Money makes the world go round. This is especially true when one conducts business transactions, even if he or she does not have the funds alone to maintain multiple branches and initially planned out and funded them all. Sometimes, cash flow problems arise due to unforeseen and unavoidable setbacks in business operations. What are the things that we can do to make sure that these setbacks do not become a problem for the business?
One thing that every business owner will need is a line of credit. Through cash in business, we can obtain extra cash that we can use during an emergency or for the smooth running of business operations. A line of credit performing this role is a necessity for most businesses to maintain and grow their operations.
What are the main types of business lines of credit? How do they differ from normal business lines of credit? Read on to find out.
Commercial/Business Line of Credit
Commercial/Business lines of credit are designed with a single type of business in mind, which is usually that of a business that involves a high volume of purchases or sales and several customers. This type of business line of credit differs from a traditional business line of credit in that it is difficult to get an approval for and does not have a fixed term. Such a line of credit usually functions only during a few days or a week, depending on how much the full credit is extended for.
Revolving Line of Credit
What is a revolving line of credit? A revolving line of credit allows you to draw credit as and when you might need to. The amount that you draw draw from is pre-approved. As long as the pre-approved amount is less than your available credit line, you are free to use the available credit. The best advantage of this is that since you borrow only what is available to you, you will eventually have no outstanding balance even if you make many purchases. On the downside, you will eventually accrue interest if you use a revolving line of credit in excess of your available credit limit.
1) When you use your business credit card in the correct manner, you build your business credit rating. Since your business is responsible for paying back the debt, you are also helping your business grow because you are responsible for payments in a timely manner.
2) A business credit card helps business owners obtain cash to maintain storage and business equipment. Note that you require a copy of the accounts receivables report to determine the average age of those accounts and how much credit is being extended to that business.
3) With a business credit card, you can check on its performance anytime from anywhere in the world. You will be able to monitor changes on your credit card in real- time. Your business credit score can also improve or deteriorate quickly as you monitor it through the reports online.
1) Higher fees are attached with non-revolving lines of credit. Business owners with constant revolving credit (revolving lines of credit) may have a monthly fee and higher annual fees in addition to the interest rate.
2) Credit cards are a great source of profit for credit card companies. In fact, they make up approximately 15% of overall profits. This is why many card companies try to persuade their clients to use them often to allow them to rake in higher profits. It is a wise business move to keep yourself rational and realistic with regards to business credit cards. You will find that in the long run, without a doubt, those expenses are more than worth it if used shrewdly and with a wise business sense.
3) Interest rates are usually higher than that of a business line of credit that is not that long of a course. If the line of credit lasts for a few years, it is usually still lower because of the lower interest rate.
4) It can be difficult to apply for a business line of credit. In this case, you’re better off applying for a revolving line of credit. After the credit line is approved, the company will increase your credit limit and you have the opportunity to either add more or decrease your spending limit based on your business status.
Having useful academic information that helps business owners and managers make more sound business decisions will pay off in dividends. With wise use of business credit and good business practices, business ownership can be achieved.