All manufacturers have issues with working capital at times, especially those with a business that is more seasonal or cyclical in nature. If you sell the majority of your products during the holiday season, for example, you need access to lines of credit to ensure that your business is equipped to meet the demand if it does not have the cash on hand.
Your accounts receivable department may have a stack on unpaid invoices that could carry you through a busy season if only you had paid for them now. Unfortunately, it is more likely that it will be several months before you receive payment of outstanding invoices.
Business Lines of Credit as a Solution to Working Capital Problems
Although some lenders confuse lines of credit with a credit card, they are not the same thing. With the former, you can write checks to yourself or a supplier up to your credit limit. Unlike a business loan where you must pay interest on the entire amount, you only pay interest on the amount that you use with business lines of credit. The interest rate on credit lines also tends to be much lower than on a credit card.
Another way that a line of credit differs from a business loan is that you do not have to provide any information regarding how you intend to spend the money. You must provide this information to banks during the approval process when applying for a business loan. Even if you are otherwise qualified, the banker can still deny your application if he or she does not agree with your plan for using the borrowed money. Additionally, you do not make a payment until you start using the line of credit. With a bank loan, you typically need to start repaying it within 30 days.
To learn more about your business financing options, schedule a consultation with Acquisition Capital Solutions today.