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Unlike conventional business loans, a business line of credit does not require borrowers to pay EMIs over a fixed period of time. Also, the revolving loan product enables borrowers to access a fixed amount of funds as and when the need arises. Hence, many entrepreneurs prefer business line of credit (BLOC) to conventional business loans for meeting short-term financial needs. They even have option to choose from two distinct types of business BLOCs – secured and unsecured.
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Unlike conventional business loans, a business line of credit does not require borrowers to pay EMIs over a fixed period of time. Also, the revolving loan product enables borrowers to access a fixed amount of funds as and when the need arises. Hence, many entrepreneurs prefer business line of credit (BLOC) to conventional business loans for meeting short-term financial needs. They even have option to choose from two distinct types of business BLOCs – secured and unsecured. The entrepreneurs can avail unsecured BLOCs without using any asset as collateral. On the other hand, secured BLOCs require entrepreneurs to pledge short-term assets like inventory or accounts receivable as collateral.
Normally, unsecured BLOCs are smaller than secured LOCs. Also, the lending institutions provide unsecured BLOCs only to businesses with excellent credit score and positive credit track record. However, the entrepreneurs can use both secured and unsecured BLOCs to finance short-term working capital needs. They still need to keep in mind the restrictions imposed by the lending institutions on using BLOC. For instance, many lending institutions do not allow borrowers to use BLOC to fund startups, cover past losses, or meet business expenses not relevant for core business operations. Likewise, certain lenders allow entrepreneurs to use BLOC only to finance short-term working capital needs. That is why; the small business owners must understand the terms of lending before using BLOC. However, they can still use BLOC for various purposes.
Understanding How Enterprises Use Business Line of Credit Improve Cash Flow Position The operating activities of an enterprise are directly impacted by incoming and outgoing of cash. The enterprises must explore ways to maintain a positive cash flow position to carry on business activities smoothly. Many enterprises use BLOC for improving cash flow position by accessing funds by paying interest only on the credit they use and without paying fixed EMIs. Here are a few tips to manage business cash flow.
Making Timely Payroll Often adverse cash flow position makes it difficult to small businesses to make payroll fully and timely. Many employees start feeling demotivated when the payroll is late. Likewise, some employees also start questioning the enterprise’s financial integrity if the payroll is late. BLOC makes it easier for entrepreneurs to maintain a positive cash flow and make payrolls on time. Manage Inventory Needs The small businesses and startups must assess and manage their inventory needs efficiently to supply the products required by each customer on time. The seasonal businesses even need to purchase adequate inventory to meet customer demands during the peak seasons.
Many entrepreneurs use BLOC to meet their inventory needs and purchase inventory. A BLOC is a revolving credit product; it becomes easier for the business owners to repay the credit as soon as the products are sold. Also, BLOC makes the fund accessible to purchase new inventory. Increase Working Capital Often lending institutions assess financial health of small businesses based on their working capital, i.e., current assets minus current liabilities. The entrepreneurs even explore ways to keep working capital positive to carry on business activities smoothly and meet short-term financial obligations timely. Unlike conventional working capital loans, BLOC enables enterprises to increase working capital without making fixed monthly payments.
