Things happen: hiccups in cash flow, unforeseen opportunities or new product ideas, and being able to respond to challenges is what keeps small businesses running. Business lines of credit allow businesses access to cash without having to go into debt and they can be very helpful tools to managing cash flow if you use them correctly. 

Here’s a quick guide on business lines of credit and how they can improve your business’s cash flow.

What are LOCs?

Business lines of credit (or L-O-Cs) are similar to credit cards, in that they involving revolving credit and balances; however, unlike credit cards they are not classified as debt. Unlike loans, there isn’t a lump sum disbursement of funds and there also is not an established term for repayment.

Lenders check your business, and possibly personal, credit history and reports and set a limit. The money is available for withdrawal as needed, when needed without incurring withdrawals fees or expenses. The money can then be used for whatever is needed (e.g., operational costs, investing, payroll, etc) and then repaid. The money repaid is then added back to the account for use, minus any fees.

What Are The Benefits?

Lines of credits are good for your business credit. If you haven’t already established business credit, this is the best opportunity to do so. Financial institutions (e.g., banks and credit unions) who extend lines of credit to businesses typically report payment information to at least one of the three business credit bureaus.

Line of credits also allow you to retain your own capital while growing your business. They are unsecured (up to $100,000) which means your assets are protected. You don’t have to put up collateral to apply and you don’t have to take on debt. You also receive access to cash without giving up equity within your company.

Who Are They For?

Business lines of credit are for businesses who are looking to grow, seize opportunities and build credit all while not going into debt. While lenders do examine your credit, financial records and bank statements, lines of credit have lower interest fees than credit cards (especially on cash advances) and provide the opportunity for small businesses to scale intentionally. Limits are generally always increasable and you don’t have to use money that you don’t need.

Contact KPI today to get an unsecured line of credit for your business.