For every small business, it is essential to have access to an emergency fund. It is useful for whenever an opportunity to grow arises which needs financing, or when the business itself is facing a loss or a reduced inflow of cash.
It helps the business grow on a consistent rate, and also provides the support it requires in times of need.
That is where a commercial line of credit (LOC) comes in.
What is a Commercial Line of Credit?
A commercial LOC is an unsecured financing product that allows businesses to avail immediate funding with pre-arranged interest rates.
By having a commercial LOC for your business, you can make sure that you have access to an influx of cash in case of emergencies.
Who Can Apply for a Commercial LOC?
Any small businesses can submit an application for a business or commercial LOC. The corresponding bank then processes the application according to its usual process. Upon approval, grants the LOC for the small business owner to use at their own discretion.
This means that you do not have to use the LOC right after it is issued. Similar to a credit card, it can be issued at a time ahead of its need. The financing amount can then be used whenever you find a need for it.
Benefits of Having a Commercial LOC
In every commercial or business LOC, a certain level of maximum amount is slated to the borrower or small business. That limit is already agreed upon between a bank and the small business at the time the LOC is being issued.
However, it does not mean that the small business has to use the complete amount or liquidate the LOC in its entirety whenever it only needs a fraction of the financed amount.
Instead, the small business can only use a part of the amount that is available in the LOC, and pay interest rates only on the used amount.
This is perhaps one of the biggest advantages of having a business or commercial LOC. Instead of paying large sums of money in interest rates on an amount that you aren’t even using in its entirety, you only pay for as much money that you use.
But that benefit is just the tip of the iceberg. Here a few more advantages of a business or commercial LOC and how it can help you grow your business.
1.Peace of mind contributes to risk taking and growth opportunities. When you take out a business or commercial LOC, you get credible financial backing that secures your business’ future. This allows you to operate in your sector with a peace of mind that your business could get a second chance in terms of any losses.
2. It allows for consistent growth in terms for financing. If you operate your LOC with a careful approach by using only the amount you need and paying off any utilized amount as soon as you can, you can build a better credit rating for your business. This in turn can help you in raising your credit limit, which could help your business make use of higher financing opportunities.
3. Available financing allows you to take advantage of lucrative chances. Every small business gets plenty of chances where only by spending a small amount of funds, it could open doors to a plethora of opportunities. Having available financing in terms of a commercial LOC allows for this growth.
4. It saves you from going through rigorous procedures to secure financing. When any opportunities for growth arise, they don’t wait for anyone. You have to act fast in order to make use of the lucky break they offer. Having a LOC makes sure that you don’t have to wait around to secure funding through loans or other financing products, and this prevents you from missing out on opportunities.
Overall, a Line of Credit Could Be Very Beneficial for Your Business
The benefits of a business or commercial LOC are very advantageous for any business. However, you need to make sure that you are using the product responsibly.
By ensuring that you are not spending any amount unnecessarily and spending only with a focus for growth or sustainability, you can have a LOC work wonders for your business.