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A business line of credit implies to a fairly flexible financing option that enables discerning businesses to access funds up to a predetermined credit limit. In the opinion of Charles Spinelli, a business line of credit is similar to a credit card, but ideally with lower interest rates and higher credit limit. Businesses may draw funds from the line of credit as required, and simply pay interest on the sum of money withdrawn. The credit line gets replenished as the borrowed funds are effectively repaid, and the business may continue to access funds as necessary.
Charles Spinelli talks about the use of business line of credit for small businesses
Cash flow is one of the most important factors that enables a small business to survive and thrive. It is crucial for a small business to have adequate working capital for a wide variety of reasons, starting from dealing with day-to-day expenses and investing in new infrastructure to purchasing equipment. However, issues like incurring major unexpected expenses and receiving payments from customers can put a strain on the cash flow of a business. Without enough cash flow, a small business is likely to struggle to pay its vendors, supplies and employees. Moreover, negative cash flow is quite likely to hamper the credit rating of a company, erode its competitive advantage, and make the business insolvent over time. These are the instances where a small business line of credit comes into play.
A business line of credit is among the most popular funding options among varied business owners of today when it comes to accessing money to address distinctive cash-flow issues. This funding option comes as a huge help in situations where one would require quick access to extra capital. A business line of credit helps empower a company to borrow a particular sum of money from a lender, with the intention to repay it later. While business owners would have to make fixed and minimum monthly payments in term loans and credit cards respectively, they get the benefit of paying back credit line any point in time. It does not come with early repayment fees. Business lines of credit are a good example of “revolving credit”.
As per Charles Spinelli, as opposed to traditional business loan, business line of credit provides business owners with the to borrow a predetermined amount of funds. They simply have to repay the sum of money they withdraw, and pay interest on the amount of credit they have used to make the funds available again. A business line of credit is a highly sought-after funding option, especially for business expansion, inventory purchases, or dealing with negative cash flow situations. Such loans are generally unsecured. This basically means that one will not have to put any collateral such as real estate or inventory. There, however, are certain business lines of credit that may require collateral, owing to the larger amount of cash being lent.
Both traditional banks and alternative lenders offer lines of credit to businesses with strong revenue and a solid business credit profile. Lenders are generally open to providing short-term lines of credit to newer or less established businesses, while mid-term lines of credit are typically reserved for businesses with a good financial history and strong creditworthiness.
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