When you’re running a business, there are numerous financial decisions you need to make that will impact the future of your company and employees. It’s crucial that business owners have financial solutions available for every possible scenario. One of the best ways a business can gain access to the funds they need is through a business line of credit. Learn how to use a business line of credit to keep your company’s financial plans on track for success.
Ready to attain flexible, easy-to-access working capital? Open a Union Community Bank Business Line of Credit today.
What is a Business Line of Credit?
A business line of credit works much like a personal line of credit. It’s a financial option that allows a company to draw upon a predetermined amount of money. Once set up with a line of credit, the business simply needs to request a draw from the line. This line of credit can be paid back at any time.
How to Use a Business Line of Credit
There are any number of expenses that can be financed with a business line of credit. Typically, they are used for short-term funding, unexpected expenses, and day-to-day operations.
Uses for Business Lines of Credit Include:
- Purchasing supplies
- Increasing working capital
- Seasonal expenses
Access to funds is also helpful to maintain cash flow. Many businesses will, at one time or another, have cash flow issues. A problem with cash flow can be caused by a variety of things, such as when clients are late on payments. Lines of credit will provide your business with the funds needed to continue to function properly until you receive payment.
Types of Lines of Credit
There are numerous ways to classify lines of credit; however, there are two main ways to classify them.
Secured Lines: A line of credit that allows a business to use personal and corporate collateral to secure repayment of the loan in the event that the company defaults on the payment. Collateral can include accounts receivable, inventory, real estate, or other high value items.
Unsecured Lines: A line of credit that does not have specific collateral attached to the account in the event of a default. This type of loan is typically guaranteed by the company and personally by the owner. This means that in the event of a default, the owner can be sued.
Applying for a Business Line of Credit
The best time to apply for a business line of credit is before you need it. It’s easier for a business to get a loan while revenues are strong. Apply ahead of time so you have access to the line of credit when you need it.
When going to get a business line of credit, bring the following with you:
- Your current personal financial statement
- Minimum of 2 years of business tax returns
- Minimum of 2 years personal tax return
Other Financial Options for Businesses
A line of credit is a great choice when you need access to funds regularly for a variety of reasons. However, if you have a specific financial goal in mind, a business term loan might be the better option for your business. Tying up your line of credit on a long-term investment limits your line of credit’s flexibility and makes it unavailable in the case of an emergency. Larger projects that would need to be paid off over a longer period of time are more ideal for business term loans.
Business lines of credit are not charged on the part of the line that is unused, whereas a business loan is for a set amount and you’re charged for the whole loan. A line of credit is meant to be drawn upon when needed; a business loan is typically obtained with a specific financial goal in mind.
Does your business need a Business Term Loan? Learn more about Union Community Banks Business Term Loans today.
Utilize a Business Line of Credit Today
Union Community Bank partners with businesses to provide them with the tools and services needed to be successful. Our business lines of credit offer highly competitive rates and you only make payments when you use the line.