Starting your own business isn’t cheap, and it is unfathomable to assume that you can raise the necessary funds all by yourself. You can seek extra finance from investors; however, these professionals often require proof of concept before putting their money down. This means that you need to get funds elsewhere.
Most people will opt for a well-known source like a bank loan, but this is not your only choice. A line of credit is a loan from a financial company that allows the user to dip into the funds at will, instead of applying for a fixed sum. So, what are the advantages of using a line of credit?
One of the biggest benefits of using a line of credit over a bank loan is that it is faster to get the funds across. Time is money, and a bank will require you to perform a litany of checks before you can even start the application process.
Applying for a line of credit should take between two to six weeks, whereas a bank loan can take months to materialize. Business moves fast, and so should you. If you want to get your business started quickly, then a line of credit is the best source of finance.
A common struggle that many business leaders face comes from the fact that the market is unpredictable. You can plan out how much money you will need to start your company; however, there is no knowing exactly what financial challenges you will face once the operation starts.
A second bank loan is not always the best option, and it is difficult to secure this type of finance if you are already in debt. Fortunately, a line of credit allows you to borrow as much as you need. You can take some credit to pay for the initial start-up costs and transfer more if you encounter an unexpected problem. There aren’t a lot of financial options out there that provide this kind of safety net.
You Only Pay What You Owe
This article has already covered what can happen if you do not borrow enough, but what about borrowing too much. You will have to pay interest on any money that you borrow, so it is important to apply for the exact amount you need.
There is very little that you can do if you borrow a large loan from a bank and you will probably end up paying interest on money that you have not used. With a line of credit, you only pay for what you borrow, making it easier for you to climb your way out of debt. Owing money can cripple a new enterprise, which is why a business line of credit could help.
You Do Not Need To Use It
Once you have applied for a bank loan you feel obligated to use it. This is because you are paying interest on the loan, so you may as well get your money’s worth. However, with a line of credit, there is no pressure to spend it if you don’t want to. What’s more, having a line of credit that you do not use or pay off quickly will improve your credit score.
There are positives for every business loan that you can use. However, you should always keep a line of credit in mind if you are going into business.