Today, we will be looking at a case study on the use of business lines of credit. In the process of today’s article, I will outline some examples of the proper use, and misuse, of business lines of credit.
Example 1) Bob has 4 invoices pending from his customers, all under net 30 arrangements. These 4 customers tend to pay their bills on time and in full, so he’s not concerned about late payments. He decided to keep cash on hand a bit higher to deal with emergencies.
So he offsets these invoices in his monthly expenses using business lines of credit. Bob pays off the balance on the credit line in full during the grace period, and pays no interest. He has a draw period of 10 years and can continue this practice safely into the immediate future.
Example 2) Helen had been running a floral business for some time when a large corporate floral shop moved in across the street. Because they have a better selection and cheaper supply chains, they offer more choices at a lower cost.
Unable to compete with her higher margins, she opts to start offsetting her operating costs with a credit line to lower her prices.
This is a very bad use of a credit line. If you don’t have a clear plan to pay off the money you are borrowing, you shouldn’t borrow money. In such a case, you should make other arrangements instead.
These are just a couple of case studies on the use of business lines of credit, but many other examples will fit into one of these two categories, as well as a small handful of others.
For more information, go to Business Lines of Credit at http://www.unsecuredbizloan.com/business-lines-of-credit/