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Using Line of Credit Loan as the Easiest Way to Stay in Business
Unlike a full serviceable loan, a line of credit ensures that you pay interest for only what you use from a predetermined funding amount. Its largest benefit is that you can utilize your line of credit quickly, as needed. For small entities that are struggling to manage cash flow or emergencies, a line of credit is a must-have. It enables your company to stay in operation and not borrow on high-interest full-term loans. Here are a few ways to make the most of the funding, starting with the process of securing it.
A cash flow analysis is the initial step to help you determine your ability to secure a line of credit. It reflects the past transactional value of the company, or its profits against losses. It also points to the future potential of the company regardless of its credit score. In most alternative lending situations, a small firm can still receive business financing. A cash flow analysis will determine what amount will help the business manage their cash flow. The need for this kind of analysis is to reduce the possibility of repayment breach, as your line of credit is large enough to manage expenses, but not so large to risk defaulting.
A line of credit also acts as one of the special purpose small business loans where you outline the exact need. For instance, you may want to buy new machinery or add to your product stock. Because you usually specify this need, your business does not run the risk of misusing the funds as the amount is predetermined. Alternatively, you can ask your lender to offer a relaxed method of payment in which you can borrow above the threshold provided you have repaid the interest on the previous amounts, in time.
With a line of credit you can maintain the balance of your business on a day-to-day basis. Since you only utilize the loan when an need arises, there is little chance of falling behind on your payments as they rarely multiply as term loans do. Furthermore, the interest per repayment period varies depending on the market conditions. The advantage is that yours may coincide with a low interest cap which means savings on the repayment plan.
Your growth can be directly tied to your ability to make immediate investment decisions. Because of that a line of credit can be a crucial tool to managing your business cash flow. The first step to securing a line of credit borrowings is to reach out to us for your free cash flow analysis. We will help you determine your borrowing capacity and how to best manage your funding.