Charles Spinelli: Getting Your Business Credit Line
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Charles Spinelli explains that a business line of credit gives your business access to a pool of funding up to a certain limit -- just like a credit card. You can withdraw funds when your business needs them, and you only have to pay interest for that amount, not the total amount available.
Some lines of credit expire after a certain amount of time. Others, on the other hand, can be revolving. If you have a revolving line of credit, your business can use the funds once you've repaid them again, even without having to reapply.
Here's a hypothetical situation -- if a bank gives you a credit line with a limit of $60,000 and you take out $10,000 to buy inventory, you'll only have to pay interest on the $10,000. You can still use the $50,000 left in the bank if you need to. If you need another $5,000 for, let's say -- new computers for your business, you may also withdraw that before you've paid back the $10,000. The interest is charged only on whatever amount you've borrowed.
However, to get a business line of credit, your credit score has to be good.
People generally have a clue about what happens when they have a bad credit score. According to Charles Spinelli, financial institutions could see someone with bad credit scores as a liability. If you have a bad credit score, it will be unlikely for banks or other creditors to offer you a line of credit.
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Besides this, a bad credit score can affect your buying power. For example, you may find making huge purchases such as a batch of computers or transportation for your business if your credit score is not up to par.
However, suppose you go about your finances wisely, and you're vigilant and diligent about what you have to do. In that case, applying for a business line of credit is a great financing method. It offers flexibility in accessing funds for running the company every day. That said, it has its issues.
For example, rushing an application is never ideal, especially when credit is involved. For example, if you unintentionally put incorrect information on the application, like a wrong business address or employer identification number, it will eventually hurt their bid for financing. It can set back businesses even further.
Another thing to keep in mind is to apply for a line of credit when the business is not knee-deep in loans. Applying for lines of credit out of desperation can trigger a spiral of debts. Some business owners apply for lines of credit in the absence of clear plans for fund allocations. Short and long-term financing should be transparently and laid out beforehand.
Charles Spinelli shares his thoughts and insights on business in his blogs. Read them on this site
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