A business line of credit, also known as a working capital line of credit, can serve many types of businesses and solve a wide range of financial needs. It’s a revolving loan that’s available when your business needs a short-term loan to cover a variety of business expenses. You only pay interest on the amount you borrow, starting from the moment you access your funds. After you pay back the loan, you can tap into these funds again, whenever you need. It’s like a business credit card, but with much lower interest rates.
How Do Businesses Use a Line of Credit?
Many businesses are cyclical in nature, especially in areas such as tourism and retail. Of course, any business could experience a cash flow crunch because of trade issues, economic cycles, or a major customer not paying on time. A cash crunch or an unexpected expense can happen without warning, and your business might not have time to apply for a business term loan. With a business line of credit standing by, you could borrow the money you need immediately and keep your business going.
A Cash Flow Safety Net
Sometimes a cash crunch can be predictable. For example, many retailers stock up in advance of winter holiday sales every year and hire more staff to get them through the season, which is when they make most of their income. With a line of credit, you could borrow what you need to get your business through the holiday rush.
An Opportunity Fund
Imagine if your business signed a lucrative contract with a new customer. The only problem is you’ll need a substantial amount of cash to buy equipment, supplies, and hire enough staff to make it happen. A line of credit could be the business financing strategy you need to fulfill that contract.
Emergency Access to Working Capital
For many business owners, they operate on such tight margins that the idea of having an emergency fund just isn’t realistic. They might also figure that any excess cash should be reinvested in growing their business. Of course, a major piece of equipment could break down as your fulfilling a customer’s order. Your HVAC system might need replacing during the hottest part of the summer. A business line of credit could help you meet those financial needs.
Seize Opportunities As They Happen
Imagine if one of your suppliers offers a discount on a key piece of equipment or the inventories you need to run your business. The commercial tenant next door could vacate their space, and you’d like to take over their lease. A line of credit could give you the funds you need to make the most of such opportunities.
Frequently Asked Questions about Business Lines of Credit
How Do I Apply for a Business Line of Credit? Just contact one of our commercial business lenders and they’ll walk you through the entire process. We’re going to need financial information about yourself and your business, such as your business and personal tax returns, financial statements, your Social Security and business ID numbers.
How Do I Know If My Business Needs a Line of Credit? If you’ve ever scrambled to come up with the funds you need to invest in a new opportunity or to get through a cash crunch, and if you’ve ever carried a balance on your business credit card, then a line of credit could be the financial cushion you need. The best time to get a line of credit is before you need it!
How Much Does It Cost to Have a Business Line of Credit? There’s a one-time fee to set up a line of credit, usually a percentage of the loan amount. You’ll also pay interest on the amount you borrow, starting from the moment you withdraw your funds each time. Additional fees may apply depending on the terms and conditions of your loan. Reach out to one of our commercial business lenders to find out more.
Contact Us to Learn More about Business Lines of Credit
If you’d like to learn more about how revolving credit for business works and whether it’s the right fit for your business, please call us at 888-577-0404 to set up an appointment or call your Relationship Manager to learn more.
Disclaimer: The information contained herein is provided for informational and educational purposes only. The views and opinions expressed may not necessarily reflect those of Cogent Bancorp, its subsidiaries or affiliates. This material is not intended as legal, tax, accounting, or financial advice, nor does it guarantee the availability or suitability of any Cogent Bank product or service. Consult your legal, tax, financial, or other professional advisor before making financial decisions.
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