When small business owners need financing to spur growth or to help with operating expenses, there are several debt strategies that they might consider. These strategies include both secured and unsecured business loans and business lines of credit that provide the business with the cash it needs. It might be worthwhile to consider unsecured options, like getting a business credit card, simply because unsecured solutions like credit cards provide cash without the promise of collateral. Obtaining a business credit card with a small credit limit is usually not too challenging of a process, but obtaining the right business credit card that does not show up on your personal credit report and it’s important for small business owners to have a strategy in mind with credit cards so they use them appropriately.
Business Credit Card Usage in the U.S.
In 2012 the National Federation of Independent Business cited that 79% of small business owners have at least one business credit card. Taking it a step further, the Meredith Whitney Advisory Group reported that 82% of small business owners use their business credit cards as a mainstay in funding business expenses and expansion.
The reports didn’t specify if the use of business credit cards was a result of the business’ inability to obtain a small business loan or if business owners simply hadn’t explored other funding options. Either way, a separate study reported that fewer than 15% of those business owners who used their business credit cards were using them properly. Implementing a strategy so you can focus on when and where to use a credit card can ensure appropriate usage.
Key Advantages to Having an Unsecured Business Line of Credit
While it might not be the appropriate strategy for all business owners, obtaining an unsecured business line of credit is considered by many as the best way to access cash for your company. The benefit to getting unsecured funding is that you don’t have to pledge any assets to the lending institution in the event you default in a payment, but you would be required to if you were to obtain a traditional small business loan. Other advantages to using an unsecured business line of credit include:
– It provides fast access to funds
– Credit limits range from $5,000 to $100,000.
– It can be used to finance large business expenses or to boost short term cash flow.
– The rate might be variable, but the monthly payments are very low.
Another benefit to getting an unsecured business line of credit is that there are no high monthly payment requirements, but rather as you draw funds from the line of credit you repay on the amount you draw not the entire credit limit. You pay interest only on the amount you use, and as soon as you repay the amount that you pulled from the account it would instantly be available for you to use again.
Drawbacks to an Unsecured Business Line of Credit
Any funding option has both advantages and disadvantages, and when it comes to business credit cards some of its virtues can also be considered vices. They are easy to use, accepted globally, and funds can be accessed instantly. Without restraint and strategic planning it can be easy to spend more than necessary, but the solution is simple. Instead of reaching for the credit card every time a purchase has to be made in the name of the business, analyze what expenses are really necessary and tighten the budget if you find yourself over spending. Internal controls that make it more difficult to go out and swipe the card can be implemented as well.
Funding from an Unsecured Business Line of Credit can Provide Financial Peace
It’s not just a good idea to have funding sources available to you, as a small business owner there may be times when you really need the extra cash. Whether it’s to obtain a discount from a vendor because you purchase inventory in bulk, or to ramp up your 2013 marketing plans, a business credit card can be the right tool to use. It can provide you with the peace of mind that you always have a cushion readily available so your business can manage its expenses and grow according to your timetable.