Why Every Entrepreneur Needs a Revolving Line of Credit

by | Sep 24, 2020 | Small Business Funding | 0 comments

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Revolving Lines of Credit Can Help Your Small Business

Funding your small business can be difficult, especially when you may need access to money quickly. Flexibility and speed are why every entrepreneur needs a revolving line of credit. It can not only help your business through tough times, but it also assists you in being nimble and adaptive.

You never quite know when the next great opportunity is coming along for your small business. However, credit may not always be a guarantee for your company. At certain times, economic conditions may be uncertain enough that lenders do not want to extend loans.

When you own a small business, you need to maintain a certain level of flexibility when it comes to your funding. You would like to have credit available to you when you need it, but you do not want to be locked into regular payments.

A revolving line of credit is a great solution for small businesses that always want to be able to have access to capital. You will apply for approval at the outset of the loan, seeking a certain amount of total credit. When you file your application with the lender, they will be looking at several different things during the process of considering whether to approve your application.

What Is a Revolving Line of Credit?

By way of explanation, a revolving line of credit is a preapproved loan that does not necessarily obligate you to take the full amount of the line. Instead, you come to the lender as you need money. As you make payments on what you borrowed, your available line of credit is replenished.

There are actually several different types of revolving credit lines that can help your small business in its day-to-day operations. Many people do not realize that their business credit card is actually a revolving line of credit. You borrow against the credit card only when you need to and can draw up to the amount of your credit limit. However, given the high interest rates on credit card accounts, this may not be your preferred option to borrow.

Obtaining a Revolving Line of Credit

To obtain a revolving line of credit, you would apply to the lender specifically for this product as opposed to a fixed loan. Your application would need to include documentation about your business and make a case as to why you are creditworthy.

The lender will look at your annual revenue as a business. Many lenders have set minimums that are required before you can get a revolving line of credit. They will also scrutinize the amount of time that you have been in business as well as your business’s credit rating.

Getting Quick and Easy Access to Capital Helps Your Business Act Quickly

There are many different reasons why a revolving line of credit can be a wise option for your small business. Business environments can be unpredictable, and small businesspersons may be presented with opportunities that need to be acted on within days or they are lost. For example, they may be looking to purchase property at an auction, not knowing if they will be successful at getting the asset they want at the right price.

In this example, if the business is successful in acquiring the property, they will not have a great deal of time to come up with the money. Any type of immediate financing that they would get may come with a very high interest rate. The challenge would be to get the capital in a short time to make the necessary payment.

This is one way why it always helps to have some type of credit on standby. In this case, you have the credit waiting for you should you need it. All you would need to do is call the lender, knowing that you are already preapproved for the money. One call and some paperwork mean that you can quickly have the money that you need to take advantage of the business opportunity.

Lines of Credit Can Smooth Out Uneven Business Cycles

Besides being able to act quickly when business opportunities arise, revolving lines of credit help your small business when it needs to weather certain economic storms. In a rough business patch, you may find your revenues drying up due to factors such as seasonality. Businesses often have a hard time matching up expenses with revenues, and they find themselves needing short-term funding infusions to get by during the tough times.

Many businesses end up turning to products that come with onerous terms and high interest rates just to make it through until their money arrives. However, this means that they have to devote much of their future revenue to smoothing out their uneven business cycles in a way that costs them a lot of money. As a business owner, nothing would frustrate you more than having to scramble and pay up to make it until your financial situation improves.

When you have a revolving line of credit, you can draw on it when you need money to make payroll or pay suppliers. This means that you do not have to get desperate when it comes to matching your funding with your expenses. You take only what you need, and you can rest easy knowing that money is there for your business when it is needed.

You Can Reuse the Revolving Line of Credit Many Times

Another feature of a Small Business Funding revolving line of credit that can make it a great fit for your business is the fact that you can keep reusing the credit line. When you pay back previous money that you have borrowed, your available line of credit increases toward the maximum amount for which you are approved. So long as you have the line of credit, you do not need to reapply for a new loan.

Once you are approved for a small business line of credit, you do not need to go to the lender to get approval again. Instead, you can merely draw on the line of credit that the bank already agreed to advance you.

As long as the line of credit is still available, you always have money at the ready for when you need it. If you are current on your payments, there is no limit to the number of times that you can keep reusing your credit.

This Product Can Give Your Business Flexibility

Flexibility is another reason why every small business should consider a revolving line of credit. You have some freedom to tailor the product to meet your business’s needs. This flexibility includes many key terms of your loan.

For example, when you take out a revolving credit line, you can opt for a short-term or a long-term line of credit. Obviously, loans with shorter durations will carry higher interest rates. You can also decide the amount of credit so long as the lender approves you.

In addition, there are numerous different types of revolving lines of credit available from Small Business Funding. For instance, you can get secured or unsecured funding. When you secure your loan with a business asset or piece of equipment, you can get even more favorable terms. However, there is no requirement that you get a secured loan if your business credit is good enough.

Your Business Uses Only What It Needs

When you borrow against a revolving line of credit, you take only what you need. Many businesses receive loans but end up taking more than they require. This means that they are paying additional money in unnecessary interest.

You are not paying interest on the entire revolving line of credit. If you have taken only a fraction of what is available to you, this is the money on which you are paying interest. As a business owner, the flexibility is practically entirely yours as to whether you choose to take the money. Lump-sum financing can tie your hands.

While there are typically requirements as to how long you must be in business in order to qualify for a revolving line of credit, you may still not have built up a solid business credit history. A revolving line of credit is actually a perfect way to begin to establish the track record that you need to have even more access to capital in the future.

Paying off your credit shows prospective lenders that you are a worthwhile credit risk. This will give you the ability to access even more business opportunities in the future on favorable terms. You can do this by borrowing small amounts at a time against your line of credit.

To find out how a revolving line of credit can work for your small business, apply now with Small Business Funding.