In mid-March, the novel coronavirus careened into the American consciousness. Its rapid spread shuttered many small businesses and reminded us, as emergencies often do, of the importance of a financial safety net. Individuals can protect themselves from financial hardship in unprecedented times with an emergency fund (savings that can cover 3–6 months expenses). For businesses, keeping that much cash liquid can hinder your growth, and it isn’t the answer for every business. So what’s the answer? Consider a line of credit.
If this is the first time you’ve thought of a line of credit outside of a surprise twist in Shark Tank, here’s what you need to know. Yes, a line of credit can provide a company with capital without giving up equity, as it’s often presented on Shark Tank, but it’s also so much more.
A line of credit allows a small business flexible borrowing against a set amount of money. Say your business is awarded a line of credit for $100,000——you can borrow $1,000, $35,000, or $100,000. It’s entirely up to you, allowing you maximum control on how to leverage a loan for the health and growth of your business.
You’re not limited in the number of times you borrow against a line of credit, so you can withdraw funds as many times as you need over the term of the loan.
Because of its flexibility, a line of credit can support business needs in myriad ways, making it an ideal financing solution for when the cultural and economic mood is, “What comes next?” Exactly how a line of credit can be best used will depend on the specific needs of your small business, but here are some ways that a line of credit can come in handy as businesses prepare for the next couple of years.
A line of credit can help you cover costs associated with…
With social distancing looking like the norm for the foreseeable future, many restaurants, retailers, and other small businesses are making up for in-person sales with delivery orders. While apps make this easy, many of them take a sizable cut of the revenue. Managing your own delivery orders may be the more profitable option, and a line of credit can help you cover initial costs like implementing software that allows you to take online orders, purchasing delivery materials, and hiring delivery personnel.
As we saw with the seismic shift from in-office work to work-from-home, the public is embracing a switch to digital for any work that can be conducted online. What that means for your business depends on your industry. Maybe you’re switching to streaming performances to maintain engagement with your theater (as has been the case with the Metropolitan Opera), maybe you’re switching to taking patients online, or maybe you need to build out an online shop. For many businesses, the benefits of these opportunities outweigh the costs—costs that a business line of credit can help you cover.
As the production of personal protective equipment (PPE) ramps up, businesses may be expected to provide PPE to their employees. We know that handing an employee a single disposable mask and asking them to wear it for a week doesn’t offer adequate protection—and it may result in some bad press in addition to putting your staff’s health and safety at risk. You can use a line of credit to bulk order PPE to ensure you’re getting the lowest price per unit.
As consumers are welcomed back into brick-and-mortar shopping, dining, and other experience-based endeavors, we can expect to see a demand for businesses to shift the way they operate. Your business may need to install a clear shield—to protect both employees and customers—or make other modifications to your space. A line of credit can help.
If you want to offer your employees increased sick pay during the pandemic, you can borrow against a line of credit to ensure your employees can cover their own bills while they look after their health and the health of their families.
On the off chance that more surprises come our way, a business line of credit offers a financial safety net that can help you cover fixed costs like rent, utilities, and other expenses.