Businesses of any size often need outside financing to maintain sufficient cash flow at various stages of growth. Many companies find that revolving lines of credit work well for them. Here are some details you should be aware of if you are considering this form of funding.

What Revolving Lines of Credit Are

Revolving lines of credit function in a manner similar to credit cards. Your business obtains a line of credit from a lender up to a predetermined maximum amount. You can draw funds whenever you need them up to this amount. As you pay it back, either in regular payments or in a lump sum, you once again have access to the line of credit. This arrangement can continue indefinitely as long as you maintain a good relationship with the lender.

How to Obtain Revolving Lines of Credit

Lenders for revolving lines of credit typically finance companies or traditional banks. To qualify, your credit score has to be adequate for their requirements. For this reason, if you are considering applying for a line of credit, keep your credit score high by paying bills on time and resolving any questionable items in your credit report. Be ready with financial data that confirms your company has sufficient cash flow to pay back amounts that you draw from the credit line. Lenders may also ask how you’ll utilize the credit line, so have detailed proposals prepared that delineate, for instance, the marketing plans you plan to implement or equipment and inventory you plan to purchase. Request a maximum line amount that is no more than about 20 percent of your company’s annual revenues, or lenders may turn you down.

Advantages of Revolving Lines of Credit

Lines of credit allow your business to access funds whenever you have a shortfall. For example, you can use the funds to take advantage of sudden opportunities or finance business expansion. Unlike traditional loans, which you receive one time only in a lump sum, revolving lines of credit are available on a continual basis as long as previous withdrawals are promptly paid off.

For more advice on revolving lines of credit, contact Simplicity Capital Finance.