As a business owner, you have probably bumped up against the fact that you won’t be successful unless you have access to capital. Capital is generated by cash flow from sales and may also come from injections of cash from your personal investments and savings. However, what happens when you have a cash-flow shortage, and you have no more available personal credit, but you still need funds to keep your business going? One way to solve this dilemma is with a revolving business line of credit.
What Is Revolving Business Credit?
Revolving credit means that instead of borrowing a fixed amount of money all at once (business loan), you borrow working capital of any amount and at any time as long as you don’t exceed a pre-approved credit limit. You have several options for repaying the outstanding balance – pay the balance in full, pay just the minimum monthly payment (usually 1-1.5%), or pay more than the minimum. In other words, you have a business credit card that provides several advantages as follows.
Creates a Separate Debt – Your business credit line only gets reported to the business credit reporting agencies. This creates a true separation between your personal and business credit and your business debt will not affect your personal credit score.
Easy Tracking – A business credit card makes it easy to track business expenses that are tax-deductible. It eliminates the accounting confusion of using a personal credit card for business expenses.
High Credit Limits – Credit limits for business credit tend to be higher than for personal credit. If you build up a record of making repayments on time, you will probably also gain access to even higher limits.
Business Credit Profile – You can establish a credit file with the major business credit reporting agencies. This will enable lenders, suppliers, vendors, retailers, etc. to learn that you are creditworthy and worth doing business with.
No Personal Guarantor (PG) – Having a good credit profile is a great start to eventually acquiring credit lines with no PG. To obtain no PG revolving credit you need time in business, strong revenues, and excellent business credit reports.
Merchant Services – With a solid business credit profile, you will be positioned to qualify for the best merchant processing rates and necessary equipment at very little cost.
Money When You Need It
With revolving credit, the cash is there when you need it, and it can be used over and over again. And, remember – access to capital is the lifeblood of any business.
- If you need advice on the best way to finance your growing business, talk to us at Mathews CPA.