When looking for financing options for your business, a business line of credit (also referred to as a BOP) may be an option. A business line of credit offers your business a pre-set amount of cash that you can use for specific operating expenses, including meeting payroll or paying suppliers. You’re free to use up to a certain amount of cash as long as the balance you owe is paid back within the term of the agreement, and the amount you repay is considered a loan. If you decide to extend the term of your BOP, you’ll pay interest on the cash you’ve used, which can offset some of the benefits of having a BOP. In addition, you could lose some credibility if your business runs into financial trouble during the term of your BOP.
What benefits are there to get a business line of credit? One of the biggest benefits is the ability to potentially access cash quickly. A business loan may require collateral such as real estate or personal real estate investments, which can be difficult and expensive to acquire. On the other hand, if you don’t have collateral, you may still be able to get a business loan using other financing methods. To get started, talk to a banker about what types of loans you could get with collateral, then talk to an attorney about the pros and cons of obtaining your business loan using private capital.
Another benefit of a business line of credit is that it can help you meet expenses if you don’t have enough cash to cover them. Say you have a client that won’t pay, but you have a scheduled event you have to attend. With the use of your business credit card, you can charge dinner for the clients, rent out a venue, or make payments to the business line of credit, which you will then use to pay for the event. The advantage to this method is that you only have to make one payment compared to multiple payments to a bank account.
One of the disadvantages to getting a business line of credit is the higher interest rates. Because you are using your own money for the money you are using to finance your operations, you have to take into consideration how much each transaction is going to cost you. If you are paying a higher interest rate than the average lending rates, it can become more expensive to finance your business with your business credit line. If you have a greater control over your cash flow, however, it may make sense to obtain a business line of credit.
As you can see from the above benefits and drawbacks of a business line of credit, there are many different situations where you can gain access to additional capital. For instance, they can be used to obtain additional lines of credit when you have capital needs that can’t be met with existing financing. They can also be used to obtain small amounts of capital when you are in the process of constructing your business. Ultimately, the decision to obtain a business line of credit is a personal one based on your cash flow requirements and your business plans.