Last Updated on Apr 8, 2020 by James W
Every business needs money from time to time, whether it is to keep operations going in a lean time or to expand and capitalize on an opportunity. Business credit lines are one way for a company to get access to short-term capital to meet its needs. If you are looking to use a business credit line, consider the following to ensure that your company does so to the best effect.
Borrow Only What You Need and Can Afford
When you have an opportunity to borrow money for your business, it is tempting to take out as much money as possible and have a large pool of cash on hand. That can end up biting you when it comes time to pay back, however. Remember, you will be charged interest based on how much money you have taken out, whether you have spent it or not. If you get a business line of credit, don’t consider the maximum borrow amount as the amount you should take out; instead, take what you need and leave the rest on the line in case of future problems.
Find a Reliable Lender
If you have decided to use a business loan, the first step is to find a reliable lender. Different vendors offer different rates and terms, and what works well for one business may not work out for yours. You can start by sorting though reputable online loan companies like Kabbage, and looking at the terms that they can offer your firm based on your existing credit history. By checking in with the best vendors on the internet, you can cast a wide net and be sure you are going with the best of the best.
Don’t Spend, Invest
Money borrowed to help your business should be funneled into channels where it will produce enough of a return on investment to justify the interest payment. While you may need to borrow money to cover maintenance tasks and other upkeep, it’s preferable to borrow to expand your profit-making potential by, for instance, increasing your inventory or adding a new line. Investing in your business’ profit potential helps to ensure that you have cash coming in to make payments on the loan; ideally, you’ll be able to pay off the loan in advance of the minimum payment schedule.
Have a Playback Plan
Of course, you shouldn’t be taking the money out in the first place unless you have a firm plan to pay it back. Though you obviously won’t have the cash on hand to pay off the loan right away, you should think about your business’ cash flow and how much money you have available to make payments. Be brutally honest when appraising this; you don’t want to get stuck with a monthly loan payment that drains away your profits and maximizes your interest charge.
Used properly, a business loan is a great tool to secure or expand your business. If you plan out your company’s financial future with an eye to keeping those loans under control, there is no reason that a credit line cannot be a part of a successful strategy.
Image via Flickr by 401 (K) 2013
