One of the best ways to protect your business against a recession, or any other unforeseen circumstances (such as a drop in revenue or sudden cash flow shortage), would be to secure additional working capital. A common financial option that small business owners often utilize is a line of credit. Below are some of the primary benefits of utilizing a business line of credit.
Improve cash flow: If your business is at any point struggling with cash flow constraints, a line of credit provides you with a source of working capital to help cover payroll costs, equipment upgrades, purchase a new building, hire new employees or any other costs that are incurred during day-to-day operations.
Only payback what you use: Lines of credit only require you to repay what you draw on the line. As long as you stay within the limit, you can continually draw on and repay the line until it expires. It should be noted that certain lenders will charge a small fee (i.e. $20) to open the line and a monthly fee to keep the line open. In addition, while a small business loan provides you a lump sum immediately, a business line of credit provides more flexibility (as you do not need to draw on the entire amount from the start, you can take what you need as you go), and it does not require you to begin repaying it until you access the funds.
Provides a safety blanket to cover any unexpected expenses: Lines of credit are a great way to prepare your business for any and all unexpected costs that come about. For example, if you were expecting a large receivable to come in from a client but they are late in paying so you cannot cover this week’s payroll, you could make a draw on your line of credit to make sure your employees get paid. Or if you suddenly need to purchase a new truck, piece of equipment or inventory, a line of credit will give you the funds to cover those costs.
Be ready in case a slowdown or drop in revenue occurs: As a business owner, you understand that a recession or other events that can cause revenues to decrease could potentially happen at any time. That is why it is important to be prepared to combat that. A line of credit is a great way to defend against downturns or increased prices. Businesses with access to available line of credit are most likely to be able to survive during a recession or downturns compared to those that do not have access to one.
Use the funds to create new revenue generating opportunities: A line of credit can also be used to launch a line of secondary products/services, for purchasing additional inventory, or having more tools/equipment/manpower available to take on more jobs. It can be used to launch or increase marketing efforts as well, which could potentially result in increasing your market reach and acquiring new customers. Then ideally, the revenue generated as a result of these efforts can be used to payback the funds, while also generating more revenue into your business.
Penhurst Capital specializes in helping small business owners to acquire lines of credit (in addition to various other financing solutions). If you wish to take advantage of the numerous benefits a line of credit provides, apply now through Penhurst.
