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Should You Have a Line of Credit in Your Business?

The first question I have for you is are you prepared to lose your home if your business fails?

I ask this because most banks will require some form of real estate as security over a line of credit loan.

The second question I have is are you proposing to use the funds to get out of trouble or to use to cover short term cash flow deficiencies.

If you are looking to use the funds to pay off creditors then I would strongly urge you to consider a conventional loan with fixed repayments.

If on the other hand your business struggles with short term cash flow deficiencies caused by a disparity between paying for stock and getting paid from your debtors, this is an ideal facility.

Note that the emphasis is on “short term”. If the discrepancy between your buying cost and receiving payment from your customers has become a permanent “gap”, then once again I urge you to solve this problem with a fixed payment loan structure.

So in summary a business line of credit loan is ideally used to cover short term fluctuations in cash flow. When drawing funds down from a business line of credit you should always be certain of two things;
1.The funds are being use to facilitate extra sales for your business.
2.You have a clear vision of where the funds will come from to clear the debt and what that time frame will be.