Why Every Business Should Have a Line of Credit
Running a business is hard work and it is important to have contingency planning for just about everything. While people try to avoid too much credit in their personal lives, business owners are usually scrambling to get more credit for their businesses. If you own a business, then there are several good reasons why you need at least one active line of credit.
In a perfect world, your customers pay their invoices on time and you can use those invoice due dates to make sure that you are always able to make payroll deposits to make sure paychecks do not bounce. In the real world, customers are constantly late with payments and that is not something your employees should have to suffer for. A line of credit can make sure that you make payroll every time and avoid the problems that come with bouncing paychecks.
One of the worst financial habits a business owner can get into is looking at their line of credit as just another way to pay the bills. The line of credit should only be used in emergency situations, and then it should be paid off. For example, a field employee is trying to get back home but their credit card has been denied. The fastest way to help would be to use the line of credit, but then work out a way for the employee to pay it back.
When There Is Nothing Else
Remember earlier when we talked about customers paying invoices late? If you do not stay on top of that, then there will be weeks when you receive no customer payments at all. On those weeks, your line of credit is all you have to pay vendors, make payroll, and keep your company going. The best way to appreciate a line of credit is to try to imagine what you would do if you had no cash flow for a week. Would you take out a loan? If you want a loan fast enough, it is going to cost a lot in interest. A line of credit is the best solution when nothing else is available.
Constantly Improve Your Company’s Credit Rating
When you use a line of credit properly, it will enhance your company’s credit rating. At the present time, that might not matter to you in your daily business operations. But when it comes time to finance a change in your business or buy a new piece of equipment, that boost in your credit rating could save you money on a lower interest rate.
Cash flow is the life blood of any business and not having cash flow can cause even the most successful business to close down. To combat the inconsistencies in corporate cash flow, you need a line of credit to keep your business going. A line of credit can help you make payroll, and it can silently boost your company’s credit rating when all you are trying to do is pay the bills.