Image by Michal Jarmoluk from Pixabay
Small business owners are naturally cautious about borrowing money, which is a good thing. Getting into a lot of debt in the early days of a business makes it incredibly difficult to start turning a profit because so much of your money is eaten up by loan repayments each month. However, borrowing can also be an asset to your business as long as you use credit in the right way. A line of credit is a very effective borrowing tool for small businesses but many business owners don’t take advantage of it because they are concerned about debt. If you haven’t got a business line of credit already, these are some of the main reasons why you need one.
It Gives You Quick Access To Cash
A business line of credit works differently from a standard loan. When you take out a line of credit with a company like Cardiff.co, you don’t get a lump sum that you then have to pay back. You agree on an amount, and you can take funds as and when you need them. If you have a slow couple of months and you are struggling to pay your overheads, you have instant access to cash so you can still meet all of your financial obligations.
You Only Pay Back What You Have Used
The best thing about a line of credit is that you only pay for what you have used. Say, for example, you have a line of credit for $10,000 but you only need an extra $1,000 to make ends meet at the end of the month, you only have to pay back the $1,000 that you have used. The other $9,000 is still there as a buffer if you need it, but nobody is forcing you to use it. You only have to pay interest on the $1,000 that you have used as well, so it’s much cheaper. If you took out a loan for $10,000 and realized that you only needed $5,000, you would still be stuck paying interest on the full amount, making it much more expensive than a line of credit.
A Line Of Credit Can Be Unsecured
Secured loans can be very risky for new businesses because, if you get into a tough financial position, you risk losing a lot of assets. However, a business line of credit can be unsecured, so it is far less risky. Even though it is harder to get into trouble with a line of credit, there is always the chance that you will be unable to make the payments, which is why unsecured credit is the best option.
It Helps To Sustain Rapid Growth
Sometimes, businesses experience rapid growth when they are not really prepared for it. If your latest marketing campaign is a huge hit and all of a sudden, you are getting a lot more traffic to your website and orders are coming in faster than you can deal with them, you may find yourself in trouble. You need a quick cash injection to keep up and capitalize on that growth but taking out a loan is a long process. However, if you have a business line of credit in place already, you can easily manage that rapid growth.
Even though it is important for small business owners to be sensible about borrowing, a business line of credit benefits you in a lot of different ways and if you set one up now, you will be prepared for any difficult times ahead.