Drawing the Line for Business Credit Needs

One of your major suppliers has called about a discount on a popular item you planned to stock for the holidays. The offer is only good until the end of week and since you’ve just made payroll, you don’t have the cash on hand to make the required deposit. If you wait to order, you’ll miss the discount and may risk not having the inventory you need for your biggest sales season.

Whether it’s to purchase inventory, make needed equipment repairs, or just the need for available funds to keep your business running until receivables come in, a business line of credit can give you immediate access to money that you need, when you need it. Businesses often use a credit card to meet their short-term needs, especially when they are just starting out, but once the business is established, a line of credit from your local bank is often a better option.

Business Line of Credit vs Business Loan vs Business Credit Card

Not all credit is created or used equally. Business owners may opt for a fixed-term loan, a line of credit, or a credit card, depending on their need. In some cases, there may be a need for more than one type of credit. Let’s look at each type of credit as well as common use cases:

Business Loan.

If you need to borrow money for a major one-time expenditure such as purchasing equipment or property, a business loan with a fixed rate and term is typically the best credit option.

Business Credit Card.

Like a personal credit card, a business credit card provides an unsecured line of credit with a pre-approved spending limit. Business credit cards are widely-accepted and best used for day-to-day business expenses such as office supplies, business travel, or small recurring charges such as membership fees. While you may earn cash-back rewards or travel points for business credit card purchases, credit cards often come with high interest rates. To avoid paying those higher rates, it’s advisable to , paying the balance in full each month and on time to avoid late fees.

Business Line of Credit.

For ongoing access to short-term funding, a business line of credit may be exactly right, with peace of mind knowing that payroll, taxes, rent, and any unexpected expenses can be covered so your business isn’t disrupted. A revolving line of credit can be secured or unsecured, and offers convenient ways to access funds via check, debit card or transfer to your business checking account. Line of credit limits are often higher than those of a credit hard, and interest rates are typically lower. You can use and repay what you need, while still having access to the full approved amount.

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Is a line of credit right for your business? Any business owner can appreciate the convenience a pre-approved line of credit offers, but businesses that rely heavily on credit cards and receivables, are seasonal or cyclical, as well as rapidly growing businesses may most appreciate the easy access and flexibility.

Learn more about business credit options or talk to your banker to find the solution that best meets your needs.