Editor’s note: Michelle Stockman works with Little Rock-based Arkansas Capital Corp. to promote entrepreneurship development around the state. Stockman earned a bachelor’s degree from Loyola University-Chicago in communications and fine arts, and earned a master’s in entrepreneurship from Western Carolina University. Her thoughts on business success appear each Monday on The City Wire.
While the economy is signaling times for business owners to tighten their financial belts, some businesses will need to seek some funding to get through a slower economy or burst into a new industry. One simple way to inject money into the business cash flow is through a line of credit.
A line of credit is much like a credit card, where financial institutions will loan a small amount of money for a short period of time to a business. Typically the line of credit offers cash to the business, but other forms of credit can be extended based on the business needs.
The amount of money received by the business and the length of time the business has to pay back the funds to the financial institution varies widely depending on the circumstances. However, most business can receive up to $100,000 with up to 30 – 90 days to pay the credit line back.
Some businesses can receive lines of credit from their vendors or suppliers. Businesses engaged in manufacturing or heavy retail can often order the supplies or goods from their vendor with a 30 – 90 day pay back policy. Again, the terms of the credit line varies among businesses and industries.
A line of credit is often a quick and useful way of injecting cash into the business while waiting on accounts receivable to rebalance the financial cash flow. Like using a credit card for personal finances, a line of credit should be used with caution in the business.