Learn About Business Credit Lines with Charles Spinelli
If you own a business, Charles Spinelli says that chances are you’ll need access to working capital to help your company grow. From time to time, even successful small businesses will experience unplanned and urgent expenses. They may also encounter late invoice payments and other short-term situations in which cash flow will be less than certain. Because of these circumstances, extra funding can mean the difference between closing the shop or surviving the tough times.
Business credit lines are different from term loans.
A term loan is the main alternative to a business line of credit. With term loans, you borrow a lump sum, after which you make regular, fixed repayments. It can be done over a set amount of time. You can usually get a larger amount with a term loan compared to a line of credit. Because of this, term loans are more suited to major, high-cost purchases. An example of which are buildings.
A line of credit, on the other hand, is ideal for short-term things such as purchasing inventory and repairing equipment or even covering day-to-day expenses when cash flow is tight. It’s handy to have a credit line when your borrowing needs are hard to predict, notes Charles Spinelli. It’s a financial cushion. That said, the interest rate can be higher than a term loan.
Business lines of credit are also different from credit cards.
Business credit cards are unsecured most of the time. It means you don’t put up collateral to offset the risk of the lender. As a result, the lender will charge you higher interest rates and fees.
Business lines of credit are different since they can be secured. Once you offer collateral, the interest rate will most likely be lower. You’re also more likely to be able to withdraw more.
Business credit lines have a number of uses.
If you have a seasonal business, Charles Spinelli mentions that a line of credit can help cover overheads. It can also cover payroll in the off-season. If you’re still waiting for clients to pay you, a line of credit can cover costs in the meantime. You may also use it to take advantage of a bulk purchase price on your inventory.
As mentioned earlier, repayments are more flexible than with a term loan, and you can generally pay lump sums with zero penalties.
Additional notes:
The time to get a business credit line is before you need it. According to Charles Spinelli, if you apply for a credit line when business is good, and your cash flow is on the rise, you’re more likely to get approved. You’re also more likely to get better terms.
You’ll need a few things, though, such as your bank statements, balance sheet, and income statements. You’ll also need to show your business credit history and maybe even your own. Remember that some lenders won’t give you a credit line unless your business has been earning money for a few years, adds Charles Spinelli.
Charles Spinelli writes about different topics on business. Read his blogs by clicking on this link.