Most small business owners need ongoing access to credit to help them grow the company and seize opportunities as they arise. If you find yourself in that position, you may not be aware that options exist beyond obtaining a bank loan or a business credit card. Revolving credit might just be the ideal option among the many typical ways to borrow money for small business financing.
Understanding Revolving Credit
When you receive approval for a revolving credit account, you may immediately borrow up to the credit line. One of the benefits is that you only pay interest on the actual amount you borrow. As you pay down the balance, it frees up more available credit that you can spend on your business any way you see fit. You can even initiate a transfer against your credit line for immediate access to cash. Unlike a business bank loan with a set payment each month, the minimum amount due on your revolving credit account depends on how much you borrow.
While some lenders approve revolving credit accounts without requiring you to pledge collateral, others will ask you to offer a piece of valuable equipment the lender can sell to recoup its losses if you fall behind on the payments. It’s important to ask questions of potential lenders upfront to ensure that you know what you’re agreeing to and that the lender’s offer is the best one for your business.
Perhaps one of the most attractive benefits of revolving credit for small business owners is that they can access the credit line over and over as needed. This differs considerably from a bank loan. Once you have borrowed a certain amount and used the proceeds to help fund your business, you need to apply for a new loan if another need arises or you just need continued access to working capital.
Avoid Relying on Revolving Credit for All Business Expenses
While it can take several months to a few years for your small business to become profitable, you should eventually have enough revenue coming in that you only need to use credit for very specific purposes. For example, you may require prompt access to cash if your company’s physical location experiences an emergency such as fire, flooding, storm damage, vandalism, or theft.
Even if you have a business savings account for such events, you may not want to use most or all of it to deal with the emergency. The need for working capital and funding large equipment purchases are additional reasons you may wish to consider this popular type of business financing. We recommend the following tips to make the most out of your business revolving credit:
- Manage your cash flow well
- Borrow only the minimum amount you need
- Make your monthly payments on time
- Avoid applying for multiple accounts at the same time as it could negatively impact your credit score
- Plan future expenses the best you can
Schedule a Consultation to Discuss Your Business Financing Options Further
Even if revolving credit turns out not to be right for your business, it can be helpful to receive feedback from a professional to help you make the best choice. We invite you to contact Nolan Accounting today to request a time to discuss your business finances in greater detail.