Cash flow challenges are a reality for many small businesses. A line of credit (LOC) can provide flexibility when expenses don’t line up neatly with income, but it’s not always the right solution. Before you apply, take time to reflect on these 10 key questions from our QuickBooks Blog to see if an LOC fits your business needs.
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Do I understand why business owners use a line of credit? It’s mainly for flexibility, covering short-term cash gaps, and building credit history.
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Can my business operate each month with current cash inflows and outflows? If your cash flow is stable, you may not need to borrow.
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How consistent are my sales and profits? The steadier your revenue, the less you’ll rely on credit.
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Do others in my industry typically use a line of credit? This can signal if credit is a common tool for businesses like yours.
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Do I understand the difference between secured and unsecured loans? Knowing whether collateral is required helps you understand your risk.
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Do I have complete financial statements for each year of operations? Lenders often require these to approve your application.
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What’s my Monthly Recurring Revenue (MRR)? Predictable income might reduce the need for credit.
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What’s my Customer Acquisition Cost (CAC)? If it’s high, an LOC may help cover expenses while you wait for returns.
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Have I explored alternative financing options? Depending on your needs, a term loan, equipment financing, or business credit card might be a better fit.
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Can I manage borrowing and repayments responsibly? An LOC is only a benefit if you use it with discipline and repay on time.
Asking these questions shifts the focus from “Can I qualify?” to “Does this really support my business goals?” A line of credit can be a smart tool, but only when used strategically and with a plan in place.
Have you considered or used a line of credit in your business? What helped you make your decision? Share your thoughts in the QuickBooks Community! We love to hear them.
