The Pros and Cons of a Business Line of Credit

Small businesses are increasingly having to utilize non-traditional sources of funding. Though these sources of credit may not be perfect for every business, they are at least options to keep small businesses going through rough times. Here are some advantages and disadvantages of a non-traditional business line of credit.

ADVANTAGES/DISADVANTAGES OF A NON-TRADITIONAL BUSINESS LINES OF CREDIT 

Advantages 

• Access to cash quickly – With unsecured business credit cards, you can use as much or as little credit from your line as you want to, anytime and anywhere.  

• High credit limits – Business credit cards carry high credit limits, making it extremely convenient to finance larger business purchases. Many cards even offer 0% APR for the first 12 months. 

• Flexibility – With business credit cards you have flexible payment options compared to a fixed month-to-month payment that comes with a business loan. When you tap into your credit line, you have three options every month. You could pay the full amount due, pay at least a minimal portion of the balance or pay greater than the minimum amount due.  

• True separation – Business credit cards enable business owners to separate personal and business expenses while benefiting from business credit reporting. This makes it possible for business owners to establish the creditworthiness of the business itself.  

• Personal credit protection – Small business credit cards that report solely to the business credit agencies allow business owners to protect their personal credit ratings while building their business credit.  

Disadvantages 

• Accumulate Debt – Without a fixed payment schedule, business owners may be tempted to simply pay the minimum monthly payment on its outstanding balances. Compound interest can really add up, especially if a company carries large balances.