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All About Business Credit Lines

November 12, 2021
Business
Credit score

Improving your business credit score is important, because it is how you get access to great credit products. Some of those products include: business loans, letters of credit, business credit lines, term loans, and bridge loans. In this article, we go into more detail about business credit lines. 

A business credit line is a revolving loan that lets you borrow money in the future if and when you need it. You do not have to borrow the money, if you decide not to. When the business credit line is issued, it will have a limit, which is the maximum amount that you can borrow. It is meant to be used to meet short-term financing needs. 

Once you have the credit line, you can borrow (up to the credit limit of the line) when you need to. You can then pay it off and borrow again, usually as many times as you want during the full term of the line - that is why it is described as being “revolving.” While there are many similarities between business credit lines and business credit cards, business credit lines typically have lower interest rates and higher limits, and can therefore be advantageous. 

There are many ways in which you might want to use a business credit line. Here are some of them: 

  1. Choose to keep less cash on hand for emergencies, and instead use the credit line in case of emergencies. This allows you to deploy more of your cash in profitable activities for your business.
  2. Buy supplies or pay for resources in order to fulfill orders, especially unexpectedly large ones. This could help you take advantage of opportunities that otherwise your business would not be able to afford. 
  3. Smooth over seasonal income. Accessing the funds in off-season can help maintain the business despite fluctuating cash inflows.
  4. Build a stronger credit history for your business, before getting a larger loan. Business credit lines typically have lower limits, and responsibly using them shows banks that you can be trusted with larger loans.

In summary, a business credit line is a cash flow management tool that can help your business function more profitably in a wide range of situations. 

There are costs involved in setting up a credit line, as well as possibly transaction fees and monthly fees, so be sure to review any related costs carefully. If you need to borrow money for a longer term, another credit product may be more cost-effective. 

When you work with Scorico to improve your credit score and business, your business becomes more financially successful. Sign up to be a beta tester today.

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