For financing flexibility, nothing beats a revolving credit line (RCL). Structured much like your personal credit card, RCLs allow approved borrows to tap only as much as money as needed to stay atop seasonal and business cycle fluctuations. Application and repayment requirements are generally far simpler than loans and other common financing options.
However, an RCL is by no means a panacea for a small business, nor is it entirely free of requirements and risks. In just 60 seconds, we’ll show you how to determine if an RCL is right for you.
0:54 What Do You Need and Why?
An RCL is suitable for temporary, short-term needs such as covering cash flow, purchasing supplies and inventory, and financing receivables. For larger, long-term investments such as new facilities, equipment and other fixed assets, a conventional business loan or other financing mechanism may be more appropriate.
0:48 Shop Around
Procedures to qualify for, use and repay an RCL vary among banks. Nearly all charge fees for start-up, transactions, and annual use. Some also require collateral and annual reviews of how you’re using your RCL.
0:35 Consider the Costs
An RCL offers the convenience of credit cards, and many of the risks. You must manage these funds wisely to make sure you don’t abuse them. Unlike loans, interest rates on an RLC may vary with the market, your balance and other factors.
0:27 Line Up Your Qualifications
Your application for an RCL will require financial and operational information about your business, as well as your personal credit history. Your business plan should already contain much of this data, but the bank may ask for other submissions.
0:14 Build-in Sound Budgeting
Just because you qualify for an RCL doesn’t mean you have to use it. Good business planning, financial management and operational skills can help you minimize the need for an RCL (and, accordingly, your debt), leaving those funds available for true emergencies.
0:06 Cash In on Experience
Assistance with RCLs and other forms of business financing is always available from SCORE. Experienced counselors can help you through every step from needs assessment to applications and money management. And with no charge, these services are an ideal investment in the future of your small business.
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