A business line of credit is an immensely versatile financial instrument, which helps businesses to enjoy the flexibility and stability they need for growth and success. In the opinion of Charles Spinelli, a line of credit offers access to funds when needed. It can be used to bridge cash flow gaps, cover unexpected expenses or seize growth opportunities.
Charles Spinelli highlights a few advantageous aspects of a business line of credit
A business line of credit is a popular, flexible financial product. It allows businesses to borrow funds as necessary, up to a set limit. Business owners have to pay interest on the amount of money they actually borrow, and lenders set a limit on how much they can use at once. The credit line renews when the borrowed funds are repaid along with interest.
There are many advantages associated with a business line of credit, including:
- Flexibility of Usage: Closed-end loans, or loans that must be repaid in full by the end of the specified term, are usually used to fund something specific, like a property or a piece of equipment. On the other hand, funds from a business line of credit can be used for a wide variety of purposes, ranging from buying inventory to covering payroll. This makes it easier for businesses to decide what to spend cash on for their company.
- Access to cash on demand: As opposed to traditional loans, a revolving business line of credit allows business owners to source funding before their company actually needs it. Owing to the challenging and ever-evolving nature of the business landscape, many entrepreneurs have to borrow funds to take care of the short-term needs of the company. By being able to access funds on the credit line at any time, one can keep their business running in a smoother manner, day in and day out.
- Flexible payment terms: Traditional term loans require set monthly payments, which can potentially present a huge challenge to the growth and expansion of a start-up business. A revolving credit line, on the other hand, provides flexible repayment terms. Unlike a term loan, in case a business has a slow month, it can pay the minimum amount due.
- Personal and business separation: Keeping personal and business expenses completely separate is among the biggest challenges faced by business owners. One of the major advantages of a revolving business credit line is that it allows business owners to efficiently streamline and track business expenses, as this credit line is dedicated solely to business.
- Builds business credit: Modern businesses have to establish ratings with the major business credit reporting agencies. Availing a business line of credit enables businesses to build a positive payment history that appears on the credit report of the company. Having a good credit history makes it easier for business owners to get loans at better interest rates and terms down the line.
As per Charles Spinelli, strategic planning and disciplined financial management are essential for using a business line of credit in an efficient manner. Availing a business line of credit can be particularly a good idea for businesses with a longer sales cycle.