Many Companies Avoiding Business Lines of Credit – Good Idea?

Business Lines of Credit

Since credit lending froze in late 2008, consumers have been reluctant to apply for and use credit. In fact, they have been running the opposite direction, choosing to pay off debt and save money, rather than spend it. Some business owners have adopted this philosophy, choosing to refuse credit lines and instead attempt to run a business strictly within their means. While this is a financially sound plan, it may not necessarily be such a good idea to avoid getting a business line of credit altogether.

There are two ways to use a business line of credit. The first way is to use it to expand and develop a business, hoping the benefits will pay for the expenses. Many business owners oppose this approach in a sluggish economy, shunning the idea of debt and interest. However, business lines of credit also serve another important purpose: Emergency cash flow.

What happens if your biggest client fails to pay an account on time, leaving you with no money to meet payroll? In another scenario, how would you make ends meet if multiple pieces of equipment broke at the same time, leaving you with no money to pay your overhead costs? You could resort to a business credit card or a cash advance, but you will likely pay exorbitant interest rates. If you had a line of credit, you could access the cash hassle-free, and repay it when you can.

If you do not have a business line of credit, do not wait until you need cash to apply for one. Lenders want to offer credit lines to businesses with healthy cash flow and no financial problems. Few banks will approve your credit line if an inspection of your business accounts reveals that you do not have enough money to pay your taxes. Instead, apply for a credit line as soon as you qualify for one – usually after your business has been established for one to two years.

For more information, go to Business Lines of Credit at

Many Companies Avoiding Business Lines of Credit – Good Idea? was last modified: February 14th, 2012 by Amit Kraidman
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