3 Benefits of a Business Credit Line for Cash Management
Business lines of credit have many uses, but they are especially effective as cash flow management tools. Their unique features and wide availability make them useful for almost any kind of business, and since they are reusable, applying for one credit line can save you dozens of short-term loan or cash advance applications in the future, making access to capital nearly instantaneous when you need it.
1. Grace Periods That Reduce Interest Costs
It’s not a universal feature of all credit lines, but many of them offer grace periods of two weeks to thirty days before assessing interest on new withdrawals. That means if you take an advance and pay it off before the end of your grace period, the financing cost is zero. Sometimes these lines have small annual fees to offset this benefit, but often it is simply a perk that is balanced by the interest paid when customers carry a debt for months.
2. Cover Emergencies Immediately
You can’t always predict when a sudden expense will threaten to upset your cash flow, and it’s not always a good idea to use your reserve cash to cover those expenses because it can take months or years to rebuild those funds, leaving you under protected against market contractions. Credit lines let you expand your available capital to handle the costs of building repairs or parking lot maintenance without making other bills late and without waiting for a loan approval that could take days or weeks.
3. Credit Line Limits Grow With Your Business
When you use a secured credit line that is attached to a business asset, the two limitations on your line’s maximum balance are your income and your collateral’s value. Many small businesses could get higher limits out of the same collateral with a higher income, so asking your lender to re-evaluate your limits as you grow can get you more resources without opening additional credit lines. Even when you maximize the LTV on one property, many service providers can include multiple assets as collateral or provide lines attached to each asset you wish to use, providing you with greater and greater financial reach.
Finding the Right Credit Line for Your Business
Not all companies need secured lines of credit to operate effectively. Those are often wonderful for operational budgeting that requires a large cash reserve that could cover the entire budget period. For situations where you only need cash for a couple days or weeks, an unsecured line with a lower limit might be the best combination of costs for capital and risk exposure to your company. Check out your choices today.