Here are some tips I have learned over the years. These are the Best ways to use Business Credit.
Tuesday, June 3rd, 2008Here are some tips I have learned over the years. These are the Best ways to use Business Credit.
- Make a plan for what the money will be used for.
Consider following the 80/20 principal. Use 80% of the money and set aside 20% for reserve account.
One of the most important steps you should take when using a business line of credit is to set aside about 20% of the cash you draw out as a reserve. This reserve of money will be seasoned in a checking account so it helps the business build its reputation and so that some cash is always available to be used to repay the minimum monthly payments as they come due on the line of credit.
Many businesses run at break even or less in the first year, so you need to set aside some of the cash you pull out of a line of credit to make the payments if the businesses profits or cash flow does not provide enough.
This is called Seasoning money. The small interest expense you will pay on this unused money is well worth it.
It makes your business look good to other potential lenders and sets money aside for a rainy day.
Next, you could use some of this money to reduce your personal debt and improve your credit score.
Other profitable business uses include:
- buying advertising and marketing.
- purchasing goods to resell.
- lending it out at higher interest rates for a profit.
- build a website and drive multiple streams of income.
- invest in real estate for huge tax deductions from other income.
- you could even use this money to build a valuable corporate image.
- Paying back the line of credit – there are 7 smart ways to do that.
The best way to pay back the monthly payments on a line of credit is to use the money to make a profit in your business. But in start up business – this may not be possible for the first year.
So, if that’s the case for your business, you can draw money out of the reserves you have set aside to make your minimum monthly payments. These monthly payments on the average line of business credit run about 1% of the amount in use. So they tend to be very small.
