5 Reasons to take out a business line of credit

Nicki Ghazi

Thursday, 20 February 2020

No business runs smoothly 100% of the time. Like anything in life, revenue ebbs and flows. Depending on the nature of your product or service, your business might see a greater fluctuation in revenue than others.

Regardless of whether your business is seasonal or not, using a line of credit can be highly advantageous for a number of reasons.

In short, a line of credit can save your business from slipping when cash flow is tight. What if one day, you find yourself unable to pay staff or suppliers due to a temporary dip in revenue? These things happen from time to time, but you shouldn’t let a minor hurdle become something much bigger.

A line of credit can also fund short-term business activities like stocking up on seasonal inventory, funding marketing campaigns and ensuring deadlines are met. Here’s why many business owners opt for a line of credit over traditional term loans.

It’s like a credit card, but better

A line of credit works just like a credit card, where you have a set amount of funds available to withdraw as needed. The key difference is that you only pay interest on the money you touch. This makes a line of credit an affordable solution for businesses who can’t always predict when their next paycheck is due. Unlike a credit card, you have the option to choose from secured or unsecured lines of credit, to suit your preferences and business needs.

In short, a secured line of credit requires collateral (an owned asset that you put on the line for security). If you don’t have appropriate assets for collateral on hand, an unsecured line of credit allows you to borrow money without having to put anything on the line upfront. Of course, this comes with a cost—namely, higher interest rates.

You can’t be everywhere at once

When you’re running a business, you’re wearing multiple hats everyday. At some point you have to delegate tasks, and counting on others to understand your vision can be a scary thought. But as a business owner, your number one role is to ensure money is coming in and staff are being paid, retaining the resources and customers you need to operate efficiently and grow.

That’s where a line of credit can become your lifesaver. Having a backup plan to keep your business afloat is a huge relief. There’s no need to worry about where you’ll dig for a dollar if you hit a dry spell—simply withdraw the funds you need and pay them back when sales pick up again. As long as you’re making minimum repayments, you have the freedom to pay back funds when you’re comfortable to do so.

Manage cash flow like a pro

Using a line of credit is a great way to manage cash flow, especially for seasonal businesses who need to prepare for fluctuations in revenue.

For example, if your company makes money in the warmer months, but is closed for business when winter rolls around, a line of credit can tide you over until the weather picks up again.

Other businesses (whether seasonal or not) simply have an inconsistent cash flow. A line of credit ensures operating expenses are taken care of while you wait on accounts receivable.

If purchasing goods in bulk can save you money, a line of credit also affords you this option. Why not take advantage of the extra cash available to you?

No fixed terms, use as you need

Unlike a traditional term loan, where you make consistent repayments (usually on a monthly basis) over time, a business line of credit can be used and repaid as needed. When revenue is down, you won’t need to worry about how you’ll make repayments every month.

Pay the bare minimum until revenue picks back up, and dip back in as many times as you’d like (until you reach your limit). Seeing as you’re only paying interest on the money you use, consider your peace of mind free!

Open doors for your business

Many businesses who apply for finance are declined due to a negative credit history, or lack of one. Building up your credit history to prove you’re a reliable borrower is key to a higher chance of approval.

But how?

A line of credit is more than just a source of funds. Successfully managing your payments can drastically improve your credit history over time, leading to a higher chance of getting a ‘yes’ from your lender in the future when you need credit.

Also, in cases where business owners are unable to secure traditional finance, some opt for a line of credit as they can be easier to qualify for.

Every business is different, which is why speaking to a professional who specialises in your product or industry can help you tailor a finance solution that makes sense for you.

Find out how a line of credit could benefit your unique business objectives by contacting a product specialist at Valiant on 1300 780 568. You never know what’s around the corner—one day, it could save your business.


Nicki is our Senior Working Capital Manager. She works with a team of talented product specialists, leveraging 25 years combined experience to help Aussie businesses find tailored finance solutions.

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