How to Choose the Best Line of Credit
Business lines of credit are not built alike. In fact, they wouldn’t be very useful if they were. Credit lines have variable sizes, interest rates, and access restrictions to allow them to flex and meet the needs of more customers. Lenders use that to market themselves into a niche, so if a provider does not offer you the terms you want, it’s worth shopping around. When you do, make sure you’re looking at more than just the interest rate.
It helps to start with a purpose in mind. Will your next credit line serve to facilitate cash flow by giving you a way to pay suppliers? Is it meant to consolidate purchasing expenses for petty cash-type items? Is it for working capital when the invoice cycle is working against you? Once you have decided why you want it, finding the right one is easier. This also means it might be better to get multiple credit products with dedicated purchases under some circumstances. One example would be using a credit card as a line to consolidate purchases onto a balance sheet and a regular credit line with a cash draw to manage cash flow.
Lines of credit sometimes come with grace periods, and if you are using one primarily as a cash management tool, it’s worth considering whether this will allow you to accomplish your goals with less interest paid out and lower financing fees. If the line’s annual fees are more than the savings, it’s not a good deal, but there will probably be a good deal out there if you do want a grace period built into your product.
Interest rates are also highly variable and worth shopping. In general, the higher your income and credit score, the bigger the line you can get. The bigger the line, the lower the interest rate tends to be, for many of the same reasons that justify the larger available balance. This means some lenders are going to be inefficient for smaller accounts, they are just used to servicing large ones. Finding a lender who focuses on businesses in your size range is a great way to contain expenses and get more of the features you want.
Don’t rush your quest for good lines of credit. Start your research early, and don’t be afraid to keep looking until you find someone who can offer you all the options you want. It might not be possible to access them all at once if your company is very small, but if a lender will work with you as you grow, you can easily gain them as your business develops.