Get a business line of credit to fund ongoing expenses
A business line of credit gives you quick access to cash for your business and provides you with financial control by allowing you to pay back the funds at your own pace.
When you find that your operating expenses are increasing faster than your revenue, you may need quick access to cash. In this case, you might consider a business line of credit, which offers several advantages over other forms of financing. With a business line of credit, you’re able to pay down business expenses by having access to a revolving line of credit that you can use for ongoing expenses or when business emergencies arise.
Business lines of credit are often compared to credit cards. You will usually find the following applies:
- After approval, you’re given a specified credit limit which allows you to access funds up to that limit.
- You’ll only be responsible for paying back what you actually borrow, plus any other fees charged by the lender.
- Moreover, your lender will only charge you interest on the amount borrowed, not the entire amount you’re approved for.
- Depending on the lender, you may also be required to put up collateral as security for your line of credit.
In the end, a business line of credit gives you control since you’re able to borrow only what you need and pay it back at your own pace. This added flexibility is what makes a business line of credit valuable and practical for business owners.
Compare top business lenders offering lines of credit
- Interest rates. Make sure you understand whether your lender charges a variable or a fixed interest rate. Also, keep in mind you’ll only be charged interest on the amount you actually borrow, not on the amount you’re approved for.
- Fees. A business line of credit may have one-off fees such as application and establishment fees. Additional fees that may be ongoing might include annual charges, ATM and transaction fees.
- Monthly repayments. You will usually need to make partial monthly repayments on the amount you borrow. However, if you can afford to pay off your balance in full, you’ll avoid paying unnecessary interest charges.
- Secured vs. unsecured. Some business lines of credit may need to be secured, meaning you will need to put up an asset as collateral.
Here are some questions you can ask to compare your options:
- Can my business afford it? This should always be the main factor in your decision. Before taking on any type of debt, calculate all associated costs and make sure your business’s cash flow is able to take on the monthly repayments.
- How much can I borrow? Different lenders offer varying minimum and maximum amounts. The particular amount you’re approved for will depend on several factors including your past credit history, requested credit limit, cash flow, assets and liabilities. You won’t automatically be approved for the maximum amount.
- When will I receive my line of credit? Make sure the lender you choose can provide your funds when you need them. Otherwise, you’ll be wasting lots of time, resources and money.
- How much will it cost me? Aside from the interest rate, check to see what fees you’ll be charged, including one-off fees such as application and establishment fees. The lender may also charge ongoing fees.
- How much will my repayments be? Your monthly repayments aren’t fixed and will depend on how much you would like to pay down. As long as you pay interest and other fees for the month, lenders usually provide great flexibility on how much of the balance you want to pay back. Your lender may set a monthly minimum that you’re required to pay back each month.
- Borrowing more than you can afford. Especially with business lines of credit, you can easily borrow more than your business requires or can afford. Also, just because you’re approved for a certain limit, doesn’t mean you should use it all.
- Requesting an unnecessarily big limit. Think twice before requesting a credit limit of more than you actually need. By doing this, you can find yourself quickly getting into too much debt and you can put your business in financial distress.
- Taking too long to repay. With business lines of credit, you’re not required to pay back the amount you borrowed within a fixed period. Rather, you have the option to pay only minimum monthly charges. Whatever balance is left unpaid, interest and charges will accrue. This means the longer you wait to pay back your unpaid balance, the more expensive it gets. Avoid this by paying down your unpaid balance as much as financially possible.