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A business line of credit gives new businesses flexibility not available with a traditional business loan. This type of financing lets you borrow money up to a certain limit (credit limit), and you only have to pay interest for the amount you’ve borrowed. It’s a great resource for managing your cash flow, buying equipment and paying for miscellaneous expenses.

How It Works

Whereas term loans provide your business with a lump sum of cash upfront to repay over a period of time, a business line of credit functions just like a credit card. You have the flexibility to use it and repay it on an as-needed basis, as long as you do not exceed your allotted credit limit. You are required to pay interest on the amount you spend. For example, if you have a credit line of $100,000 and you’ve spent $20,000 of it, you’ll have to pay interest on the $20,000. However, most lenders won’t charge a prepayment fee so you can repay your balance earlier to minimize interest costs. For a business line of credit, you can borrow from $5,000 up to a maximum of $250,000, with interest rates typically ranging from 7.65%-23.99%.

Why You Might Need It for Your Business

Businesses need a steady stream of working capital in order to run their operations. Whether you’re looking to expand your business, purchase new equipment or bridge a cash flow gap, a business line of credit will help you cover these expenses, simply and easily.

Here are other ways you can put a business line of credit to work on your behalf:

  • Purchasing new equipment or machinery
  • Hiring new employees in order to accommodate the growing demand for your business
  • Purchasing additional inventory to prepare for the busy seasons
  • Branching out to several new locations or expanding your office space

Since you can use a business line of credit on an as-needed basis, most business owners use it as a safety net in times of slower seasons – most commonly to make payroll and too deal with unforeseen business expenses and/or work order shortages. Simply put, it’s a great solution to remedy issues that involve liquidity and cash flow. When you apply for a business line of credit, cash flow shortages will be a concern from the past.

It’s easy to understand the concept of a business line of credit, especially if you’ve used a credit card before. Once you’re approved, you can withdraw money, pay it off, and withdraw again whenever you need additional working capital.

If you like more details about acquiring a business line of credit for your company, the experts at SMB Compass can help you.

Remember, time is money and money is time.

Give us your time, and we’ll help you get the money!

Call us NOW via phone call us at (646) 569-9496 or email us at info@smbcompass.com. Our specialists will answer all of your questions and steer you in the right direction.