Many Americans don’t think twice when they use their credit cards for purchasing various items. Credit cards are nothing other than personal lines of credit that enable these individuals to access additional cash for meeting various personal or household-related needs. Similarly, when business owners require additional funds for meeting various short-term capital needs, they will often require start-up business credit. Business lines of credit are nothing other than revolving credit lines. They enable small and midsize business owners to meet their short-term capital requirements.
Larger businesses usually have adequate reserves of capital to tide over their capital requirements. Small business owners do not have this luxury. So, they often utilize business LOCs for meeting their daily cash flow requirements. Business LOCs refer to revolving loans given as working capital or start-up business credit. Business owners can use this credit to:
There are two categories of business LOCs. These comprise:
As mentioned earlier, business LOCs offer greater levels of flexibility. Lenders give businesses a specific credit limit. As such, business owners can use the funds on offer whenever the need arises. In addition, they have the freedom to use the working capital or start-up business credit for purchasing anything of their choosing. Thereafter, the business owner will need to make regular payments, based on the outstanding balance on the LOC.
In contrast, term loans refer to fixed amounts of funds. Lenders provide these funds to borrowers for a pre-determined term. The business owner takes the entire funds in one lump sum. Thereafter, the business owner will need to make the repayments based on a pre-arranged schedule. This repayment schedule will usually remain uniform throughout the tenure of the loan. In some cases, lenders only provide these loans for specific purchases i.e. purchasing buildings, vehicles, equipment that the business requires.
Revolving credit often works out to be more beneficial for business owners than term loans because:
Contrary to popular perception, small businesses have played a major role in helping the US recover from the recession. According to the US Small Business Administration (SBA), small businesses helped create 60 percent of the net new jobs in the period from mid-2009 to mid-2013. A study by Jessie Hagen of US Bank revealed that 82 percent of businesses failed because of poor cash flow management skills. Unsurprisingly, how to obtain business credit remains the biggest challenge for many small and midsize business owners across the country.
At Midwest Corporate Credit, we believe that lending is more than a set of numbers and guidelines. We know that for small businesses to thrive, they will need obtainable and reliable financing. So, we connect small business owners with lenders, while we take care of all the paperwork. We match lenders offering the best products to small businesses based on the approval patterns of lenders in our database. By doing this, we secure optimal results for our clients, resulting in a 97 approval efficiency rate. To obtain a funding estimate, click here. Or, call us at 630-376-6063 for more information.