Should You Consider a Business Line of Credit?

If your business is in need of funds, there are many places you can turn. Some companies are lucky enough to have enough money in the bank to cover all their needs. Others rely on a business loan, credit card, or outside funding.

You should also learn more about a business line of credit. It’s not the right choice for every business, but it’s an option to strongly consider. 

The best way to decide for or against a business line of credit is to compare the pros and cons. 

Generally speaking, there are five primary benefits of a business line of credit:

  • Only pay interest on the money you borrow: Your lender will approve you to borrow a specified amount of money, but that doesn’t mean you have to access it all at the same time. You only pay interest on funds drawn, which allows you to save money. 
  • Money when you need it: With a business line of credit, you always have access to cash in a hurry. And just the same as a credit card, as you pay back the money it becomes available to you again. 
  • Use it for a variety of reasons: Maybe you need a business line of credit to purchase equipment. Or maybe you’re using the funds to pay for office furniture. Perhaps you want to expand your marketing strategy. You can use your business line of credit for almost every reason imaginable. 
  • You don’t need excellent credit: With many business loan products, you need good or excellent credit to qualify. This doesn’t typically hold true with a business line of credit, as many lenders approve borrowers with bad or fair credit. 
  • Build your credit history: If you’re seeking a way to build your credit history and score, a business line of credit can put you on the right path. As long as you use the money responsibly, it’ll have a positive impact on all aspects of your credit.

Even though these five benefits are sure to excite you, don’t apply just yet. There are some potential drawbacks to consider:

  • May require collateral: Depending on your company’s financial situation and the lender you’re borrowing from, collateral may be required.
  • Higher interest rate for those with bad/fair credit: If your credit score is less than desirable, you can expect your lender to reduce its risk with a higher interest rate.
  • High volume of documentation: In addition to what’s required when applying for a business line of credit, many lenders ask for updated documents every time you withdrawal money.

Final Thoughts

Only you know if a business line of credit is the right choice. As you compare the pros and cons, you’ll begin to formulate an opinion. This should lead you toward making an informed decision that will work in favor of your company.

Do you have any experience with a business line of credit? Were you happy with your decision, or do you wish you would have used another type of financial product?