How To Maximize An Unsecured Line Of Credit

An unsecured line of credit can be an excellent funding option once your business is well established and starting to grow. It can help provide you with additional growth capital or with the funds to keep your business moving during slow –moving cash flow situations. While most banks generally require collateral, or a personal guarantee, well-established businesses can often secure a line of credit without up-front capital.

Improved Cash Flow Management

Use your unsecured business line to help even out your cash flow when fluctuations in revenue are predictable or seasonal. For instance, using a business line of credit to purchase inventory that you may not sale for several months is a great option to help you take advantage of special promotions and opportunities.

Take Advantage of Lower Interest Rates

If you typically use a business credit card to make many short-term purchases for your business, you may want to consider using a business line of credit instead. A business line of credit almost always has a lower interest rate than a credit card and usually offers more flexible payment options such as paying interest-only or being able to pay the entire principal amount without a penalty.

Too Large for a Credit Card - Not Big Enough for a Loan

When running a small business, there may be times that you need to buy supplies and inventory that may be too expensive to put on a credit card - either the total amount of the purchase exceeds your credit limit or the interest rate is simply too high. However, the purchase amount may not be enough to warrant taking out a conventional term loan simply to meet the cost of the purchase.

When this is the case, a business credit line is a great alternative. However, you should never finance real property or major equipment with a business line of credit. Furthermore, do not use a line of credit to pay employees. If you need to make these kinds of purchases, a conventional term loan with a longer repayment period a lower interest rate is probably a better option.

Use Your Line of Credit for Emergency Funds

A business line of credit is a great source for emergency funds. For example, if your business runs into slow sales period, you may need additional funding to help you get through it – a line of credit can help you.

However, always remember that a business line of credit is not a solution for an extended cash crunch or periods of slow revenue income. Long-term shortages require a long-term strategy.

Take Advantage of Convenient Payment Methods

Unlike conventional term loans or even some credit cards, a business line of credit allows you to pay the interest only in some cases. If you are using the business line of credit to make purchases or do renovations where the return may not be seen for a while, a business line of credit paying the interest only on the can help sustain sufficient cash reserves.