When To Use Business Lines of Credit
Credit lines are among the most flexible financial instruments out there for a lot of reasons. Both individuals and businesses have used them to streamline financial management and ease the bumps between paydays, but they are hardly the only option. So when are lines of credit the best way to handle your cyclical financing needs?
Credit lines are useful for any expense because they allow you to draw cash directly to a business checking or savings account. That allows them to be used in situations where a credit card can’t do the job, like when your payday is coming due and you haven’t seen payment on your most recent invoices. Just tap into your credit line to put the money you need in your account, then pay it back out of the late invoices when they arrive.
When You Need To Avoid Extra Fees
There’s no need to apply every time you use a credit line, which is another reason lines of credit are so popular with small business owners. Another reason is because most of them come with a short grace period before interest is assessed. The length of time you have to draw cash and repay without interest is different for each credit line, but even a few days can make a big difference. Even if you do have a month or two of interest to pay, compare that to the cost of an entire asset financing deal.
To Organize Your Expenses
Cash flow management is about more than just having funds when you need them, it’s also about having a plan for your cash that segregates working capital you can spend on expansion from expenses and the cash that covers them, while keeping both apart from your emergency reserves. One great way to do that is to simply absorb all outgoing expenses with your credit line, paying one payment out from your income every month so it’s easy to assess the remaining money and separate it into working and reserve capital.
When You’ve Got To Improvise
Unexpected cash crunches come up and there’s no real way to predict them all, which is why lines of credit exist. If you’re not sure what you would do in the event that you have to choose between allowing a payment date to lapse and tapping directly into emergency money to avoid a late fee, you can avoid the choice by keeping a line of credit open and a backup financing plan in the wings. That way, you can go deeper than the credit line if the need arises.