What is an Operating Line of Credit?

By February 27, 2019 March 13th, 2019 Banking News

Running a business often means you have many people depending on you to provide a service or product they find valuable. You may also have employees dependent on your business as their main source of income, giving them an opportunity to earn a living and support their families.

Some business owners may struggle with keeping accounts receivable in line with accounts payable, meaning they may worry about missing their employees’ pay day or rotating expenses. An operating line of credit can be a great way to close the gap and make ends meet when you have people depending on your business. If done correctly, an operating line of credit is a good resource to keep your business moving forward.

How an Operating Line of Credit Works

An operating line of credit is meant to help with short-term borrowing needs. For instance, if your business has seasonal cash flow issues, then you may benefit from a line of credit for those lower-income months where money coming in is lower but your expenses remain the same.

Industries where seasonality can play a factor into their cash on hand include construction, landscaping, accounting, and outdoor recreation (such as a golf course or other outdoor space that depends on seasons to drive business).

Some benefits of a line of credit include:

  • Flexible borrowing against your credit line – Because a line of credit is based on flexibility, you can borrow from it at any time. This can be useful if something unexpected happens and you need cash quickly.
  • Repay your credit line without a fixed schedule¬†– So long as you are able to make at least the minimum payments, you can pay off the credit line over the agreed upon terms of the loan.
  • Lower interest rates – A credit line can be a good option compared to a fixed loan because the interest rate may be lower. However, a number of factors can determine what your rates are, so it’s better to visit your bank directly to see what you can get approved for when you apply for a business line of credit.
  • More control over how the money is used – For some loans, you need to have a specific reason you are asking the bank for a business loan. However, with a line of credit, you don’t need a reason! You can use it for ongoing operational costs, continued cash flow, or other business needs.

Contact Bank of Old Monroe

If you are interested in obtaining an operating line of credit for your business, contact us to learn more!

Sources:

Investopedia – What is a Line of Credit (LOC)?

Fundera – Line of Credit vs. Term Loan: Which Is Best For My Business?

Insureon – Why Every Business Should Have a Line of Credit

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  • Third Party Site Disclaimer

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