As credit markets tighten, there is a disturbing trend of credit being used inappropriately. Everything, from home equity lines of credit to personal credit cards, are being used to fund businesses. Although this trend does mean that these companies are able to find funding, it also means that they are exposing themselves to greater risk. One of the larger culprits in this trend is the misuse of business lines of credit. We will be discussing this in greater detail, in today’s article.
Business lines of credit should only be used for temporary cash flow reasons and to deal with certain types of emergencies. What this means is that if you have incoming invoices from customers that are needed to pay for your current operating expenses, you can use your credit line instead of petty cash in order to pay for these expenses.
You can avoid paying much interest to help you stabilize your company’s month-to-month cash flow if you use business lines of credit in this way. Of course, this is assuming invoices are being properly collected, as they should be. This certainly is a positive way to use your credit line.
However, there is a disturbing trend of using business lines of credit for long-term expenses. Using a credit line to pay for things such as equipment or other office upgrades, simply for the reason that you do not have additional credit available, is a dangerous trend. You will pay higher than average interest rates on these purchases. As such, you are decreasing your profit margins and your ability to compete in the marketplace.
For more information, go to Business Lines of Credit at http://www.unsecuredbizloan.com/business-lines-of-credit/