Commercial lines of credit are generally the most flexible type of loan that a company can acquire and use. Also known as operating loans, these allow the borrower to take out a loan of a certain amount and then use only as much of the fund as he needs for whatever purpose he may have. The lender places the total amount into an account that the borrower can draw upon as necessary. As long as the maximum limit isn't exceeded, the borrower can use the money when and how he wants. And he only has to pay back what he's used. He will also only accrue interest charges on the amount he has used.
Traditional corporate credit doesn't work that way. With traditional loans, the lender hands over the full amount and the borrower must pay back that amount with interest no matter how much of the money he uses. He may spend half of the money and then place the rest in an emergency fund, but he still pays interest on the full amount of the loan. That's called over borrowing, and it can result in unnecessary interest expenses over the life of the loan.
Commercial lines of credit do typically incur higher rates of interest. But they offer flexibility that traditional loans can't. Since you can use as little or as much of the credit as you want, you're free to take advantage of opportunities as they come along. If you know that a profitable opportunity is coming up a few months from now, you can go ahead and get your line of credit in place so that you're ready to move when it's time. You don't have to wait until the last month and then possibly get tied up in loan processing that causes you to miss an opportunity.
Commercial lines of credit are also easy to use. Most of them operate like a checking account. The lender will supply you with checks that can be used to draw against the credit line. These checks will be accepted at most of the places that your regular business checks are accepted.
These types of loans also allow you to take advantage of other credit opportunities. You may find that a particular supplier is offering a fantastic discount on products that you need right now. Instead of buying them with the company credit card-thereby generating even higher interest charges-or depleting your business cash fund, you can write a check against your line of credit. You'll pay a smaller rate of interest and get the goods you need right away.
Finally, a commercial line of credit will usually stay in effect for a specific period of time. When it comes close to its expiration date, the lender will contact you about the possibility of extending it. If you've made your payments on time and your business continues to thrive, chances are good that the line of credit will be extended. In fact, it could become a perpetual source of funds throughout the life of your business. The more you use the line of credit and stay on top of the repayment, the better your credit becomes. And that could result in a lower interest rate being offered on the line of credit at the next renewal. It's a financial circle that could spiral upward instead of down, lifting the business owner to ever higher-and more secure-heights of success.
Corporate Credit Concepts specializes in Commercial Lines. For more information about Commercial Lines and how it might benefit your business, please CLICK HERE for a free phone consultation.