The Pros And Cons of a Startup Business Line of Credit

0
702

Owning and operating a business can be both exciting and rewarding. There are always going to be times when you are flush and there are always going to be times when you are behind. Maybe you have to duck a debtor. Maybe you need extra cash to fund an expansion. Whatever the situation is, when they are down in the dumps times can get really bad. That being said business owners need to know that they have options available to them in these situations. One such option is the business line of credit. However, it is also important to know that the business line of credit comes along with its own advantages and disadvantages.

Provides Working Capital

You simply can’t keep your business open if you can’t afford to pay your employees and the rent. How long do you think the owner is going to let you operate out of the building rent-free? How long do you think those loyal employees will keep working if you can’t pay their wages? The answer to both questions is not very long. And, this is exactly where a business line of credit can offer the relief that you need. You can use a line of credit with the bank or lender when you need to cover such expenses. This type of credit will ensure that you get to keep your lights on and stay operational.

No Lump-Sum Disbursement

One of the best things about a business line of credit is that there is no lump-sum disbursement. For instance, if you have ever taken out a business loan, you will usually have to pay a big lump-sum disbursement at the account opening, which will later require monthly payments. No money changes hands until you actually need to cover expenses. A business line of credit can almost be seen as a safety blanket that is there in the event that you need it.

Choosing The Right Lender

Right now the business line of credit probably seems too good to be true. Well, that is because you haven’t heard of some of the negatives yet. A business line of credit will require you to choose a reliable, dependable, and trustworthy institution or individual. Even a lender that is offering an attractive offer could end up causing you more problems in the end. Make sure that you always review all the fine print and put in the necessary research when you are choosing lenders. One such reputable lender is företagskredit.

Subject To Credit Review

Another downside that comes with a business line of credit is that they operate somewhat like a credit card. There might not be a lump-sum disbursement on the opening of the account, but the line of credit is subject to credit reviews and annual renewings. This means that the interest along with the stipulations for the line of credit might change. You might end up paying more interest than you expected in the initial calculation. Once again, different lenders operate by different standards and this is something that you will want to look into ahead of time.