Guest article by Mitch LaTorre
Financing a small business is complicated. In most cases, you need different ways to pay for your business needs.
Having quick and easy access to funds to deal with a pressing business need is, of course, ideal for an entrepreneur. A business line of credit is the most popular and most cost-effective way to accomplish this. But it’s often not enough.
A line of credit, especially based on flexible terms and reasonable rates, would help you deal with day-to-day funding needs. But combining that type of financing with other funding sources would give you even more flexibility. It could also open up new paths to faster growth.
Here are three smart financing combinations, each one involving a business line of credit, to consider:
1. A Line of Credit + Term Loan
Generations of business owners have followed the same path for raising capital: Walk into the local bank to apply for a small business loan or a line of credit.
Traditional banks still typically offer the best terms, including the lowest rates, for a business line of credit and term loan. It’s not unusual for small business owners to secure both a term loan and a line of credit from their local banks with whom they typically work with for years, even decades.
Now, that’s an ideal combination—a term loan and a line of a credit from a traditional bank. But many entrepreneurs grow frustrated with the stringent requirements and long application processes at banks. Fortunately, business owners now have many more options thanks to alternative lenders.
The good news is many online options also work well with bank financing. So, business owners could even maintain their relationships with their local banks while expanding their financing capabilities. In fact, some online lenders are even okay with taking a second lien position behind banks. It doesn’t have to be one or the other when it comes to your financing options.
2. A Line of Credit + Business Credit Card
You’re probably like many other small business owners: You started your company with the help of a business credit card. And like other entrepreneurs, you still probably use a credit card for small expenses related to your day-to-day operations. This makes sense since credit cards are generally easy to obtain and use.
But as other business owners have probably told you, relying too heavily on a credit card, for your business or any other needs, is a bad idea. The costs are high. If you’re not careful, you could find yourself buried in debt.
But combined with a line of credit, a business credit card is a smart and convenient backup for paying for your business’s everyday funding needs.
3. A Line of Credit + Invoice Factoring
Another smart combination with your line of credit is invoice factoring, which lets you access cash trapped in unpaid invoices. This is ideal for businesses that sell products or services to other businesses and often have to wait 30 days or more for customers to pay their bills.
Through invoice factoring, which is also referred to as accounts receivable financing, you wouldn’t have to wait. You’d be able to get the cash immediately. That also means that you’re not actually taking out a loan since you’re gaining access to funds you’ve already earned. Combined with a line of credit, you can fully control your cash flow, keeping your business steady with invoice financing and utilizing a line of credit to keep raising the bar.
Factoring has been around for centuries. Traditional factoring is known to be a clunky, paper-based system with stringent requirements in which you’re expected to turn over your invoicing system to the factoring company. But you can now work with online invoice factoring companies that offer more flexible services.
A line of credit and invoice factoring create a very flexible and effective financing combination that would ensure steady cash flow for your business.
With these financing combinations, you can secure the funding you need to run your business without taking on loans you can’t afford.
Mitch LaTorre is account executive lead at BlueVine where he enjoys helping entrepreneurs take their businesses to the next level. A native of Connecticut, he’s also passionate about fishing, hiking, camping, and snowboarding.
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