What are the advantages of a business line of credit? A line of credit is the largest possible amount that a financial institution can grant to a client. If you have a business, you can take advantage of a business line of credit because you can borrow an amount up to a specified limit for a given length of time. With a business line of credit, you don’t have to continuously apply for loans.
So, whenever you need cash so that you can maintain an inventory, buy supplies, pay utility bills, and pay for the wages of your employees, you can take advantage of the available business line of credit that you have. Consider the business line of credit as something that you can draw out in times of emergencies. If a person or ‘bank’ ever approaches you with a ‘too-good-to-be-true’ loan offer, then it probably is. Always research usury laws and know the difference between loan sharks and legitimate lenders.
As with all loans, a business line of credit also has an annual percentage rate–or APR–that can determine how much you have to pay every year so that you are allowed to tap into the line of credit. Now, what are fitting reasons you shouldn’t buy into a high APR business line of credit? If your line of credit happens to have a high APR, you may soon find yourself getting irritated by having to pay off a sizable chunk of money every year. The same is felt by credit card holders who pay high APR’s; they know that they have to pay off high rates every year, and so they feel that plenty of money is going out of their hands.
A business line of credit is usually an alternative over other means that require high interest rates to maintain, such as credit cards for businesses. So you should never avail of a business line of credit that is a bit worse than a usual credit card. If your business line of credit you are about to get has an APR which makes you pay yearly an amount of money that is nearly the same as the amount you will pay when you use a business credit card, you have to think twice before getting it. There are better lines of credit somewhere that offer a lower APR. The amount paid due to APR can be used for improving many aspects of the business, and you wouldn’t want to miss them out because of the mandatory APR. Therefore, right at the start, don’t choose a line of credit with the high APR.
You only tap into a business line of credit when you need money. If your business is in good shape, perhaps you wouldn’t want to do that often. With that, you wouldn’t want to pay high yearly rates for something that you don’t use often. If your business is in perfect shape, perhaps you can choose a $25,000 credit line with a low APR over a $100,000 credit line with a high APR. The former can actually make you more careful in your financial transactions, because you know you can’t get beyond the stated amount. And if a $25,000 credit line will do you as much good as a $100,000 credit line, you’ll prefer the $25,000, which will usually have a lower APR than the other one.
We have already stated some reasons you shouldn’t buy into a high APR business line of credit. Now it’s up to you to apply the knowledge here to help the financial standing of your business.