Maximizing A Small Business Line Of Credit - New Entrepreneurs

A small business line of credit is an excellent source of funding for many small businesses and new entrepreneurs because it can help you finance the expenses required to get a business off the ground. A business line of credit is very common in the small-business world and is offered by many banks that cater to small businesses.

Business Line of Credit Basics

A business line of credit allows your business to access funds at any time. Well-established businesses are not typically required to provide collateral. However, new businesses are required to provide some sort of collateral to secure the loan.

Business Line of Credit Approval Considerations

A business line of credit is an excellent trade line and will help you establish business credit rather quickly. You may need to consider guaranteeing the business line of credit personally. With a personal guarantee, you are using your personal credit standing in lieu of a nonexistent business credit rating. The bank will check your personal credit and base their decision on your personal credit rating and score.

Ways to Effectively Use a Line of Credit

Once you are approved for a business line of credit, you can use the funds from the line for almost any purpose. However, before withdrawing funds from your line of credit, you should carefully consider if the purchase will help your business become self-sufficient, faster, or if the investment will help your business earn more money in a relatively short period of time.

One of the most common purchases is for business inventory. Using a line of credit to purchase inventory can help you make sure that you have adequate stock levels to satisfy your customers needs and give you enough funding to effectively negotiate discounts for larger stock purchases.

Effectively Managing Line of Credit Payments

Before you apply for a line of credit, you may want to inquire with the bank as to how the payments will be structured, once you withdraw funds from the line of credit. There are business lines of credit that only require that you make monthly interest payments on the amount that you withdraw.

Since you are relatively new business, making the smaller payments can definitely help you keep your monthly cost to a minimum and help you build sufficient cash reserves for your business.

Furthermore, you should ensure that the line of credit does not have a prepayment penalty and that it allows you to pay off the principal balance at any time.

A business line of credit is an excellent funding source for almost any new small businesses but you must always remember to use your line of credit wisely. Only use your line of credit for purchases or expenses that can help your business in the short term, and can help your business increase sales revenue. Pay the line off as quickly as possible to save on interest costs.

Never rely on a business line of credit as your sole funding source. Remember, while it takes a while for small business to grow - you need to make sure that your business starts generating revenue as soon as possible.