June 4, 2020
If you have a business that is thriving but experiencingbumps in the road due to cash flow issues, it’s probably a good idea toconsider a credit line as an addition to your financial toolkit. They areseldom the only kind of financing a company needs, but they are alsoinvaluable, and most companies rely on them as cash management tools even whenthey don’t strictly require them. That’s because business lines of credit comewith features like interest grace periods, revolving balances, and flexiblepayment structures to help you get the most out of them. They can help extendyour ability to pay when you are waiting on invoices, but they can do a lotmore than that if you know how to use them.
On top of the extension to your cash flow when you awaitpayment, credit lines can also provide you with the means to keep doingbusiness as usual during seasonally slow periods. It’s not uncommon forcompanies to have periods where they operate at a loss predictably, thenperiods where most of their profit is made. The right reusable credit tools canhelp ensure you have the reach to restock your inventory before things get busyagain. They can also help you add in seasonal staff without tapping into yourreserve cash by allowing you to access funds for the first couple weeks untilyour sales boost you back into the black. Most importantly, though, they canhelp you pay your regular suppliers and vendors for the brief periods whereyour cash flow goes dry during the calendar year. Most companies have them,it’s just a question of when they happen on the calendar.
Lines of credit are open to a wider range of companies than most traditional business loans, and they typically don’t require long applications or financial disclosures. They do usually require some proof of income and current assets, as well as a credit check. Credit lines are approved based on a combination of your company’s credit score and its annual income, so if your score does not exist yet, you may need to find an entry-level industry participant. The other option is to establish credit by requesting your vendors and utility companies report to the credit bureau when you pay. This can build the payment trail that allows you to get business credit established if you can’t access a provider who works with brand new companies. It’s also a good way to raise your score if it has recently dipped.
