It happens to many people in small businesses and usually through no fault of their own. The day when what’s pretty much the last penny you have drops hard and you realise your day-to-day finances are in a pickle, and the only way out is reaching out for credit.

You need a business loan and you need it fast, but which way do you go? What’s the best option for you, your current financial situation and, what most people overlook in the rush for a quick fix, the future of your small business?

Ask around and you’ll hear the usual suggestions for business funding, such as a traditional bank loan, bank overdraft, even a credit card, because that’s what people have always done. But if you think smarter, broader and more long term about the ongoing financial health of your business, a line of credit could be your answer.

How does it work?

Put simply, a line of credit is an available balance of cash that you can draw upon at any time, making it the most flexible form of credit. When you apply for your line of credit, you’ll be approved for a certain available balance, which is cash that you can draw on if and when you need it.

Taking out a line of credit is not a new idea in business finance, but what is new is the way line of credit is being offered these days by innovative providers such as Propell, who make credit easily available via a smartphone app. Also, with Propell, you only pay fees when you draw down on your available cash. Otherwise it’s free to have sitting there for an extra piece of mind, and any balance you repay is returned to your available balance, so you can draw on it over and over again.

Compare the offerings

Are the benefits of a line of credit right for you and your business needs? Or should you stick to the more familiar offerings? There are pluses and minuses for all the options available, they’re all worth tabling and considering from your point of view.

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LINE OF
CREDIT
TRADITIONAL
BANK LOAN
BANK
OVERDRAFT
CREDIT
CARD
PRO’s

  • No annual fee
  • Often greater limit than a Credit Card
  • Cash, not credit
  • Only pay when you use it
  • Considers business activity not personal credit history
  • Fast online application

PRO’s

  • Cash, not credit
PRO’s

  • Cash, not credit
PRO’s

  • Most have a Rewards program
  • Fast application
  • Great if you can repay amount in full each month
CON’s

  • Usually no Rewards program
CON’s

  • Full amount is interest bearing
  • Small businesses can find it hard to get approved
  • Usually involves supplying a lot of paperwork
  • Ongoing fees
  • Usually no rewards program
CON’s

  • You need to go into the bank to apply
  • No set repayment schedule (could be pro or a con)
CON’s

  • Annual fee
  • Usually lower limit than other options
  • Credit, not cash

When you compare the pros and cons, you can quickly see there’s a lot to be said for taking the line of credit option. But if you need further convincing, here are a few more benefits to keep in mind.

It’s another business tool

Having a line of credit can do more than solve financial issues. So you can also take advantage of new opportunities that come your way, or meet other short-term needs that arise helping you improve your business.

In fact, many small businesses take a strategic approach to using a line of credit to make sure they have access to the resources they require to meet day-to-day working capital needs and fill other short-term financial necessities.

An additional business strategy is to use a line of credit as part of a larger capital access approach, including short-term and longer-term financing to fuel growth and fund other revenue-generating projects. For instance, a line of credit could be used for purchasing inventory, repairing business-critical equipment, financing a much-needed marketing campaign, or bridging a seasonal cash flow gap.

Everyday examples

Here are a few examples of everyday small business situations where a line of credit could prove a good idea.

Perhaps you’re a seasonal business that generates most of your sales in the summer. You could use a line of credit in the offseason to help cover overheads as you bridge from one season to the next. Having a line of credit could allow you to maintain normal business operations even though your income fluctuates due to seasonal trade.

If you need to do a better job of getting your name out there, or you have something special you’d like to promote, you could use a line of credit to finance a marketing campaign to attract new customers and expand sales. It’s a move you could recoup quickly from because the campaign would potentially generate additional revenue.

Another example is if your business needed to buy parts or materials for the next job, while you are still waiting for payment from the previous jobs. Having a line of credit at your disposal could be useful for cash management and save you a lot of stress.

Get the ball rolling

If you think a line of credit could be useful right now for your small business, get in touch with Propell about small business finance that can keep your business moving forward. With a line of credit up to $100K, plus customer card repayments, Propell can help you keep going strong now and into the future.

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