How to Use Business Lines of Credit

Business lines of credit are a common financing solution for small business owners. They provide incredible flexibility and allow you quick access to funding when you need it. Best of all, you only repay (and pay interest on) the money you use. Used smartly, they can be an excellent way to help you achieve your business goals. If you’re interested in a credit line for your business, here’s what you need to know.

How It Works

A business line of credit works almost like a credit card. Following your approval, you get access to a set amount of money. You can draw on it whenever you need for as much as you need, up to the total available balance. You only repay (and pay interest on) what you use. As you make payments, your available balance replenishes.

How to Get One

To qualify for business lines of credit, you typically need:

  • At least one year in business.
  • A credit score of 630-650.
  • At least $175,000 in annual revenue.

Along with your application, you’ll need to submit documentation, such as your financial history, tax returns, and personal identification. You may also need to supply a copy of your business license and other legal documents. The lender assesses all of the information to determine your approval, your credit limit, and your interest rate.

Ways to Use It

There are numerous ways to use business lines of credit, such as:

Purchasing Inventory

Keeping products in stock is vital for ensuring that you have enough to meet customer demands. Your line of credit can help you to get what you need without running your cash flow too thin.

Getting New Equipment

New equipment can be expensive. Paying cash means you might not have enough to meet your normal financial obligations. With your credit line, you can buy what you need and pay it off over time.

Taking Care of Normal Business  Expenses

If things are tight, you can use your line of credit to meet payroll or pay your monthly bills without running your books into the red.

Handling Emergencies

Unfortunately, emergencies happen. Business loans take a while to fund. Your line of credit helps you to take care of the emergency right away, minimizing the impact on your business.

Investing in New Opportunities

When an opportunity to expand your business arises, you want to jump on it right away. If your cash flow is tight, you might not be able to do so, which means losing out on a potentially lucrative investment. Your line of credit helps you to jump on chances as soon as they appear.

Running a business is rewarding, but it also has its challenges. A business line of credit can help you to manage your cash flow more effectively, allowing you to achieve your goals.

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