A business line of credit can help you manage cash flow as you grow. Consider these tips to decide if it’s the right choice for your small business.
Owning and operating a business can be like tending a garden. In some seasons, the rain falls constantly and the garden blooms. Other times, you may be in a dry spell and need a dedicated, consistent water source to care for your plants. A business line of credit works in a similar way, supplementing your business at many times and maintaining cash flow through dry spells.
A business line of credit can be part of your organization’s cash flow strategy and growth plan, regardless of financial circumstances. However, when your organization needs funds to rebuild or grow, a business line of credit can become an invaluable asset.
It’s important to understand how a business line of credit compares to other financing options and how its unique features can benefit any organization.
Using a business line of credit to manage cash flowA business line of credit is essentially another type of small business loan. They are usually term or revolving loans. Unlike traditional business loans, a business line of credit can be used for general purchases that are not specified. As such, a business line of credit gives your organization more control over its cash flow.
Even if your organization doesn’t have cash on hand, a business line of credit ensures that you can buy what you need when you need it. Having immediate access to funds gives your organization a new way to manage your cash flow. In the short term, this means you can stock your shelves, but it also offers the ability to withstand unexpected economic downturns .
A business line of credit can allow you to maintain and expand your inventory and set your organization up for future success:
- Acquire short-term working capital to prepare for sales impulses
- Buy products out of season at a lower price from a wholesaler before you need them, and then sell those products at a profit once they are in season
- Pay down the line of credit once you have made a profit on the inventory sold
Flood or drought, a business line of credit means you have a consistent source of funds to keep the garden growing, so to speak.
- Take advantage of business line of credit features to monitor spending
Along with supporting new opportunities for your organization’s cash flow strategy and growth plan, a business line of credit allows your organization to establish purchasing controls and monitor spending. With increased transparency and simplified purchasing, a business line of credit frees up employee time so your organization can direct its efforts toward value-added activities.
Amazon Business offers Pay by Invoice , a line of credit option that gives eligible organizations access to a line of purchase with 30-day payment terms. Eligible Business Prime members may qualify for extended terms of up to 60 days.
Paying by invoice grants access to a variety of tools that allow your organization to maintain control over cash flow and monitor purchases. You can divide the total credit line into sublines for individual groups or departments within your organization.
Plus, you can easily customize which members of your organization have access to the line of credit. These features help employees follow company requirements and reduce administrative oversight and increase transparency.
Start using a business line of credit before you really need it
As another horticultural analogy goes: “Make hay while the sun shines.” In other words, get a business line of credit to manage your cash flow in times of big money so you know how to use it in times of drought.
Unlike a business credit card, the purpose of a business line of credit is not to make smaller, specific purchases. Instead, it gives your organization an additional option for managing cash flow. Having a business line of credit available should the need arise allows you to incorporate this tool effectively and purposefully into your organization’s cash flow strategy and growth plan.
Keep in mind that it can take time to research your loan options and then apply. Different lenders may have varying criteria for your business to be eligible to apply for and guarantee a line of credit.
Whether your garden is flourishing or you need help, a business line of credit provides the cash flow to keep your business growing.