When you own a business, you will often need working capital to grow, especially in the early stages. Most small businesses run into urgent unplanned expenses, late invoice payments, and other challenges requiring urgent cash flow. This can lead you to research various financing options, including business credit lines.
A business line of credit gives you access to a pool of funds that you can borrow when you need capital and payback later. It is also flexible, allowing you to borrow anything between $50,000 and $500,000.
This type of borrowing is almost similar to a credit card. The lender approves you for a certain amount of funding which you can draw from. After repaying what you have borrowed, you can keep drawing capital from your credit line. This type of financing is also referred to as revolving capital, as you are allowed to tap into it as many times as you can.
Business Credit Lien Vs. Credit Card
Although a business credit line and a credit card are considered to be revolving credit, there are a few differences to note between the two.
While credit cards need one to make monthly payments, business credit lines do not.
Credit cards come with higher interest rates compared to business credit lines.
A business credit line allows you to access physical cash.
Business Credit Line Vs. Traditional Loan
A business credit line often comes with a low-interest rate and other additional fees compared to a traditional loan of the same size. However, if you are late making payments or go beyond your credit limit, the interest rate can be pretty high. With term loans, the interest paid is constant throughout the whole repayment period. For a credit line, you pay interest on the amount withdrawn. Ideally, a business line of credit is better when you are dealing with repeated cash flow challenges. Therefore, every time you want to cover expenses, you have somewhere to draw cash from. Term loans are usually good for one-off business investment.
Capital keeps a business running, and at one point, you may have to borrow to keep the business afloat. If you think your company can benefit from a business credit line, contact us at Aspen Capital Solutions. We can help address the cash shortage in your company.