It’s quite alarming that certified studies have shown that 82% of small businesses don’t succeed due to poor cash flow. It’s clear that a lot of businesses — especially the ones who are just starting out — require better knowledge of how business working capital can be acquired swiftly and inexpensively. And this is where a business line of credit can help out significantly.

Simply put, a business line of credit is an adaptable form of financing that will let you access the cash when you need it. A business line of credit functions similarly to your personal line of credit. And the reason why it’s a preferred method of acquiring quick cash is that it’s much cheaper than availing of a merchant cash advance.

The other advantage in choosing a business line of credit is that you only have to pay interest on the money you’ve borrowed at a specific time. For instance, you acquired a $50,000 line of credit and only drew down $20,000. You would only pay interest on the $20,000 you borrowed — not the full $50,000.

Furthermore, a business line of credit can be unsecured, and that means there’s no need to put up collateral.

Why should you choose a business line of credit?

Seamless cash flow is a financial requirement for businesses — both big and small. But not everything always goes as planned. Incidents can happen, and businesses need a quick and stable source of emergency cash.

For this reason, it’s not far-fetched to say that a business line of credit is something every business must have.

Sufficient cash flow is integral to meeting your business’ goals, and ultimately, to the successful growth of your company. Furthermore, having a business line of credit comes with considerable advantages.


The Benefits of a Business Line of Credit

As mentioned, a business line of credit is beneficial to your company’s cash flow as well as overall growth. It’s a solid short-term financing option that you can use when your business is in a slightly tight spot.

In fact, most business owners establish their access to a business line of credit and use it as a backup in case of financial emergencies.

So, what else do you get when you avail of a business line of credit?

#1 Better and improved credit history

A business line of credit is popular for providing cash flow in times of need, but you can’t rely on it at every opportunity. At some point in your business’ journey, you will need other sources of funds. Acquiring a small business loan is effective at providing great amounts of capital at manageable interest rates.

It’s an attractive source of funding. But think about this: a survey conducted by Federal Banks found that only half of those entrepreneurs who applied for a small business loan were approved for receiving any sort of capital. The reason for the denial? It had something to do with bad credit scores or none at all.

For this reason, more and more small businesses are seeing the benefits of acquiring a business line of credit. You can establish a positive credit history with it since lenders require payments in a timely manner, and to keep a low balance.

As a result, your business line of credit gives you the opportunity to build your positive credit history, and make a name for yourself as a reliable borrower. This way, you can obtain small business loans from lenders and investors in the future.

#2 Flexible funds

One of the biggest advantages to acquiring a business line of credit is the ability to make use of your money where and when it’s truly needed. Even a business line of credit repayment options are flexible.

In the words of Inc’s Jared Hecht, “You can pay off a higher percentage of the balance when revenue is up, and just pay off the minimum required when revenue is down.”

With that kind of flexibility for using and repaying it, you have the financial space you need to help you make the right financial decisions for your company. And with regard to cash flow, there’s hardly a need to worry, because you know that it’s there when you’ll need it.

#3 Interest rates kept at a low

The majority of unsecured business lines of credit adhere to the current prime lending rates. In a nutshell, the prime rate is “the lowest interest rate available for non-banks to borrow money.” Banks adjust their prime rates at the same times and are generally uniform to one another.

Consistently meeting payments in a timely manner will help interest rates stay low. Your business can then enjoy cheaper access to capital and even higher credit limits.

#4 Quicker source of emergency cash

Running a business means keeping track of a lot of things; most prominently, your products and satisfying your customers. Any business owner does not want to stop a new project or venture just because they have fallen short on financial resources, and don’t have time to apply for conventional loans.

In circumstances like these, a business line of credit is beneficial. That’s because the funds can be accessed very easily and instantly. For instance, you can use your line of credit to pay salary to workers who’ve helped out on big projects.

A business line of credit is the right backup your business needs, so you can focus on other business priorities — aside from the money.

A Word of Caution

It makes perfect sense why any small business owner would want to take advantage of all these perks offered by a business line of credit.

But this isn’t something you should overuse. Most time, young businesses end up mismanaging their finances and using their business line of credit too much. As a result, their financial control and the flexibility that they sought actively when applying for a line of credit became limited.

As we have established, a business line of credit is very helpful for your business and is a must-have, but only if you utilize it strategically, practically, and carefully for your short-term funding needs.

And before deciding that a business line of credit is the right choice of merchant financing for you, do some thorough research. Clarify every rule in using your line of credit, and be frugal.


The Takeaway

Only you can truly answer the question of whether you need a business line of credit or not. But if you’re after a business financing method that’s flexible, and would give you swift access to cash that you absolutely need, then perhaps a business line of credit is your strongest option for consideration.

Use it wisely, and use it well; it just might be the right tool you’re looking for to turn your business into the best that it’s ever going to be.