How does a small business line of credit work?

 A small business line of credit is very much like a credit card in the way funds are accessed, but the way it is paid back usually differs from that of a credit card. There is also a significant difference in the way interest is calculated. The merchant is approved for a specified high credit limit. The limit is not a lifetime one, as is the case with certain term loans, but rather the highest dollar amount a merchant can borrow at one time. Another way of looking at the high credit limit is the highest level and balance it can reach. Unlike a term loan (where a specific amount is paid back over a defined term), a line of credit allows the small business owner only to borrow the amount needed at any given time. This type of funding helps mitigate the ups and downs of cash flow, especially while waiting to collect on receivables.

A line of credit is a great option, especially when a small business has multiple projects going on simultaneously but with different start and completion dates. For example, a construction company that needs to pay for supplies and payroll on multiple products can use a line of credit to help ease the strain on cash flow while awaiting payments for completed or near-completed projects. A line of credit also is a great idea for a business that has some seasonal highs and seasonal lows. It offers a high level of flexibility and businesses can draw on it on an as-needed basis. On the other hand, a line of credit might not be as good of an option for a small business that is working on a long term projected.

Click here to know more about #SmallBusinessLoans