By Fernando Berrocal

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As a starting business owner, you should be aware that (according to a recent survey on the condition of small businesses)  cash flow is one of the top concerns for both small business owners and startup entrepreneurs alike. That is most certainly the case since your ultimate success in any business environment depends on having a reliable income flow for your enterprise. 

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Unfortunately, the ups and downs of any kind of business (in any industry), such as  slow-paying customers, high operational costs, and other significant variables can occasionally lead to a financial crunch. A business line of credit enters the picture in this scenario. Read on to find out why every entrepreneur should establish one for their business.

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First, be aware that a business line of credit is essentially flexible, "revolving" financing. Similar to a regular business credit card, a business line of credit allows you to access cash pretty quickly. Since you may use the money for almost any kind of business purpose, this uses money that is considerably more flexible (it can go from buying inventory to reducing other debts to paying employees). 

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The fact that a business line of credit is seen as revolving capital sets it apart from other regular loan products. Like with term loans, you do not receive a huge chunk of money upfront. Instead, you are free to use the funds any way you see appropriately. As you pay back the money you borrowed, your credit limit is essentially increased. In this manner, you will have access to a source of money as long as you continuously make the payments established. This is extremely helpful in the event of unanticipated expenses.

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Second, a business line of credit may be far less expensive than alternative forms of funding. A business line of credit typically provides fair terms and rates, with an interest rate ranging from 7% to 25% (on average). In other words, it frequently costs less to obtain finance this way as opposed to equipment and invoice financing, business credit cards, or even short-term loans. Of course, your credit, income, length of business, and other criteria will all affect the specific rates and terms you receive. An additional consideration will be, the stability of your business's revenue, the more probable it is that you will be approved for a large credit limit with favorable rates and terms. Before accepting an offer, make sure to compare it to other available possibilities. Furthermore, you only pay interest on withdrawals. You won't be assessed interest when the business comes up–and you don't need to use your credit line.

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Third, a business line of credit keeps you in command. Few forms of finance provide you as much control as a business line of credit. You are free to utilize the money any way you see appropriate.  You  are not obligated to abide by the requirements of lenders or investors. For instance, it's concerning that many business owners who create great organizations don't hold executive positions when the firm goes public. Only half of the founders remained Chief Executive Officer (CEO) after three years for firms in the late 1990s and early 2000s, according to Noam Wasserman's research.

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This is mostly a result of investors' insistence that they give up control. So, while seeking funds from investors might help a firm succeed greatly, it can also result in management issues. A business line of credit, on the other hand, provides you with money without requiring you to answer to anyone. You can create your firm in the manner of your dreams with this approach.

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Fourth, approving a business line of credit is a rather simple procedure. A line of credit is a reliable and easily accessible funding option for both new and existing businesses. In general, you merely need to have been in the business for 6 months or more and make at least $50,000 yearly. Keep in mind that these conditions are based on how strong your business is. A personal guarantee can be used as collateral or a deposit for an unsecured line of credit, which is also an option. This greatly reduces the risk of borrowing for you. Be aware that unsecured lines of credit can have tougher requirements, a higher interest rate, or both. Choose a secured line of credit if the rates are much better. Equipment, invoices, and other business assets can be used as collateral for credit lines to help you get approved and achieve better terms.

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Finally, a business line of credit complements other forms of funding effectively. Different loans are suitable for various purposes. A term loan from the Small Business Administration (SBA), for instance, might offer a large lump sum to be used for business development over the following five years or beyond. When everyday monetary demands occur during that period, a line of credit might help. You may make sure that a lack of funds never hinders your company by using a clever loan combination. As a result, you can concentrate on what matters–funding an established, long-lasting business.

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Utilize a business line of credit to gain control. It’s true: no loan program is flawless. However, there are explanations for why a business line of credit is one of the preferred funding options for firms. It allows borrowers greater control and is adaptable, inexpensive, and available to most people.  As long as you are diligent and weigh your possibilities, your business can benefit from gaining a line of credit. If necessary, take into account combining with other financing options.  With these finance requirements satisfied, you’ll soon be on your way to a thriving enterprise.

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Ready to bring your startup to the next level? Apply to MassLight’s next batch. MassLight supplies capital and a dedicated tech team. We take equity in return. Have questions? Refer to our FAQ page.