What Is A Line Of Credit?

According to Forbes, 70% of new businesses survive for at least two years, yet only a quarter of them last fifteen years or more. That’s an intimidating statistic! But don’t let it discourage you from starting your own business. Many of these companies take advantage of a line of credit, which helps to keep them afloat during times of need.

Want to Know How We Come Up With a Loan Offer? Let Us Show You!

What is a Line of Credit?

Whether your business is just starting out or you’ve been in business for years, chances are at some point you’ve needed extra capital. Working capital can fund new equipment, pay employee salaries, purchase inventory and more.

Let’s say you are planning an office renovation in the upcoming months. What loan options have you considered? A line of credit is a type of loan that doesn’t give you one giant sum of funds the way a traditional loan does. Similar to the way a credit card works, you take out money against the line of credit when needed. Unlike most credit cards, a line of credit usually has lower interest rates and higher limits.

Advantages of a Line of Credit

There are many advantages to having a line of credit. Seasonal businesses make for a great example: What happens during the off season? Sales are down and you may run low on cash. A line of credit ensures that you’ll always have capital on hand to pay bills, make payroll, purchase inventory and prepare for peak season.

Some of the benefits of keeping a line of credit:

1. Having immediate access to the full amount of capital you’re approved for. Additionally, you are free to use the capital on your business however you see fit.

2. While traditional business loans come with a fixed monthly payment, a line of credit is different. After a certain number of months (depending on the length of time selected when drawing capital) the payments decrease slightly for the remainder of the term.

3. Provided your business still qualifies, there is no limit to how long you can have the line of credit open. Also, there are no maintenance fees for keeping it open.

The Bottom Line

Are you now more familiar with a line of credit and the benefits they have? Want to learn more? Contact us today for your complimentary consultation!