Lines of Credit
What are Lines of Credit?
A line of credit is a flexible borrowing arrangement provided by financial institutions that allows businesses to access funds up to a predetermined limit. It operates similarly to a credit card, where the borrower can draw funds as needed and only pay interest on the amount borrowed. Lines of credit are commonly used by businesses to manage cash flow fluctuations, finance short-term operational needs, invest in growth opportunities, or cover unexpected expenses.
Usefulness to Businesses
nes of credit offer businesses flexibility in managing their finances. They can access funds when needed without having to go through the approval process each time.
When to Use Lines Of Credit
During times when cash flow is tight, such as waiting for payments from clients or customers, a line of credit can help maintain operations smoothly.
Pros:
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Flexibility in accessing funds.
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Helps with managing cash flow.
3. Interest is only paid on the amount borrowed.
Cons:
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Potential for accumulating debt if not managed responsibly..
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Interest rates may be higher compared to traditional loans.
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Risk of overborrowing and getting into financial trouble.
