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Is a Small Business Line of Credit for You?

March 26, 2020 by OSYB Staff

Will a small business line of credit help you to achieve your business goals? Intuit QuickBooks shares some data for you to consider before you take pen to an application.

Understanding a small business line of credit (LOC):

  • short-term business loan that allows the owner to borrow up to a specific credit limit amount
  • loan is used for short-term needs, such as making payroll or financing inventory purchases
  • may borrow and repay a portion of an LOC balance several times in a given month.
  • not all small businesses need them to operate

How do you know if opening one is right for your small business:

  • if your monthly recurring revenue (MRR) is low or varies monthly , you could use a LOC to provide more working capital for the business
  • if your customer acquisition costs (CAC) are high especially if you are just starting out a LOC might be supportive to help with marketing and advertising costs as you build brand awareness
  • know your profit margins, if they are high you may not need a LOC
  • if your sales cycle is long you may need to consider a LOC to keep your cash flow going

Once you have assessed your monthly recurring revenue (MRR), customer acquisition costs (CAC), your profit margins and your sales cycle, talk to other business owners and find out if they use an LOC. Reach out to your financial professional to determine whether you need a small business credit line or not. Apply the knowledge that you have gained from assessing your own business, studying what other business owners do, and advice from your financial professional to make an informed decision for your small business.

For full article: Should you get a small business line of credit? Pros & cons (plus, 10 questions to ask)

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