A business line of credit works giving a company the opportunity to borrow a maximum amount of money every time you need. When the company uses a line of credit, the company only brings the funds as it needs for operations.
Typically, a business credit line is used to compensate the time between the generation of an invoice and time bills collected.
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Companies have to pay expenses prior to collection of their income, when a company uses payment terms with its customers 30 to 60 days.
This is where the credit line of business is useful because it can act as a buffer between the time that the company has to pay the cost and time to collect their bills.
This problem is traditionally common for start-ups and fast-growing. Unfortunately, today this problem is growing every day with all the economic problems we face in all sectors of business today.
Unfortunately, with the tightening of credit requirements company credit lines are increasingly being approved for every day.
Having said that, there are different types of business credit lines, some use accounts receivable as collateral and often become accounts receivable factoring. commercial real estate as security to become a mortgage business, others use equipment trade as an instrument warranty and can end as equipment leasing or buying . Some business lines of credit can use personal assets as collateral.