Commercial Lines of Credit: A Helpful Financing Option

By Michael Breisch

“You have to spend money to make money.” This familiar quote illustrates the obvious – that it takes money to run a business.  It also demonstrates the conundrum that confronts many business owners.  Sometimes the money needed to purchase equipment or supplies, rent space, or pay employees is just not there.  Yet the expenses must be paid if the business is to continue.  This is where business seek out sources of commercial financing, such as loans.  Another option is commercial lines of credit, which have several advantages that small business owners often find appealing.

Control of Capital

The uncertainties of business can make it hard for small business owners to know exactly how much capital is needed.  With a traditional loan, a business owner must make a good guess and then live with that decision.  With a line of credit, however, owners can have credit available to a certain amount, but if the full amount is not needed, it does not need to be taken.

Flexibility of Repayment

Similarly, with traditional business loans, the terms for repayment are set at the beginning.  Lines of credit do require a minimum payment (usually to cover the monthly interest) but they can be repaid more quickly as money flows back in.  This flexibility also allows business owners to build a favorable credit history, which can be helpful for future financing needs.

Availability of Funds

Another advantage of a line of credit is that once it’s in place, money can be taken out whenever it is needed.  The application and approval process all takes place when the line of credit is established so there is not a time constraint on getting money from your line of credit.  This availability of funds makes it simpler for a business owner to take money out as needed, even on short notice.

Like all methods of finance, commercial lines of credit are not right for every situation.  When funding needs are more long-term, such as the investment in property or expensive equipment, a line of credit may be more trouble than help.  These kinds of situations are better suited to a more traditional business loan.  If your small business is looking at financing options, we would be happy to talk with you about your needs and determine the best course of action for you. Whether you need a commercial line of credit, a small business loan, or a loan for property or equipment, Federated Bank can help you find the financing solution that is right for you.  Contact a business lender at one of our convenient locations to get started.

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