Countless small businesses have used lines of credit as a flexible funding option. This article looks at why through the lens of the benefits of a credit line.

Benefit 1: Flexible Access to Funds

Flexibility is one of the biggest benefits of a line of credit.  For instance, if a bakery has access to a $10,000 line of credit, it can withdraw up to $10,000. However, if the bakery only needs $1,000 to cover supplies for a special order, then it can withdraw that amount, leaving $9,000 in the reservoir. Then, as the bakery repays the $1,000, the available funds will return to $10,000. The bakery will only need to pay interest on the withdrawn $1,000.

Benefit 2: Smooth Cash Flow

Lines of credit can be particularly useful for businesses that have irregular cash flows. For instance, if a business is very busy for six months of the year but relatively quiet during the other six months, access to a line of credit can ensure the business stays up to date on its payments during the slower months. And as contributor Rohit Arora points out, a line of credit can also be invaluable when it comes to covering emergency expenses.

Benefit 3: Credit Improvement

Lines of credit can be a way to improve your business’s credit score. This can help down the road if you seek out other types of financing, like a loan. Lenders like to see a history of responsible credit usage. By withdrawing only the funds you need and making payments on time, a line of credit can help you show that responsible history.

Benefit 4: Opportunities

Finally, a line of credit can give your business the firepower it needs to pounce on opportunities. For instance, if a supplier offers a discount for a bulk purchase, a line of credit can give you the funds you need to make a purchase large enough to trigger the discount.

Want more information on financing in the business world? Take a look at Monstera Lending Group’s other blog posts.