Securing Working Capital for Your Small Business in the Era of COVID-19
November 01, 2020
Does your business need access to credit? At one point or another, just about any small business will need some form of borrowing for reasons large and small. But rather than wait for this need to arise, a savvy business owner may want to set up a particular source of ongoing credit. Discover a few ways that your company will benefit from a line of credit no matter what the current financial picture looks like.
If your business has a funding emergency, you may not have the time to go through a traditional loan approval process. After all, if payroll is on Friday and you don’t have the cash, employees won’t likely wait until the following week’s bank hours to find out if they will get paid. And if you call on emergency cash sources, you’ll likely pay a hefty interest rate or fees.
This is why you should prearrange credit sources you can tap at any time without extra work. A line of credit only needs establishing once, and the approved amount is available for use at any time over the approved period. You can take out what you need when you need it and pay it back in a way that works for you.
Small businesses need to control costs and manage their use of company assets. A regular loan is a fixed amount of money given to the borrower at once and paid back with set monthly payments. You pay the same amount regardless of whether you need the money all at once or not. And you have no ability to alter payments to coincide with business cycles.
Lines of credit have an advantage in that you only borrow exactly what you need at a time. You could fund your networking trip and pay it back with the big job you land. Later, you might use credit to pay your income tax bill and avoid penalties and interest. And the company can choose interest-only payments or make additional principal payments at any time. The decisions are yours.
Most people understand the need for individuals to build a solid credit history. Did you know that businesses should do the same? Vendors, clients, lenders, and potential business partners will all look at your credit history. A line of credit — regardless of how much or how little you use it — will show up as an on-time payment and a positive mark on your history.
A business line of credit is usually an unsecured loan. Secured loans — like a mortgage or auto loan — put at risk the item that’s used as collateral (the building or the vehicle, for example). But unsecured loans are less risky since repayment is separate from the actual assets you use the money to buy.
Cash and financing needs within a business’s operations vary widely. You might need to finance a company truck or a forklift, to borrow to cover a late-paying client or make payroll, and to simultaneously fund expansion into a new market.
You could fill each of these different challenges on its own, but that takes time, requires multiple loans, and increases your payments. A line of credit easily fits many capital needs with less work and consolidated payments.
Could your enterprise benefit from any of these helpful aspects of a business line of credit? If so, start by meeting with a reputable business lender today. Sheer Funding has a variety of business loan and credit options to fit any size business and meet any goals. Call today to learn more.
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