Your small business is doing well – you have enough cash on hand to cover expenses, and sales are increasing. Getting a small business loan may be the last thing on your mind. But this might actually be the perfect time to apply for one. It is an unfortunate and paradoxical fact that loans are easier to obtain when a firm is doing well financially than when it is struggling. So if you have found yourself in a commercial sweet spot for the moment, here are a few reasons you might want to take advantage of the timing to get a line of credit.
1. Have Cash Ready in Emergencies
Small businesses often run into unexpected drains on funds. For example, what happens if your largest client is unable to make the next payment on time? How do you tide your company’s needs over until that payment comes in? Or what if your water pipes break and you need cash quickly to get your company back up and running? A small business line of credit would allow you to draw funds immediately to cover the gap in either scenario.
2. Prepare for Seasonal Needs
Many businesses are busier in certain seasons and slower in others. A line of credit would provide you with a built-in buffer to cover increased inventory in busy times and to pay for expenses in off-seasons.
3. Risk No Collateral
Most small business lines of credit for less than $100,000 do not require down payments or collateral. That keeps your resources at your disposal while increasing your emergency cash reservoir.
4. Keep Interest Payments to a Minimum
With a line of credit, you only pull out what you need at the time, unlike a bank loan where you get one lump sum at the beginning. With the loan, you start paying interest on the entire sum immediately, but with a line of credit, you only pay interest on what you have pulled out. That can add up to big savings.
The bottom line is that a line of credit can be a great backup plan for your business, and a way to prepare for emergencies. And it is much easier to qualify for a loan before those emergencies arise. If times are good consider talking to a lender to secure a line of credit for the future.