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Business Line Of Credit: What Are The Pros And Cons

Funding your business is not an easy task, most especially if you are only starting out. While there are many options available in which you can get money, choosing the best option may be tricky. Whatever your choice, though, you can agree that a loan or credit is more than essential to keep your business going – you need it to ensure that business operations are carried out as smoothly and efficiently as possible.

One of the more known resources in which you can get money to fund your business is known as the Business Line of Credit or BLoC. Quite simply, it is a loan – except you are only paying interest on the money that you have actually spent on. If you are one with a credit card, then it is very similar to making credit card payments – except that the interest rate is not standard. Your interest rate can be much lower if your business is proven to be less risky.

Sounds good? We thought so, too. In this article, we will discuss some of the pros and cons of a business line of credit. While it does sound attractive on the get-go, there are some things that you must take into consideration before getting on-board with it. Again, credit is essential in a business. But do not make the mistake of getting credit without knowing if you can pay for it on time as it can destroy everything that you have worked hard for.

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Pros

(1) The Inexpensive Choice

The first and most important pro is that it is inexpensive. With a BLoC, you are only paying interest from the money that you have used. In comparison to a business loan, this is much better as a business loan has a set amount with interest from the beginning. If you are starting out with your business, a BLoC is a much better choice as it provides you with flexibility with regard to spending.

(2) You Have A Detailed Business Plan

If you are putting up a new business, then you would know how difficult it is to predict expenses. With a detailed business plan, however, it shows that you have prepared beforehand. If you show your lender a detailed business plan and expense forecast, though, your interest rate will be lesser than normal.

(3) Increase In Credit Score

If you are making your payments on time, then your lender might just increase your credit, which will then help you in reaching a better credit score. And if you have a better credit score, you will have more opportunities. Hence, keep in check interest rates and payment dates. If you cannot remember, then set up automatic payments every month for a no-hassle experience.

Cons

(1) Difficult Application Process

Since it is too good to be true, people cannot get it easily. The bank will make sure to review your revenues, current credit standing, debts, and other factors when you apply. If all is well to them, then great, you get a good amount of credit. On top of that, you are provided with a long period of time in which you can repay the credit as well as better repayment terms.

(2) Cash Flow Issues

If you are having cash flow issues in your business, then do not expect for the bank to wait for you to resolve it. If your payment is due, then you need to make the payment no matter what the circumstance. If you do not, then you may be swimming in debt with the interest rate plus monthly fees. Why pay off that when its main purpose is for it to be of help to your business? Also, if you have a bad credit rating, it may cause trouble if you need a loan in the near future.

Mentioned above are just a few of the pros and cons of a business line of credit. Learn more about lines of credit at businesslineof.credit. Here are some additional tips on getting a loan and managing debt:
http://www.nyc.gov/html/sbs/nycbiz/downloads/pdf/educational/financing/How_to_Get_A_Loan_and_Manage_Your_Debt.pdf.
There are pros and cons of business line of credit. We discuss these and more at businesslineof.credit so you can avoid mistakes other business owners have committed.

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