With the current interest rates of credit cards and their tendencies to hike costs and fees, many businesses are still using these blackholes of credit to make everyday purchases. When you also consider the variable nature of this type of credit, small businesses using personal cards for short-term finance could benefit from switching to a line of credit to better manage their expenses.
What is a line of credit?
A line of credit is a flexible, cost-effective way to manage your company’s finances and day-to-day operations. Every business needs access to cash, whether it’s for paying staff, purchasing supplies, increasing working capital or expanding the business. The fact is, even though you may be managing your cash flow smoothly now, you can’t always predict what will happen down the track.
A line of credit ensures funds will be there when you need them, and it’s a financial safety net if you don’t. The best bit? Until you decide to draw down, it shouldn’t cost you a cent!
But that’s what my credit card is for!
Businesses will often turn to credit cards for company purchases and even for small cash advances. This is despite the fact some cards come with yearly fees and hefty rates, especially for withdrawal of cash. Despite options for cheaper finance readily available, New Zealanders spent more than $36 billion on their credit cards and still owe $6 billion in 2016 – indicating the credit card trend is based on convenience, rather than price.
So how does it stack up?
|Line Of Credit||Credit Card|
|Annual Fee||No Fee||✔|
|Merchant fee||No Fee||Yes|
|Funding Time||24hrs||2 weeks|
Even though they offer similarly practical solutions, a line of credit will usually work out to be the more cost-effective option for a small business operator. As your business grows, so will your line of credit. Unlike a credit card however, as your limit grows your interest rates will often reduce – saving thousands of dollars in fees, interest and other charges over time.
How do I know if I have outgrown my credit card?
With the rate of short term cash loans increasing, the fees and costs are shifted onto you, the business owner.
If you find yourself experiencing hefty fees, or are paying for a lot of your expenses in cash, then a line of credit would be a more suitable option due to fees and percentage on cash advances. If your credit card is rarely, or even occasionally, then a line of credit is something to seriously consider as a business owner as there are no annual fees that come with this form of credit.
If you find yourself frequently purchasing big ticket items using a credit card, it is worth considering the move to a line of credit. Rather than pay substantial late and annual fees, a line of credit allows to due hold an obligation free line of credit that can be drawn down on demand. Save yourself the trouble of maxing out your credit card and use a product that is more flexible, accessible and readily available.
Let’s put your business to the test!
Think your business has finally outgrown that outdated credit card of yours? A line of credit could be the answer. Check out Spotcap’s flexible and unsecured lines of credit to help you move away from nasty fees and charges associated with credit cards. It is absolutely free to apply. Get in touch!
Until next time,
The Spotcap Team.
Originally published July 14 2017