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Business Cash Line of Credit

A business cash line of credit is a package that gives an entrepreneur a line of credit combined with a checking account.

The advantage to this arrangement is that it allows the business to cover day to day expenditures during periods of low cash flow. With a business line of credit the checks the business writes and the payments its owner makes using the business’s check card will be covered. This means the business can keep operating even if it has no cash in its checking account.

Under a business cash line of credit a lender, usually a bank; makes a set amount of credit available. The amount of credit available is limited and interest is charged on it. The advantage to this arrangement is that it enables a business to keep operating even though it has little or no cash flow.

How to Get a Business Cash Line of Credit

Most banks will require a business to run a minimum amount of cash through their checking accounts, usually around $10,000; before setting up a business cash line of credit. Some banks will make such an arrangement available without cash flow if the business agrees to a higher interest rate on the line of credit.

A business will probably have to have a good credit rating to get a cash line of credit. Banks may have limitations on the size and type of business that can get a cash line of credit. Many banks won’t make a cash line of credit available to a startup business, or a speculative business.

Online banks and direct lenders maybe easier to work with but they generally charge higher interest rates.

How a Business Cash Line of Credit Works

The way a business cash line of credit works is simple, a business puts money in its account. The bank gives it a line of credit based on the money in the account. The business spends more money than it has in the account and writes checks for more than it has. The bank covers these checks but when the business puts more money in the account the bank takes part of those funds with interest to pay back the line of credit.

The advantage to this arrangement is that it gives the business an easily accessible source of finance that is readily available. The disadvantage is that a percentage of the cash the business takes in won’t be available because it has been used to pay off the line of credit.

Some businesses will try to get around these restrictions by having more than one checking account at more than one bank. Such duplication of accounts will increase banking expenses.

Getting the Best Rate

A business can reduce its costs from a business cash line of credit by getting a line of credit with the lowest interest rate it can find. This will enable the business to recover more of its cash flow and make it easier to pay off the line of credit.

Comparing several different banks offers can get an entrepreneur a really good deal on a business cash line of credit that can save money. Going online can enable a business to locate better offers that will greatly reduce banking costs.