There’s no question that every business needs a little credit sometimes. Small businesses can have problems with cash flow because a few customers take longer than normal to pay. Corporations may want to invest in promising projects even though they don’t have enough capital on hand for them. Manufacturers may want to buy raw materials from vendors in bulk to take advantage of better pricing tiers. In all of these situations, lines of credit can help. Why is a line of credit a better choice for your business than a credit card?
How Do Lines of Credit Compare to Credit Cards in Interest Rates?
It’s true that a line of credit works similarly to a credit card in that you can access funds whenever you need them. That’s about where the similarities end, however. Lines of credit are worlds ahead when it comes to fees, interest rates and spending limits.
A business line of credit generally offers far lower interest rates than credit cards, especially personal credit cards. A few percentage points may not seem like much, but for business owners who use credit frequently to assist with cash flow, the difference adds up quickly. If you want to save money, you should always apply for a line of credit for your business, even if you also have a branded credit card to simplify purchasing for your employees.
Which Option Offers Lower Fees?
Some of the most dreaded things about credit cards — hidden fees and late payment fees — often don’t even exist with lines of credit. If you have an outstanding balance on a personal credit card, interest rates skyrocket upwards and require monthly payments. A line of credit works more closely to a microloan, where interest is calculated only on the amount of money you actually use.
In other words, the interest rates you see for lines of credit is what you have to pay, not any crazy fees. The terms are somewhat different with each lender, but repayment is usually flexible, allowing you to pay off the balance, either whole or in part, in a specified amount of time.
How Can You Find the Best Lines of Credit?
To benefit as much as possible from a business line of credit, you need to choose the right lender. It’s important to read the fine print and ask questions. That way you know exactly how much the interest rate is and what type of fees there are, if any. Friendly lenders are happy to explain everything so getting started is a breeze.