Need some extra funding to cover your everyday business costs? Before you apply for a business credit card, you may want to consider a business line of credit instead. A business line of credit provides business owners with easy access to a revolving line of credit that they can borrow from as needed. A line of credit works similarly to a credit card, where you’re approved to borrow up to a certain dollar amount. From there, you can draw upon funds as needed and only pay interest on the amount you borrow. As you repay the borrowed funds, the amount of credit available to you renews.
Here are some of the common advantages of a business line of credit:
1. Typically has lower interest rates than a business credit card. Although business lines of credit work similarly to a credit card, their rates tend to be lower. This, in turn, can save you money and protect your company's bottom line. Just be sure to review the rates and terms to ensure that a business line of credit would make more sense for you than a business credit card.
2. Could help your business establish credit. As long as you use your line of credit responsibly and make all of your payments on time, a business line of credit can help you build up your business credit score. With a favorable credit history, your business could be eligible for lower interest rates and favorable terms on future business loans.
3. Can provide access to funds when you need them. One of the main reasons to consider a business line of credit is that it allows you to plan for your future funding needs. By getting approved for a set credit limit now, you can ensure that you’ll have easy access to money when your business needs it down the road. So, instead of waiting until you need funds, a business line of credit can provide you with peace of mind, and a monetary lifeline for the future.
4. Could provide a higher credit limit than a business credit card. Credit limits for business credit cards can vary wildly and are often dependent on your business’s credit history and annual revenue. However, recent data has shown that the average credit card limit for small business owners is around $56,000. A business line of credit can provide a much higher credit limit, up to $500,000 in some cases. But, like a business credit card, the set limit for a business line of credit will ultimately depend on several factors including your business’s history and creditworthiness.
5. Can help with business cash flow. No matter what industry you're in, there's a good chance that your cash flow isn't steady year-round. A business line of credit can help provide some stability during times of decreased revenue. Having access to funds can help cover your everyday operating costs until business picks back up.
A business line of credit can be a versatile and convenient option when you need to access funds, whether it’s to cover emergency expenses, better manage your cash flow, or grow your business. If you're a business owner in Massachusetts or Rhode Island and want to see if a business line of credit is the right fit for your business, don’t hesitate to contact us today.