Small businesses have a lot on their plate in the beginning. Staffing, tools, marketing, and other factors of business can cost money that the business owner doesn’t have. With so much to stay on top of, quick funds can be very helpful.
One of the best routes a business can take is finding a line of credit. This financing tool is especially good for businesses that haven’t developed much cash flow yet, due to its cost-efficiency, lenient application process, and speed.
Although business credit cards are more flexible in their repayment schedule, the outstanding credit is often charged with higher monthly fees. A business line of credit tends to be less messy and allows business owners to save more on repayments. After withdrawing from a line of credit, the business typically has about 6 to 12 months to pay the lender back. Installations are usually monthly with an APR spanning between 20% and 50%.
While conventional business loans often come with staggering interest rates on the entire amount, business lines of credit tend to have more reasonable payment plans. Not only are the rates relatively low, but the lender only charges interest on the amount that the business uses. On top of this, a business line of credit doesn’t come with as many administrative fees as traditional loans do, especially during the application process.
With a traditional business loan, the borrower doesn’t usually have much say in the amount of funding that will be available. When changes occur and more funding is necessary, a person will have to go through the long, rigorous application process all over again. Business lines of credit are easier to handle because the business owner can work with the lender to come up with a credit limit and then borrow against that limit. This allows a business to improvise quickly whenever an issue arises.
With business credit cards, limits tend to be low and the funds only function as credit. This can be very stifling for a business’s capital since unpredictable circumstances often require some adaptability. Business lines of credit can come with high credit limits and allow the borrower to deposit the funds into an account as cash.
While traditional loans are more suited to long-term projects, business lines of credit allow for short-term endeavors with minimal risk. This funding method can boost an entrepreneur’s purchasing power and allow the company to accomplish things faster.