A business line of credit is a revolving source of financing. It allows you to draw funds for business purposes and repay them in regular installments.
A line of credit can be an important source of financing for a new or growing company. It can also be used as a backup source of funds if your cash flow isn’t sufficient to meet all your business expenses.
Fund working capital – For example, you might use it to pay for inventory or other supplies you need to run your business.
Solve cash flow problems – If you’re not making enough money yet, but have bills that must be paid right away, one way to handle this problem is by taking out a loan and paying back part of the loan each month until your revenues increase enough so that you don’t have to borrow money anymore.
Cover unexpected expenses – If something that requires immediate attention — such as an equipment breakdown or natural disaster — it can help access additional funds so you won’t have trouble meeting your obligations while waiting for reimbursement from insurance companies or other sources of compensation.
Overdraft protection – Unlike a personal line of credit, a business line of credit can help you avoid overdraft fees if your account balance falls below zero. However, this feature can only be used if there’s enough cash available in your account to cover overdrafts and interest charges. If there isn’t enough cash in your account, the lender will charge an overdraft fee.
Ease of use – The borrower can take out a portion or all of their available funds whenever they want — without waiting for approval from the bank, as with other loans. This flexibility can be especially helpful when unexpected expenses arise or sales are slow during certain times of the year.
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