A Quick Guide to Business Lines of Credit
Business lines of credit are the go-to cash management tool for many companies because of their versatility and low overhead. Many don’t have maintenance fees as long as they are used on a regular basis, and the interest on credit lines is very reasonable when compared to other short-term instruments with the same ease of access. The best part is they are reusable. Your rate might change with your credit score, but you will be able to draw from the line whenever you have a balance available.
Credit Lines vs. Credit Cards
It’s easy to mistake a credit line and a credit card because they tend to have comparable interest rates and incentives. Both are flexible as well. Credit lines tend to be cash draw accounts you can access to transfer funds into your other bank accounts. Some business credit cards can also act as lines of credit at ATMs, but much of the time this option is not as cost-effective as maintaining a separate account for cash draws on your credit. Business credit cards are ideal as purchasing devices, and they can work to pay some vendors and suppliers, but they don’t have the full range versatility that a credit line has.
Build a Diverse Credit Portfolio
Most companies find their cash flow is managed effectively when they combine a few financial resources to cover their needs for short and long-term credit. This allows them to use the most appropriate resource for the moment. It also provides extra financial reach when necessary, because it provides several credit options that can be brought to bear at once when the right opportunity arises.
Business lines of credit are accessible to most companies with healthy financials and a good credit score, so they are often among the first financial resources businesses access when they begin to apply for financing. They scale well to your needs as you grow, too. It usually just takes an income update and a quick review to expand a line that is currently in good standing. Regularly paying on credit lines also helps raise your credit score.
Business credit lines are usually small to mid-size financial products. They often have a larger draw than credit cards, but they are usually not capable of handling major purchases like heavy equipment and real estate. Traditional business loans are more suited to those purchases, but credit lines can help you build the score necessary to access them.