If you have run a company for a while now, you have no doubt come to the realization that fluctuations in your cash are commonplace. There are many reasons for this primarily it is due to lag between the time which you offer services and payment. Many companies offer net 30 arrangements which mean that you will offer service with the expectation of payment 30 days later. As your company grows is not uncommon for this month’s expenses to outweigh the current month’s cash on hand. So dealing with this is just one of a few reasons to get business lines of credit.
Business lines of credit are a sort of extension of your cash on hand. So if you notice that you are spending a great deal to pay for the cost of the services which you provide and you are turning down potential business based on this cash flow issue than a line of credit can work in your favor. Essentially you would borrow against your credit line and then pay it back within the grace period upon receipt of payment from your customers. With some proper planning and good timing you should be able to maintain your line of credit without paying very much interest. Interest rates vary a great deal from loan to loan which brings us to our next use for your credit line.
So it may be that your day-to-day expenses do not usually vary by very much in him which case you may not feel that a credit line is necessary. However it is very common for companies to have sudden unexpected expenses due to emergency circumstances such as flooding, equipment damage, etc. if you do not have a line of credit available to you, you will be forced to pay for these emergency situations with emergency funding. Emergency funding typically comes in the form of a cash advance or other such instrument and these have much higher than average interest. By having a line of credit on hand you can avoid paying for these expensive loans.
You will need to make adjustments to your business if you do not currently make a profit and if that is the case you must have a clear plan of action to change this especially if you are considering borrowing money to pay for your operating expenses. This is just as true for loans and it is important to remember that you should only continue putting money into your company if you are profitable and if not sometimes it is best to clear the slate and start over.