How Does a Business Line of Credit Work?
When you receive a business line of credit, you are provided with a credit limit that can’t exceed.
With a business line of credit, you’ll receive cash to cover business expenses. This makes a business line of credit different from a credit card because the borrower gets cash to cover costs that couldn’t otherwise be purchased with a credit card.
Revolving line of credit:
Nonrevolving line of credit:
Secured line of credit:
Unsecured line of credit:
Pros and Cons of a Business Line of Credit:
- PRO: Helps with cash flow – Many business owners utilize a business line of credit to successfully balance their cash flow. By having a line of credit, you can have excess cash available for whatever your business needs.
- CON: Can be challenging to qualify for – If you are a new business or have a less than stellar credit score, it could be difficult to qualify for this type of financing. If this is the case, you might want to try and raise your credit score prior to applying for a business line of credit.
- PRO: Build your business’s credit – Having a line of credit can enable you to build your business credit history, which will benefit you in future financing pursuits.
- CON: Potential of overspending – Some business owners find it too tempting to have a business line of credit, especially if they are prone to overspending. If you know you’ll be tempted to overuse your line of credit, it might not be the right product for you.