How a Business Line of Credit Can be a Valuable Financial Tool
Small businesses that take up a strategic approach to accessing all their resources make valuable use of their line of credit. Business can apply and qualify for capital that can help them operate on a daily basis. Here is how important a business line of credit is.
What is a Business Line of Credit?
A Business Line of Credit (LOC) is a kind of loan that allows business access to a certain amount of capital to sort out short-term needs. A line of credit is a tool a business can use to finance some short-term requirements like financing a marketing campaign and purchasing inventory. There are two types of business LOC.
1. A Secured Business LOC
In this kind of LOC, the business needs to declare some assets to act as collateral to secure the loan. Since it is a short-term agreement, if the borrower is unable to repay, the lender assumes ownership of the assets.
2. Unsecured Benefits of a LOC
In this type of LOC, no collateral is required. However, personal guarantee and a personal lien may be needed. Since no collateral is required, the business needs to have a strong credit score to qualify. The disadvantage is that the interest rates are higher as compared to the secured business LOC.
Benefits of Business LOC
1. Personal control of the capital. Unlike most bank loans, the business has full control of how the capital issued is spent. Sometimes some loans come with a financial advisor to guide you on the expenditure. Therefore, in a business LOC, the lender does not have any control over how the money is spent.
2. Flexibility. When you apply for a loan and get it successfully, it is given to you in a lump sum. One significant advantage of a line of credit is that a business can opt to access the funds only when the need arises. It is an advantage for companies when they do not have any cash at hand. Additionally, another benefit of a business LOC is that an entrepreneur can manage cash flow in the best manner.
3. Builds business credit. A business should develop its credit history to access loans at a later date. All business owners that have a line of credit should ensure that they repay it on time so that their credit report improves.
4. Improving business cash flow. When the cash flow of business reduces, there is a high possibility that most operations are disoriented. Therefore, a business owner should have access to credit in case there is the need. The best way of injecting money into a business is by using a business LOC.
Choosing the Best Business LOC
The good thing about getting a business LOC is that you do not need to have collateral. However, the business owner needs to fill in an application form stating the assets and business revenue. The stronger the business regarding finances and credit history, the higher the chances of getting a business LOC.
Business owners should also know that a business LOC incurs higher interest compared to traditional loans. However, it is easier to pay for it because you use it when the business needs capital. If you are a business owner that does not have discipline when it comes to cash management, a business LOC can help you get a hold of things.
Getting a LOC for your business is an excellent idea. Once your business lacks money to reinvest or get what the clients expect, loses can be experienced. Getting a channel that gives you capital every once in a while when you need it is vital for the success of your business. Ensure that you are disciplined in repaying as well.
GoKapital is an online alternative lender in Miami, Florida. GoKapital offers quick business loans from $20.000 to $5.000.000. If you are looking for business financing, you can apply easily through their online application tool.