Finding the right financial tools to help manage your company’s capital needs can be tricky. Most businesses opt for a few different tactical tools, and many of them reflect the industry’s business model and specific needs. There are a few that are almost universal, however. Business lines of credit are among the most popular because they are versatile and useful for almost any business model, and there are a lot of reasons to prefer them.
1. Cash on Demand for Any Need
Credit lines are self-managed and revolving financial instruments. That means if you pay off a balance, you can draw on the account again when you need cash. You can usually withdraw any available balance, provided your account is in good standing. That means you do not need to wait for approval every time you need a cash advance.
It also means you can take smaller advance amounts in an emergency even if the account is not fully paid off. This is useful in just about any industry, because every business has unforeseen cash needs from time to time.
2. Zero Interest on Short-Term Withdrawals
Most credit lines come with the provision that interest will not be assessed on any withdrawals for a period of time. That gives you the opportunity to take a small amount to cover an expense, then pay it off after receiving your own incoming cash, all before there is ever an interest charge.
It is a strategy that has to be carefully managed, though, because most lines also put payment toward the oldest debt on the account. That means avoiding a financing charge only works when there is no outstanding balance. It’s still very useful when you are using lines of credit to manage tools like petty cash accounts.
3. Credit Lines Are Accessible To Small Businesses
There are a lot of financial tools that require a long history of profitable operation or a considerable down payment, but credit lines are generally more accessible than that. You can choose between secured and unsecured lines of credit when you apply, and secured lines use a titled asset for collateral, which allows for a larger maximum balance with lower interest rates.
That means a small business with its own building and equity available can typically get started with a credit line and use it to build the credit and profit history that will be needed for other loans and credit products down the road. That’s useful no matter what your business does.