A business’ cash flow is not always predictable, and it may depend on what type of business it actually is. Businesses like a café, restaurant, or a general goods store means that there will always be money coming in the door almost every day, but for other businesses, there could be big gaps in revenue that can even be months apart.
For businesses with gaps in their revenues this means that they need to have very careful budgeting in order to stretch the existing budget to be able to cover all expenses of the business. Despite all of the inconsistencies of everyday Cash Flow, however, there are several financing options that are available to business owners, and one of these options is using a Line of Credit.
A Line of Credit defined is a predetermined credit offered by financial institutions to a business. It is a fixed amount that is extended to a business’ expenses that is available for the business to use when and how they wish to use it.
If you think about it, for a business, isn’t it better to only rely on the available on hand cash? While this remains true for some businesses, as pointed out earlier, there are businesses that have gaps in the revenue and do not always have cash coming into the business everyday. This is why most of these types of businesses opt to use their line of credit.
SOLVING CASH FLOW PROBLEMS
Businesses use their line of credit when they need to finance a new project, or make a one-time purchase of a property, be it a movable or an immovable. It can help keep the business running smoothly and efficiently as there will always be funds available. There are several cash flow related problems that a line of credit can help with.
Unexpected Business Expenses
A line of credit can also help businesses with unexpected expenses, which are nothing new to businesses. From sudden hiring needs and to unexpected repairs, a line of credit can help with what the business actually needs at the moment. This allows the business to be more agile when it comes to its financial aspects.
An office expansion can be one of the prime examples of what Line of Credit can be of viable use for. Usually under this scenario, the line of credit will and can be used initially to start the office expansion, then a second loan would be applied for, one that can not only pay off the line credit but also to continue on with the expansion.
Usually a business, in order to be able to reach out to more customers, delves into different kinds of marketing strategies in order to get their products or services out. A line of credit can be of great help in this case as businesses can easily not only immediately launch their marketing strategies immediately, but if used right, the business’ line of credit can help effectively implement it.
There are various ways a line of Credit can help solve a business’ Cash Flow Problems besides the ones we have enumerated above. A Line of Credit is named as such because many-a-time it is the lifeline of a or any business that has it, as it holds assurance that the business itself still has a safety net whenever it faces any cash flow problem.
It is important for any business to ensure that their eyes are open to several ways to cover for their everyday operations or expenses in between client payment days, and a Line of Credit is one solution to this.