A revolving line of credit can be a flexible financing solution for any small business. This article goes over the basics of what lines of credit are and what they can be used for.

The Basics

Lines of credit are pools of funding from which a business can draw money as needed. For instance, if a business has a line of credit of $10,000, the business can withdraw up to $10,000 at one time. If the business withdraws a smaller amount, part of the line of credit will remain available, so if the business withdraws only half of its limit, it would still have $5,000 in reserve. As the business pays that amount back, the available funds will increase once more.

Compared to credit cards, lines of credit typically have lower interest rates. They can also be more cost-effective than loans because the business will only pay interest on the amount it withdraws rather than on the maximum available amount.

According to Forbes.com, lines of credit can vary when it comes to fees, interest rates, and repayment schedules. If you’re interested in obtaining one, it will be worth your while to see what different lenders have to offer.

Uses of Lines of Credit

Lines of credit are useful to businesses in several ways. For instance, they can be used to cover an income shortfall if a customer is late in paying off an invoice or an unforeseen expense arises. A line of credit is also a viable funding option for business expansion. Additionally, a line of credit can give your business a leg up in certain purchasing situations; for instance, withdrawing funds from a line of credit might let your business take advantage of a discount offered for speedy, up-front payment.

If you want to keep learning about financing topics, be sure to check out Capital Connex’s other blog posts.