What’s your solution for handling short-term cash flow issues?
Do you have access to cash if you need last-minute financing?
An unsecured business credit line is one of the most popular tools to finance ongoing working capital. Business owners simply want and need access to cash on demand. By having money available whenever the business needs it, makes it ideal for handling any short-term cash flow issues.
Unsecured means the business doesn’t need to have collateral such as commercial property to secure the line. So there is no worry about losing the property in cases when the business can’t pay the line.
While there are many types of financing a business can utilize, the business credit line provides the greatest amount of cash accessibility and payment flexibility compared to the rest. In order to take advantage of this type of financing, it’s best to apply when you don’t need it.
Keep in mind, aside from the interest rate that the company will pay when it uses the line, some additional fees will be required depending on the type of credit line the business obtains. Not all business credit lines are the same and not all banks grant business credit lines unless a company has been in business for a minimum of 2 years.
The benefits of obtaining a business credit line are as follows:
1) Cash Availability – the advantage of having an unsecured business credit line is that its revolving credit; you basically have access to cash whenever your business needs it. Imagine if you had to apply for a loan every time your company needed funding. With a revolving business credit line you can use as much or as little credit from your line as you want to.
2) Payment Flexibility – with a business credit line you have flexible payment options as opposed to a fixed monthly payment. When you make business purchases using your line you have several options every month. You can either pay the full amount due, or pay at least a minimum percentage of the balance, or pay more than the minimum due.
3) Business Credit Reporting – by obtaining a line of credit the business will also benefit from its payment activity being reported to a business credit reporting agency. This enables the business itself to establish its own unique creditworthiness that is completely separate from the business owners.
It’s important to note that there are different types of business credit lines a company can obtain. The traditional line of credit issued by a bank requires a substantial amount of documentation to qualify and imposes a yearly financial review. While this line of credit is popular for businesses it tends to be the most difficult to obtain and maintain.
However, an un-traditional line of credit, the business credit card, is the best unsecured business line of credit a company can obtain. I say this because it provides all the benefits a traditional line of credit has but without all the headaches. It’s much easier to qualify and does not require annual reviews or excessive documentation.
While an unsecured business credit line provides convenience and flexibility for a company, there are some disadvantages to pay attention to. The greatest disadvantage is the ability for the business to accumulate debt. Without fixed payments, many business owners tend to pay the minimum monthly payments on their outstanding balances. This compound interest adds up, especially with sizable balances.
As long as a business owner manages a business credit line responsibly, it can certainly be an invaluable financial tool to provide a business with cash when it needs it most.