Advantage and Disadvantage of Business Line of Credit

Advantage and Disadvantage of Business Line of Credit

A business line of credit is a flexible loan that functions similarly to a credit card for businesses. When a loan is granted, the borrower receives a specific amount of money that they can withdraw at any moment but the owner does not over the borrowing limit, they can use their available cash. For businesses that require cash quickly, a line of credit is an excellent option. You can use your available credit at any moment and no registration is necessary when you’ve been accepted for a credit line.

Advantage and Disadvantage of Business Line of Credit

A business line of credit does have a lot of benefits for borrowers, but that doesn’t imply it’s right for every business.

Advantage of Business Line of Credit

  • Money when you need it: You don’t have to dig through your couch cushions for loose change or take out a high-interest short-term loan to cover an unexpected need.
  • Peace of mind: Having a separate account to pay expenses can go a long way toward assisting you in operating with confidence.
  • Additional praise for your efforts: Because a revolving line of credit can be used again and again, you could get a lot of money for your time and work.

Disadvantage/Cons of Business Lines of Credit

After analysis of advantage of business lines of credit lets see the disadvantage or cons of business line of credit. As we know Nothing in life is prefect, same as business lines of credit. It also have some drawback. So weather you choose or not keep the following points keep in mind.

  • High Interest Rate – Business lines of credit have high interest rate and these are usually in the double-digit range from 16 to 20% or more then 20%. Initially many company lines of credit have hidden initiation, processing, and maintenance fees. Lender not analyse these things in start and all of which dramatically raise the cost So better to read terms print carefully before start.
  • There Are Wolves- Not all business lines of credit have bad value but some have bad experience specially offer by predatory institutions. They want nothing but harm your business revenue. So be careful of offers that approach you rather than waiting for you to approach them.
  • Low Limit – Business lines of credit typically have higher limits than a credit cards but less limits than instalment loans. It is not a good solution for your business if the line’s limit is lower than your requirements.
  • It is time Consuming – To apply for a business line of credit, you have to provide bank statement both personal and business, tax return and profit and loss statement.

Final Word-

No draught! Business lines of credit is the right choice for any business but be careful from above disadvantage of business lines of credit.

 

 

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