SMALL BUSINESS CREDIT LINE

If you own a small business, you’re probably familiar with the challenge of not having as much cash at your disposal as you’d like. At certain times, you may encounter cash shortages if some of your clients aren’t paying you promptly. Some businesses experience seasonal shifts where money flows in more freely at certain times of the year than others. For these and similar circumstances, having a small business line of credit is very useful to unlock funding for growth and expenses.

Typically a line of credit is granted to a business that has enough history to demonstrate its ability to generate cash flow.  The credit line is used to fill in the gaps caused by seasonal issues, unplanned growth, or other causes of cash shortages.  The lender usually takes a first security interest in all assets of the company, and often on the assets of the owner as well.

In simple terms, the lender establishes a pool of funds that’s available for the business to use as long as its financial situation remains strong.  Principal and interest are repaid according to the lender’s terms.

For many businesses, getting a line of credit isn’t so simple. If your business is new or your own personal credit is less than pristine, you may find that it’s hard or impossible to get the credit you need. One alternative you may not have considered is invoice factoring. This is a way to unlock working capital and improve cash flow without obtaining a traditional loan.