Stabilize Your Cash Flow with a Business Line of Credit
Business never stays constant forever, it runs through cycles of highs and lows. This inconsistency can strain any business’s capital needs and revenue realization, creating obstacles for entrepreneurs with their cash flow. Starts-ups in their early development are particularly vulnerable, as riding out cycles while sitting on inventory can completely decimate their funds. To guard yourself against the ups and downs of business and stabilize your cash flow, you can establish a line of credit for your business.
What Is A Line of Credit
A line of credit is a standard service offered by most banks to help small businesses. Approval is contingent on the company’s ability to repay the bank through assets of the owner (mortgage, stocks, etc.). Banks can extend either a secured or unsecured line of credit to most start-ups, pending the business has sources for repayment, an excellent capital position, and consistent earnings. Businesses can draw funds when they need them, but need to pay down the line on schedule.
Benefits of A Line of Credit
Cash flow problems during low demands seasons can be offset using a line of credit, giving companies the ability to continue their daily operations. In addition, with a line of credit, a business can acquire the inventory necessary for future sales and continue to expand their market.
Tips For Establishing A Line of Credit
When looking to establish a line of credit businesses should ensure they have all financial statements (i.e. income statement, balance sheet, etc.) to present to the lender. Banks also need the owner’s personal guarantee of repayment, through primary or secondary sources, and will likely collateralize the loan if more than one principal is involved. Newer businesses should also be prepared to provide documentation of cash flow demonstrating ability to pay back any capital borrowed in the future.
Dealing with business cycles can be devastating to cash flow for entrepreneurs of new companies, but there are ways to make it easier. Establish a line of credit for your business and see the positive changes for yourself.