Easing the Challenges of Business with a Line Of Credit
Financial challenges are an inherent part of an entrepreneur’s business journey. The stress that comes with facing financial obstacles and uncertainty can affect your mental health and test your confidence as a business owner. Often, the remedy for anxiety is to regain a sense of agency. In light of that, there are financial tools and resources you can leverage to stay on top of your finances, reducing pressure and worry.
A line of credit is a great financing option that can provide the extra working capital businesses need to keep cash flow healthy and invest in their growth. With a business line of credit, you can take control of your financial situation and buy yourself the time you need to formulate your next steps. Here are just a few ways a business line of credit can make running your business a little easier.
Gain control of your cash flow
Businesses of every size deal with inconsistent cash flow. Cash flow is a top stressor for small business owners, and running out of cash is the number one reason new businesses fail. A line of credit can help you get ahead of cash flow challenges and ensure that you always have the funds to cover your major expenses.
Like a credit card, a line of credit gives you access to a revolving balance of funds. This means that the balance on the line of credit replenishes as you pay it off. Lines of credit often have lower interest rates than a business credit card and offer higher credit limits. Additionally, you can use the line of credit to pay vendors that don’t take credit cards and to cover transactions like payroll or rent, which you also may not be able to pay with a credit card.
Many small business owners use their personal savings, loans, or credit cards to mitigate cash flow issues. But it’s a good idea to separate your personal and business finances so you can streamline your taxes and protect your personal assets if your business faces major losses. Taking out a business line of credit can give you peace of mind, knowing that your finances are allocated properly.
Finally, being approved for a line of credit can be easier than qualifying for other types of funding like bank loans or even business credit cards, depending on your business credit history and the lender you choose. Online lenders like EJN Financial typically have quicker approval processes than traditional lenders like banks or the Small Business Administration (SBA), so you can get the funds you need to bridge those cash flow gaps as soon as possible.
Take the pressure off accounts receivables
Whether you’re waiting for clients to pay invoices or finding that sales are slower than usual, fielding bills in between paydays can be a headache. Eighty-nine percent of businesses say that late payments have impacted their company’s long-term growth goals. Late payments can hold you back, forcing you to deprioritize pressing business needs and goals. A business line of credit gives you the flexibility to rely a little less on the timing of your accounts receivables to cover expenses.
A major cause of stress for some small businesses is an ongoing sense of uncertainty. For service-based businesses, projects can take longer to complete than expected, potentially delaying payment. Within retail businesses, not every product will fly off the shelves. When payments aren’t coming in and sales are slow, that feeling of uncertainty is heightened. Giving yourself a financial safety net not only helps you manage fluctuating finances to keep your business running smoothly, but also gives you some relief from the what-ifs that accompany delayed payments.
Business lines of credit also help you stay on top of your accounts payable. Paying your own vendors late strains your relationships with them. If they report to credit bureaus, late payments can negatively affect your business credit score. With a line of credit, your accounts payable are no longer at the mercy of your accounts receivable. Because the balance replenishes, you can pay your vendors on time and simply pay the line of credit down once your accounts receivable have been fulfilled.
Find new ways to grow your business
As an entrepreneur, it’s likely you’re always looking for new ways to innovate and give your customers more of what they need. A business line of credit can help you get the financing to expand your operations, hire team members, invest in equipment or supplies, and try out new marketing tactics.
With access to funding, you can stay competitive and seize opportunities as soon as they arise. This empowers you to attract new customers and increase your revenue in the long run.
When it comes to growth, fundraising is a challenge for most businesses. Businesses owned by minority entrepreneurs face significant obstacles when it comes to venture capital funding. Lines of credit are a great option for businesses at any stage that may not have the time or resources to raise extra capital from investors.
With the line of credit’s revolving balance, you can take advantage of the available credit limit over and over again. When you invest in expansion activities and see returns on that investment, you can use the increased revenue to pay down the line of credit — which will then be available for you whenever your next great idea hits.
You can also use a line of credit to invest in improving your current processes to increase efficiency. With funds from a line of credit, you can fix equipment and purchase items like a more advanced point of sale (POS) system that makes it easier to track inventory, or a larger commercial oven that can bake more pastries to meet demand. When you have the funding to keep up with the market and exceed your customer’s expectations, you can be confident that your business is ready for growth.
Other resources for alleviating financial stress
Improving your financial literacy or hiring an advisor can help you feel more confident about your business finances. Look for banks that cater specifically to small businesses, as they’ll have team members you can leverage for guidance.
When you’re struggling with cash flow, take a look at whether there are any expenses you can cut, and be sure to revisit the repayment terms you’ve set for your clients. Compiling a cash flow forecast and preparing for unexpected expenses can also give you some peace of mind in the midst of uncertainty.
If you’ve had a crisis in your business, the Small Business Administration (SBA) has a few emergency financing options such as their disaster loans. You can also check to see if your local small business development organizations offer similar emergency financing and support.