A business line of credit is a form of revolving credit that can serve as an ideal solution for restaurants. Basically, the way that a business line of credit works is that a restaurant can apply for a maximum line of credit. However, the business owner is free to withdraw less than the maximum at any one time. He or she can also still reserve the option to withdraw more funds later. While a line of credit might be compared to both a credit card or a fixed loan, there are some significant differences that can make this option more useful for restaurant owners.
5 Reasons for Restaurant Owners to Consider a Business Line of Credit
There are many ways that funding for restaurant owners can make a difference in a restaurant business. Consider some of the advantages of obtaining a line of credit for your restaurant:
- Flexible Financing
When businesses apply for a fixed loan, they generally accept the entire loan amount. This means that the fees or interest have to be paid on this entire withdrawal. The clock starts ticking right at the time of this withdrawal, but some restaurant owners might not be able to accurately predict how much money they will need.
With a line of credit, the restaurant owner can choose to only take the amount that is needed at the moment. That means that fees will only be charged for the amount that is actually withdrawn. Even if the business owner doesn’t withdraw the entire amount, he or she may still reserve the option to withdraw more later. As an added bonus, the lender can usually make those funds available within a business day. This fast and flexible financing method therefore offers restaurant owners a chance to easily access funding, to learn how to manage credit, and the opportunity to save money on fees.
- Cash Deposits
The main purpose of business credit cards is to make purchases. Some business cards do allow the holders to get cash advances; however, maximum cash advances are usually limited and charge higher interest rates than purchases do. A business line of credit allows the restaurant owner to withdraw cash into their own business account.
The ability to withdraw cash makes a line of credit more flexible. For instance, the money can be used to meet payroll or handle other expenses that aren’t well suited to credit cards. Also, a line of credit usually has a more generous maximum balance than a credit card does. Business credit cards can be very handy, but they really aren’t as powerful as a business line of credit since they don’t support cash withdrawals and usually have very limited maximum balances.
Many bank lenders think that restaurants are rather risky. A restaurant owner might have to be in business a long time, have good business credit established, and meet other criteria to get considered for a traditional bank loan. Fortunately for restaurant owners, it’s possible to get approved for an online line of credit without having to meet these same qualifications.
All lenders will want to know that they are lending to a legitimate business. However, these alternative funding sources have ways to check businesses though their activity. For instance, they might ask for a link to see information from a business checking account or credit card processor. This gives restaurant owners a good chance to get approved, even if they have not had a chance to build their credit yet.
Two advantages of applying for a line of credit online include speed and convenience. Indeed, the entire application can be completed online, twenty-four hours a day, seven days a week. There’s no need to gather documentation because the applications just ask the borrowers to supply links to their choice of accounts. Some examples of these types of accounts could include a credit card processor or a business checking account.
In some cases, approvals may be instant. In other cases, they may take a business day or two. In either case, restaurant owners won’t have to sit around and wait to find out if the loan was approved. These loans can also be funded very rapidly. It’s often possible to see the funds deposited in a business account only a day after requesting them. This rapid funding can offer a restaurant owner a lot of security if he or she needs to replace an oven or hire a new chef. Owners should have an easier time managing cash flow when they know they have ready access to cash.
Most businesses strive to grow, and restaurants are no exception. However, some restaurant owners may worry about investing in more employees, a larger space, or a new marketing campaign. It can be tough to balance cash flow in order to have plenty of money to pay regular bills and still pursue chances to grow revenues and profits. It might be tempting to hire new servers to speed service, but some restaurant owners might hesitate because they worry about making a mistake that will leave them without enough operating cash.
Restaurant owners can use access to an approved line of credit to give them a bit more margin for error. A line of credit can also help manage cash flow when the investment has to be made weeks or months before revenues can be earned to bring in a profit. In this way, having a line of credit offers restaurants security and peace of mind.
How to Use a Line of Credit for Your Restaurant
Most business advisors say that it’s worth it to take out a loan if it can help increase profits. This means that a line of credit could be a good choice for restaurant owners who want to grow their business. Of course, this kind of loan is also a useful tool that can allow restaurants to be prepared for unexpected issues. If equipment needs maintenance or repairs, it’s essential to have the funds to fix problems rapidly. These days, it’s even possible to apply for a line of credit online. Furter, an approval doesn’t mean that all of the money has to be withdrawn. Essentially, the peace of mind that a line of credit can provide for new and growing restaurant businesses is free.