Maintaining ongoing cash flow is integral for the success and sustainability of any business. Sadly, however, facing problems with cash flow is a common scenario for startups and small businesses specifically during the off-season or slow-selling months and when expenses upsurge unexpectedly. According to Charles Spinelli, opting for a business credit line seems to be an effective solution that helps manage such short-term financial gaps without having to bear the high interest rates of a traditional loan. Here is a guide to get the most out of its benefits without making it a burden for business.

What is a Business Credit Line?

A business credit line also acknowledged as a revolving credit line, is a form of financing that provides businesses easy access to a set amount of credit. In contrast to a term loan, by allowing businesses to borrow a lump sum and pay it back over time, a business credit line supports entrepreneurs to use it with flexibility as per their need, up to the allowed credit limit. Moreover, interest is to be paid only on the portion of credit withdrawn or utilized, thereby allowing businesses to manage cash flow consistently.

Go for Credit Line for Bridging Cash Flow Gaps

One of the greatest uses of credit lines by businesses is to bridge cash flow discrepancies. This means they can go for a line of credit when the payment from a customer is postponed or when it becomes essential for maintaining operating expenses due to an unanticipated increase in costs. It can offer swift access to a sum of money to pay salaries payvendors, or meet other costs of operations incurred without having to incur more long-term debt.

Leverage The Benefit of Flexible Repayment Terms

One of the key advantages of a business credit line is its repayment flexibility. Companies are allowed to pay only the minimum due, which would be the interest, while repaying some funds as convenient to them, enables them not to exceed their credit limit. This flexibility makes it easy for entrepreneurs to handle their finances without having the burden of maintaining fixed payment schedules says Charles Spinelli.

Moreover, companies are allowed to access the credit line even after having paid some portion of their outstanding balance, thereby making it a consistent funding source says Charles Spinelli. Such revolving credit functionality comes of immense help for companies that experience varying revenue or periodic swings in demand.

Monitor The Interest Rates

While business lines of credit usually cost less than credit cards, keeping an eye on interest rates is worth considering. Typically, interest accrues on the due balance may vary as per the lending agreement. Keeping a strong credit rating and repaying borrowed money on time is an ideal way to keep interest rates minimum.

Businesses should also watch out for any charges associated with the credit line, like yearly fees, or excess charges for availing funds over the credit limit. As they can be expensive down the line, these charges are likely to deplete the general gain of having the credit line.

Last but not least, the availability of a business credit line is unarguably useful to manage cash, but make sure to utilize the funds prudently. Bunching borrowing without having a clear schedule of repayment could lead to monetary issues. The best approach is to use it for the short term and always repay as per schedule.