How do you know whether you should apply for a business line of credit? The answer is quite simple, actually. Do you own a business? Then you should have a business line of credit. Even if your business is booming and profits are through the roof right now, you’re going to need protection in case you experience a slow time or seasonal downturn. Here’s the 101 of what you need to know about business lines of credit.

What Is a Business Line of Credit?

Essentially, it operates on the same principles as a credit card: a specified amount of money that you can borrow at any time, then repay later with interest on a schedule.

Why Do I Need One?

Unforeseen circumstances hit every business — and if they don’t, you’re luckier than you know! You need a business line of credit because it costs you nothing to have, but can really save you from a bad situation if one arises. Liquid cash is your most flexible asset, and a line of credit will help carry you through an unexpected expense or a dip in revenue that leaves you short for the month’s payroll or inventory.

Is A Line of Credit Better Than A Loan?

Short answer: usually. You wouldn’t want to use your line of credit for big purchases like a new building or company vehicle that should have their own loans, and you wouldn’t want to carry a balance on the credit line for a long time. When considering short-term or emergency expenses, though, a line of credit offers several distinct advantages. For one, you’ll already have it whenever you need it: there’s no last-minute scrambling to apply for a loan, taking whatever rate you can get, and wasting time waiting to be approved. For two, you have the flexibility to only borrow exactly the amount you need; rather than taking out a $50,000 loan and owing interest on the whole thing, you can use $37,652 or whatever your specific needs are.

Ultimately, it comes down to being prepared and being responsible. Get a business line of credit before you need one, and be careful to use it only when you do truly need it. Consult a professional to learn more about your options for getting a line of credit today.