Making Your Credit Line Work for You

There are real advantages to having an available credit line for your small business. With an available line of credit, you have access to an approved sum anytime you need it. The money’s yours to use (or not) as things evolve. Unlike term loans, which fund a particular purpose or project, a line of credit can be used for anything and everything.

If a cash-flow emergency arises, you’ve got the funds to meet it. If it’s time to process payroll and you’re unexpectedly short, the money’s there. If an opportunity comes up to take swift advantage of a sweet deal, you’ve already got the cash on hand. Having an approved line of credit eliminates the need to apply for a new loan every time your business needs additional cash flow.

Similar to credit cards, lines of credit are paid in installments with interest accruing only on the amount you spent. And as you pay this loan back, the funds become available to you again. Convenience, flexibility, and a ready-made safety net, they’re all part of what makes having a line of credit such a good idea in the here-and-now for small businesses.

A credit line to increase financial leverage

Besides access to financial reserves, a credit line can have a positive effect on a business’s future. Companies – young ones, especially – looking toward growth, expansion, and the likely need for lump-sum loans at some later date, need to establish ratings with major business credit reporting agencies, like Dun & Bradstreet.

Making regular payments on a line of credit enables a business to:

  • Build a positive credit history
  • Establish creditworthiness
  • Have an easier time getting term loans in the future for major purchases like machinery or real estate

Many experts recommend that businesses, already making regular payments on their credit line, go ahead and ask their lender for a larger amount before they actually need it. The reason? Larger limits that are successfully managed can play a role in better credit ratings.

The advantages to building your business’s credit

Being a credit-worthy business puts a company in a position to qualify for additional financing based solely on factors related to the business. In other words, it can effectively take the business owner’s personal credit rating out of the loan-approval equation and save him or her from having to co-mingle personal debts and assets with the company’s.

And here’s one more advantage people don’t often think of: A business’s creditworthiness adds actual value to the business itself, like any other asset. And because this asset is fully transferable if the business is ever sold, it makes the business that much more attractive to potential buyers or investors.

Now and in the future, a business line of credit can work for you, too.