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Interview Patty

Pros & Cons of a Line of Credit for a Small Business

Make Sure it is the Right Source of Funding

Cash Source With Control
A small business line of credit provides your company with the money it needs to try to accomplish the business goals.

A line of credit is advantageous in comparison to investors because it does not require you to give up control of your business, which is most likely the case with investors. A line of credit also doesn’t require you to dip into personal savings, or ask friends and family for money.

Use
A line of credit also provides flexibility to your small business. Because a line of credit allows you to access money when you need it rather than having to take it in a lump sum like business loans, it provides the cash you need without costing you more in interest. Its flexibility makes a business line of credit a useful tool for managing the cash flow of a business using the line of credit when you need it and paying it off when income comes in to the business.

Builds Credit
Small businesses need to build credit history to obtain future credit accounts and loans. Using a line of credit allows you to build a positive business credit history as you use the line and make the payments on time.

Costs
The costs involved in establishing and maintaining a line of credit are one of the drawbacks of a business line of credit. Establishing a line of credit requires up-front fees to obtain the line. In addition, the business must pay interest on the money it uses from the line of credit.

Cash Flow
Cash flow can be a disadvantage as well as an advantage in taking a line of credit. When money is tight, a line of credit can create a cash infusion to a small business, but at the same time, a line of credit is debt that has to be repaid. Repaying debt can be problematic when finances are tight.

Risk
A business line of credit can also put your small business at risk. Even if your business fails, a line of credit is a business obligation that has to be repaid. Whether you may be personally liable to repay the debt depends on the structure of your business. For example, a sole proprietor may be liable while a corporation may relieve you from any personal obligation.

Source: SmallBusiness

Patty Block, President and Founder of The Block Group, established her company to advocate for women-owned businesses, helping them position their companies for strategic growth. Charting the course for impactful, sustainable, profitable businesses, the beacon is control: of your strategic direction, your money, your time, your staffing, and your ability to bring in business. The Block Group brings together the people, resources and ideas that build results.

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