How Can Small Business Owners Use a Line of Credit?

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In partnership with Headway Capital

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By Jim Granat

Feeling overwhelmed with the various options for small business funding? You’re not alone. A recent study by the Small Business Administration found that small business owners borrow $600 billion each year (and that doesn’t even include alternative forms of financing like equity investments or buyouts). All of that funding comes in many forms: line of credit, SBA loan, MCA loan, etc. There are pros and cons to each, and only you know what’s right for you and your small business.

One of the most popular types of small business funding is a line of credit—and for good reason. A line of credit can feel more personalized to your funding needs than other types of financing because you can take out draws on what you need, when you need it. You’re only required to pay interest on the portion of the money that you borrowed. As long as you’re able to make regular payments for the amount you withdraw, a line of credit provides the flexibility most small business owners need to propel their small business forward.

Let’s break down what a line of credit entails and how you can effectively utilize those funds to benefit your business.

What Is a Small Business Line of Credit?

A small business line of credit works similarly to a credit card. Once approved, you’d qualify for a credit line up to a maximum amount and you’re able to draw funds when you need it up to that limit. When you repay what you borrow, you reopen access to those funds, allowing more flexibility than installment-type loans (e.g. term loan, certain SBA loans, etc.). You may prefer this revolving-style credit for its ongoing availability without the headache of having to reapply for the funds you need.

When choosing your lender, make sure they’re transparent with any fees or payment terms and allow you access to your credit 24/7/365. Certain lenders, like Headway Capital, also offer additional benefits like zero penalty for early payoff or non-compounding interest.

What Can a Small Business Line of Credit Be Used For?

Small businesses have a variety of needs and the flexibility of lines of credit are perfect to meet those needs. Here are just a few examples of potential uses for your new funding source:

  1. Hiring Freelancers or Ad Hoc Help.

As a small business owner, you probably wear a lot of hats. Marketer, accountant, human resources—the list is endless. For some tasks, it saves you more to put in the extra time to do it yourself. However, there will probably come a time where a task arises that is out of your skill set or is simply not worth your time and resources. You can use your line of credit to bring on some additional help. You can use your funds to hire a graphic designer to give your logo a refresh or get some help moving inventory that could take hours.

  1. Purchasing Equipment and/or Supplies

Time is money, so efficiency is key when running a small business. Maybe you don’t have the proper tools to run things as cost-effectively as you’d like. Maybe you do have the right tools, but they aren’t functioning in a way that keeps your operations running smoothly. Purchase or upgrade your equipment where appropriate to streamline your processes and allow you to prioritize the most important part of your business: the customer.

  1. Surprise Expenses

While we hope you wouldn’t have to use your line of credit for a last-minute expense or an emergency at the store, it can happen! A line of credit can provide peace of mind in high stress situations when things don’t quite go your way. Maybe a vendor falls through and you have to find a last-minute replacement—a line of credit is always there for you to take a draw when you need it.

No matter the reason you’re considering a line of credit, be sure to do your due diligence in determining how you’ll best use it and what type of lender you’ll use. A small business line of credit can be just the leverage you need to take your business to the next level.

Apply in minutes on Headway Capital to see if you qualify for a business line of credit and start propelling your business towards success today!

Jim Granat is the head of Small Business Financing at Enova, where he helps small businesses take charge of their finances. He has worked in small business financing for over a decade and gained visibility into what small business owners need and expect.

Lender stock photo by fizkes/Shutterstock

The post How Can Small Business Owners Use a Line of Credit? appeared first on SmallBizDaily.

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