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by joão faissal

How a Business Line of Credit Should Be Used

Often, entrepreneurs ask how a business LOC should be used. In previous articles we have primarily focused on the different types of business lines of credit and how they can be used in conjunction with startup operations of a business. However, in this article, we will shift our focus on how a business line of credit is usually used in the course of business for company that has been established. Typically, business LOC and other revolving credit facilities are used to finance the ongoing inventory purchases, payroll, and other short term needs of a business. The long term acquisition of financing equipment, real estate, and other large purchases is typically complete through the acquisition of traditional business loans or SBA backed loans.

The use a business line of credit for the development of a business is most appropriate for businesses that are not overly capitally intensive. This includes professional practices or small businesses that do not require large equipment purposes. Again, a business LOC is a fantastic credit facility for those seeking to establish a small business because it gives you the flexibility needed to draw down principal balances as needed rather than having to take on a lump sum loan. Professional practices and other service related businesses can startup and survive using a line of credit because there are no goods changing hands. Unless you a retailing business or distribution business, you may want to investigate using a traditional business loan versus a business line of credit in order to launch the operations of your business.

As stated above, revolving credit facilities are often used for businesses that have ongoing cash flow needs rather than large scale purchases. As we have stated time and time again, speaking to a CPA can assist you in determining which type of credit facility is most appropriate for you.

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