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Importance of business line of credit

By Contributing Author

When we talked about business line of credit, we know that the entire purpose of looking for one is to make sure that it helps the company afloat. However, there are many companies that do not know the importance of the same and keep themselves away from the benefits of a line of credit.

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Latest look at the importance of a line of credit and understand why it should be considered.

1. It is a secure backup plan

If you are considering options like an installment loan or a vehicle loan or even a mortgage, you should consider a line of credit too because there is no need to specify your purpose while opting for a line of credit. At the same time, it gives you the liberty to spend the entire amount at once and make the repayment as an installment loan or use the amount as and when required. It is an ideal backup plan for businesses that are not yet established and have big plans for working.

2. Flexibility

While looking for any type of loan for your business, you might ok for a particular amount and pay interest on the same, even if you do not use the entire amount you have opted for. However, the situation changes completely with a line of credit because once you have applied for a line of credit; you get approval up to a certain spending limit. With this, you have to decide how close you want to go and accordingly your interest amount will be noted. So, if you use only half of the amount for which you have got approval, you end up paying interest on the same only.

3. It helps in separating your business and personal finances

This is one of the biggest advantages of a line of credit because most of the business owners make the mistake of combining their business and personal finances and regret making a mistake later on. With this being said, if we consider an example of a personal credit card, the same can be used for business purposes as well. If this happens, you might face a number of issues while creating your income tax statement. With this being said you might overlook a tax write off or even add an unrelated expense to your income tax statement.

Keeping your personal and business finances separate is essential for every business owner and one should focus on looking for different ways in which they can achieve the objective. A line of credit is one of the many options that help in achieving the noted objective.









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