Getting the Most From a Business Credit Line
You have a lot of choices when it comes to financial tools, but there is a good argument to be made that lines of credit are the one choice that should be in the toolkit of every business. They are so versatile that there is practically no industry where a credit line would not help with either organizing your cash flow or augmenting it. The key is understanding what you can expect from one and how to get the best deal possible when you open one.
Apply for Secure Credit Lines if Possible
Unsecured credit lines look lower risk because of the fact that you do not have to tie them to an asset, but they are a lot more expensive. On top of that, the balance on a secured line is much higher. That, in turn, gives you a much more effective credit instrument so you can take advantage of opportunities and keep your obligations up during times when your income is a little irregular. Securing a line with a piece of real estate cuts the interest rate drastically, and the value of the property dictates the value of the line you can take out as much as your income does.
Keep Your Lender Updated as You Grow
Many small business owners do not realize how much can be gained by communicating openly with the lender behind your credit line. If the value of your property changes and your business income increases, it’s quite easy to negotiate a lower interest rate or a higher limit. You can also open new lines that use additional properties as collateral, allowing you to have a credit line for each location if you expand. Some lenders even do multi-asset lines of credit that let you build one big account by attaching multiple properties for collateral.
Make Use of the Grace Period
The standard model for credit lines gives you the first thirty days before interest accrues on a withdrawal. That means you can make a withdrawal, use it as needed, and pay it back without a financing charge, provided you are not currently carrying a balance. That is why many companies use small credit lines for petty cash management. If you find yourself in the position to make use of this perk, it’s a great way to extend your cashflow while minimizing your cost for capital. That is why even businesses that use a different cash flow management tool for the bulk of their needs often carry credit lines anyway.