Although positive cash flow is a must to run a successful business, it isn’t always easy to come by. Between clients taking a month or longer to pay their invoices and all the expenses you must incur to operate your business, having cash on hand for emergencies or to pursue business growth isn’t always realistic. Fortunately, revolving credit can make your life a lot easier as a business owner.
Understanding Revolving Credit
Revolving credit for your business differs from a business loan in several important ways. First, it is much more flexible. You borrow against the credit line as you need it and can request funds and pay the balance down as often as you want to. With a business loan, you receive one lump sum and make equal monthly payments until you have paid the balance in full.
You have less available credit when you make a purchase or receive a cash advance and more when you pay the balance either in part or in full. If you decide to carry a balance, keep in mind that interest rates are usually higher with a revolving line of credit than with a bank loan.
Benefits of Choosing Revolving Credit
Flexibility is one of the biggest reasons business owners cite for applying for this type of financing. However, you can expect many other types of benefits with revolving credit as well. Here are just a handful of examples:
- Higher credit limit: The typical credit limit for a business revolving line of credit is much higher than a personal credit card. That means you can access the funding your company needs without having to use your personal credit and have it potentially impact your score.
- Greater control over monthly payments: With a business loan, you have no control over when the payment is due each month or how much you must pay. Revolving credit lines usually don’t require a payment of more than 1.5 percent of the balance. It’s like a loan you can use over and over without having to go through the process of completing tedious paperwork to get a new loan.
- Helps you establish a business credit file: As you make payments to the issuer of your revolving credit account each month, it reports to Equifax Commercial, Experian Business, and Dun & Bradstreet. These are the major providers of business credit file services. Having a listing with these companies makes a favorable impression on other lenders as well as provide important financial data about your company to vendors, suppliers, and lenders.
Let Us Help You Choose the Best Credit Options
Selecting the best types of financing for your company isn’t always easy. We welcome you to schedule a consultation with Chicagoland CPAs to determine if revolving credit or another type of financing makes the most sense for your situation.