit limit as needed and only pay interest on what you borrow. Because a business line of credit is a revolving line of credit, the more of your balance you pay down, the more cash there is available to continue borrowing. There are no restrictions on how you use the funds so you can use them to bridge cash flow gaps during seasonal slumps or expand your operations.
Pros of a Business Line of Credit
Flexible borrowing - you can borrow as much or as little as you need up to your limit
Only pay interest on what you borrow
Helps builds credit score
Provides access to instant cash flow
Cons of a Business Line of Credit
Requires a good credit score
Include fees with each draw
Can negatively affect your credit score if you default
What is the Difference Between a Business Credit Card and a Business Line of Credit?
Essentially, credit cards and lines of credit are similar in that they give business owners the ability to cover expenses when needed. Both products only charge interest on what you use, rather than your total credit limit, but the main difference is the way that the interest is structured.
Lines of credit typically have lower interest rates and better amortization schedules. They give you the ability to instantly access cash as needed to cover expenses and manage working capital. Credit cards are primarily transactional, meaning you can only use them to make purchases. And while it is possible to borrow cash using a credit card it can be very expensive.
What is the Best Way to Get Cash Now?
If you are considering getting a business credit card or a business line of credit you should review the different fees associated with each. Remember, some credit cards have steep interest rates and high annual fees. And while credit lines can be useful, they can also be risky.
Before you commit to any type of alternative financing, it’s critical to do your due diligent. It is always best to consult with a professional to review and discuss your options.
If you think your business could benefit from any alternative funding source, consider applying through ACR Funding. We have years of experience in providing alternative funding solutions for businesses of all types. We offer approvals within 24 hours and do not charge an application fee. Contact one of our representatives today to learn more about our services.