Business Lines of Credit
New businesses can be very expensive. The cost of doing business is high as is the rent or price for your actual place of business. You might have secured financing to cover the large costs of start-up, but when those funds are allocated, you might have trouble finding another means of payment for smaller items such as office supplies and professional travel.
One means of payment is to pay cash from earnings. But many businesses don’t have substantial earnings for the first few years. And any earnings that do occur can be sporadic and unpredictable. Owners can use their own funds to pay for small items or emergencies, but this can create problems with book keeping and personal cash flow.
The best option for many new businesses is to set up a business line of credit.
The Business Line of Credit
Unlike a business credit card, a business line of credit has more favorable financing terms. To use a line of credit, you request a set amount be transferred to your bank account. That amount sets up a standard monthly payment that pays off the balance over the specified amount of time.
Credit cards have revolving payment terms and might never be paid off completely thanks to low minimum monthly payments and changing terms. Business credit cards are terrific for partners and employees to keep on hand for lunches or quick purchases, but a new copy machine should be paid for with a line of credit or cash.
Of course a business line of credit is still a form of debt, but it is a more attractive option than most business credit cards. The line of credit will keep your bookkeeping simple and the set monthly payment makes it easy to monitor your expenses and be sure that your money is doing what it is supposed to.
And like almost any loan, as the company begins to show improvement, you are free to make larger payments to help buy down the balance of the loan over time.
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