When you are looking for ways to fund your business, you may consider a line of credit. This can be a great way to secure the funds you need for your business. Here are some fast facts on lines of credit.
What Is a Line of Credit?
A line of credit is given to a business by a loaner, typically a bank or credit union. Unlike a traditional business loan, where you get a lump sum of funds, you are given a credit limit and can access it whenever needed. As you reach your credit limit, you can make payments to bring your balance down, freeing up room to use more of your credit line. It can be an excellent option for businesses that want an open-ended opportunity to gain access to money instead of a lump sum from a business loan.
How Do They Work?
There are several different steps to obtaining a line of credit. First of all, you must apply and receive approval from the lender, who will give you a credit limit. You will also find out how long you can access this credit line. While drawing from the line, you are obligated to make monthly payments.
You will also want to be aware of your interest rate, as this will significantly impact your monthly payments. Your credit limit will vary depending on how much of it you have used and what you have paid back.
What Are the Benefits of Lines of Credit?
There are several ways in which a line of credit can benefit you. First of all, you are not given one lump sum, so the money does not just disappear. You can continue drawing from it until the time is up. You have control over the amount, as you can pay off more to be able to draw from your limit a bit more. This offers you a lot of flexibility in how you use your funds and is better for a long-term option than a loan would be.
In addition, you can use it as an emergency fund and only draw from it when necessary. This means your payments are very low, making it easy to keep up and giving you an option in an emergency.
As you can see, lines of credit can be a great way to obtain the funds needed for your business. Keep this in mind when considering options for business funding.