Using A Line Of Credit The Right Way Can Benefit Small Business

Online, January 30, 2011 (Newswire.com) - A line of credit is one of the most common and helpful financing tools used by small business owners. But it can be a double-edged sword, because using funds from a line of credit or small business loans for the wrong reasons can get you into a world of financial trouble. It's important to know when a line of credit should be used to meet a financing need - and when it should not.

Funds from a line of credit should be used for short-term needs, like temporary cash flow gaps, funding accounts receivable or purchasing additional inventory. A line of credit should not be used for longer-term financing needs, such as the purchase of equipment or property, acquisitions or a major business expansion.

The best uses for a line of credit include the following:

• Improving cash flow. This is the most common use of a line of credit; evening out the financial peaks and valleys every small business experiences.

• Meet short-term working capital needs. When your business has an unexpected cash shortage due to unforeseen circumstances, a unsecured loan such as a business loan or personal loan can provide the funds you need to meet the day-to-day working capital requirements, on a short-term basis.

• Take advantage of supplier discounts. It makes sense sometimes to borrow money to take advantage of prompt-payment discounts offered by suppliers, and a line of credit may be just the ticket to do so.

• Take advantage of unexpected opportunities. You may have the opportunity to purchase materials or product at low prices, but what if you don't have the cash on hand to do it? A line of credit can help you act quickly when appropriate.

A line of credit is something you'll want to have in place before you absolutely need it. If you have a healthy, cash-strong business, now is the time to establish your line of credit.