A business line of credit (LOC) can be an effective tool for cash flow management.
This is especially the case for small and medium sized enterprises (SME) who face uneven cash flow because of seasonal cycles.
If you are finding that your business is experiencing cash flow gaps due to high peaks and slower troughs in demand depending on the time of year, you are not alone.
Many seasonal businesses are looking for a finance solution to help bridge that gap in cash flow and the flexible funding offered by a line of credit may be just the answer.
You can explore ScotPac’s business line of credit offering today, or keep reading to find out how an LOC can help you effectively manage your cash flow.
What is a Business Line of Credit?
A business line of credit is a revolving financial facility.
In other words, it lets you:
- Draw on additional funds, i.e., working capital, when you need it
- Maintain control over when you repay the borrowed money
- Only pay interest on the credit drawn and used
Whilst a LOC can operate (and be used) in a similar way to an overdraft facility, it is specifically designed to assist with business growth and effective cash flow management, which is why it is beneficial for SMEs with seasonal fluctuations in cash flow.
How can a Line of Credit help with seasonal cash flow?
There are several advantages to using a LOC to better manage your seasonal cash flow.
- Immediate access to working capital
- Complete control over access i.e., when you need it during low-revenue periods
- Flexibility in repaying the funds early
- Option to re-draw loans without reapplication
- Working capital support for expenditure during off-peak periods, whether payroll, new inventory or marketing
How does a Line of Credit save your business money?
A more traditional business loan, which is the provision of a lump-sum loan, incurs interest over the entire amount borrowed.
This means that even if you do not use all the funds to invest in business growth you are still paying interest on it.
With a business line of credit, you only pay interest on the amount you draw and use.
This means it is ideal for managing seasonal fluctuations in cash flow without costing you unnecessary interest payments.
Should your business consider a Line of Credit?
At ScotPac, our lending specialists are always on hand to provide you with a custom consultation and tailored financial solution to suit your needs. To explore whether a line of credit is right for you, give us a call on 1300 209 417.
However, if you are an SME that experiences regular cycles of high demand and then low demand, a line of credit could be the right solution.
- Do you work in retail and experience holiday season peaks in demand?
- Are you in construction and have slow-downs during the rainy winter?
- Are you a tourism business and experience cash flow dips during the off-season?
- Do you work in fisheries, aquaculture, agriculture or agribusiness where seasonal fluctuations are cyclical?
If any of these sound like your business, or you are in another industry that experiences seasonal cycles, a line of credit can ensure continuity in operations and ongoing access to the cash you need.
How do you qualify for a Business Line of Credit?
Meeting the eligibility criteria and applying for a Business Line of Credit with ScotPac is easier, quicker and simpler than traditional bank loans.
However, applicants are still required to meet a minimum threshold of eligibility criteria to apply, including:
- Business ownership
- Trading history
- Monthly turnover
- Borrowing range
- Documentation
1. Business Ownership
All Line of Credit applicants must be:
- 18 years of age or older
- An Australian citizen or permanent resident.
2. Trading History
To qualify your business must be trading for at least 12 months.
3. Monthly Turnover
Your business must have records of consistent sales and a minimum turnover of at least $50,000 per month in total sales.
4. Borrowing Range
There are facility limits when it comes to a Line of Credit:
- Up to $500,000; or
- 150% of your average monthly sales.
5. Documentation
To be approved, your business will need to provide at least 6 months’ worth of business bank statements.
Other documentation required includes:
- Privacy consents
- Photo identification for all directors or borrowers.
How can ScotPac fuel your business’s success?
We don’t just believe that seasonal cash flow fluctuations shouldn’t limit growth or stability, we know it!
With our tailored Business Line of Credit offering, we help SMEs and business owners around Australia take control of their cash flow management and fuel their business’s success.