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When it comes to running smooth business operations, funds are instrumental. However, seasonal slumps, delayed payments, and unexpected expenses can constrict your cash flow. In such circumstances, a line of credit or LOC can get you the working capital you need.<\/p>\n\n\n\n
With a business LOC, you can fund urgent expenses and have a steady stream of credit, which you can borrow from any time you like. A business line of credit for new businessesis also helpful if you\u2019re starting your venture and are unsure what kind of costs you will incur.<\/p>\n\n\n\n
Before we evaluate whether a line of credit is right for your business, let\u2019s look at how it works and its types.<\/p>\n\n\n\n
A business line of credit(LOC) works in the same way a loan does. You approach a lender, get the credit approved, and use the funds for business operations. However, there\u2019s one key difference. The amount is disbursed as per your needs.<\/p>\n\n\n\n
This means you can use the sanctioned amount in parts. Also, the lender will charge you interest only on the amount you withdrew and not the entire principal. And you only repay the amount you utilise.<\/p>\n\n\n\n
Here, the lender does not designate a specific purpose or purchase for the credit, which means you can use the funds to manage cash flow better, cover intermittent expenses, or tend to your organisation\u2019s short-term expenditure.<\/p>\n\n\n\n
Additional Read: <\/strong>What is a Business Line of Credit & How Does it Work?<\/a><\/p>\n\n\n\n Business LOCs are broadly classified into two types:<\/p>\n\n\n\n Business LOCs are an excellent choice for small businesses which can\u2019t accurately predict their revenue and sales. Since you can borrow chunks from the sanctioned principal, you can request and use the amount as and when required. Business LOCs are also great if you\u2019re looking to build up your credit score.<\/p>\n\n\n\n But it\u2019s essential to keep in mind that these lines of credit usually have variable interest rates. This means, unlike loans, you cannot calculate the instalments and interest payable in advance. Also, untimely payments can ramp up the EMI size.<\/p>\n\n\n\nTypes of lines of credit for businesses<\/strong><\/h2>\n\n\n\n
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Is a business LOC right for your business?<\/strong><\/h2>\n\n\n\n