If you are struggling with steady cash flow for your small business, you’re not alone. Clients don’t always pay on time, equipment prices hike every day, and yet you need some cash to handle unexpected challenges and avoid bankruptcy. Faced with such challenges leaves you with only one option of going for credit. According to a study by the NFIB on business cash flow, more than 50% of small business owners are currently operating on a business line of credit. In this, a business is allocated a particular maximum amount of capital based on certain factors like business credit rating and current cash flow. With this understanding, it is important we discuss some of the ways in which small businesses owners use a line of credit
Short term activities
Considering the structure of LOCs, it is important that you use the money responsibly in your small business. You can use it to settle short-term activities such as marketing campaigns, seasonal inventory, and payroll.
Marketing plays an important role in the growth of a business. It helps bring in new customers and retain the existing ones. You need to work out on your name so that your customers and prospects won’t forget about you. Getting some funds from a line of credit will help to push your marketing campaign. For instance, you can engage a freelance writer to post great content on your blog and improve your email marketing. You can also buy ads in the fresh market to assist expand your reach or boost your social media profile with viral content such as video tips and customer references.
Handle seasonal fluctuations
LOC can help your business during seasonal fluctuations such as during low sales periods. You can take up the credit to cover for an interim time until your clients make payments for the products and services rendered.
If you get a huge client, you can use the line of credit to purchase materials for the job while you wait for the client to deposit funds. It can cover production expenses.
Confidence in trade credit
Giving credit to your customers comes with risk. Recent studies show that 81% of business have account receivable invoices that are beyond 30 days past due. When you have a line of credit, you’re more confident to trade on credit because you are sure of a safety net present of the credit delays payment. Therefore, it is possible to continue your business operations while still waiting for the customers to make payments.
You can use a line of credit to build a credit history for your business to qualify for future loans and credit accounts. It will help you create a business credit history as you use it and make timely payments.
Hiring competent staff
Cash flow problems are part of the reasons you are not able to obtain competent individuals to work in your small business. You can use the line of credit to fund the hiring process. Competent staff is a step ahead for the growth of your business. Without good staffing, quality control, and customer services, clients will be unsatisfied, causing a downfall of your business.
You can also use the funds to invest in the staff you already have considering they are your number one asset. Invest in their training, incentive programs, mentoring, employee perks and more. It can be costly, but the returns are worth. Educating and training your staff helps boost their productivity adding value to your business. LOC will also ensure that your employees are paid on time as you wait for your clients to pay.
Purchase new equipment
Use a line of credit to buy new equipment for your business. For example, if you are running a restaurant business, you can add a piece of new foodservice equipment to make work easier and improve on hygiene.
If you are aspiring to get a business line of credit, you will be required to have certain documents. They include personal tax returns, driver’s license, bank statements, credit score, business tax returns, profit and loss account, tax personal returns, and voided business check.
A line of credit provides clear benefits that every small business should take advantage of. However, before obtaining a LOC, compare your options to make sure you obtain the best deal. Besides, analyze your business financial situation and long-term targets. This will ensure that your capital needs are sorted, and it will help you work towards the long-term goals.