For many small business owners, business is tighter than usual right now. The coronavirus has left many businesses without their normal influx of customers, which threatens cash flow.
At times like these, wouldn’t it be nice if you had a stash of cash to fall back on? Some lucky business owners do—those who have a business line of credit. But too many small business owners are so determined to avoid debt, they don’t even consider applying for a line of credit.
That kind of thinking can actually hurt your business, because when you need some extra money, it’s not there, or it will take too much time to get funds.
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So, what exactly is a line of credit? It’s a revolving line of credit, much like a credit card. You can borrow (draw) money up to your limit. When you repay the funds, you replenish the line, making it available for you to draw upon again.
Let’s say you have a business credit line of $25,000 and draw $25,000. You can’t borrow any more money, until you pay some back. If you repay $5,000, you can borrow that amount again. And you don’t have to reapply to credit.
If you repay the whole amount, you can draw upon that. And if you don’t have an immediate need, most lines of credit can just sit there, waiting to be tapped. If you don’t borrow from it, there are no charges or fees.
I’m not telling you to go borrow money you don’t need. But given that we don’t know how long the economy is going to be impacted by COVID-19, now may be the perfect time to get a line of credit.
Before you apply for a business line of credit, here are some things you should know.