Can You Use a Personal Line of Credit for Business Expenses?
The most significant limiting factor for new and small businesses seeking growth is the lack of reliable funds. While it takes money to generate money, these businesses are considered high risk because of their lack of time in business. However, one way to leverage an excellent personal credit score towards your business is by applying for a personal line of credit for business expenses.
Personal lines of credit are similar to credit cards. Though they typically sport better terms and a more extensive line than most cards will. While they don’t offer the same funds as business lines of credit, they can be a valuable tool for businesses too new to qualify for those loans. Further, individuals with excellent credit can apply for considerable terms, including 0% credit cards. This makes borrowing and paying back funds profitable as long as your business can maintain its momentum.
This article will cover personal lines of credit for businesses, the options available, and the pros and cons of utilizing this credit option.
What is a Personal Line of Credit?
A personal line of credit (LOC) is a revolving pool of funds you can use towards virtually any expense. They work similarly to credit cards in that you have a fixed limit of funds and only need to pay back what you’ve borrowed. Additionally, personal LOCs are functionally identical to business lines of credit. The trade-off of a personal LOC vs. a business one is that you will generally have lower funds with greater spending flexibility.
Generally, you take out funds as needed for any expense and pay back those funds every month. Utilizing personal LOCs works similarly to using personal loans for business purposes. However, you will have a revolving cash reserve rather than a term loan.
Are Credit Cards Considered a Personal Line of Credit?
Credit cards are a type of personal line of credit, although the actual limits on credit cards are typically far lower than a personal LOC. While they offer fewer funds, the terms on credit cards are generally better than lines of credit. Because of this trade-off, if you are eligible for 0% interest credit cards, you can stack several cards and pay virtually no interest on your lines. You can then manage these lines to pay off business expenses and build business credit.
Personal Lines of Credit for Business Purposes
Personal lines of credit can be used towards business expenses and are a workaround for startups and other businesses that lack a reliable time in business to qualify for business LOCs. With personal LOCs, you can use the funds towards virtually any business expense, including:
- Funding payroll
- Covering overhead costs
- Paying bills
- Purchasing new equipment
- Purchase new inventory
- Pay off interest on business loans
The last option is significant for new businesses, as paying off business loans will improve your business credit. Otherwise, personal LOCs function identically to business LOCs, with more flexibility and fewer funds than traditional LOCs.
Pros of Using a Personal LOC
While business lines of credit are more optimal in most cases, personal lines of credit offer a funding solution to individuals whose businesses don’t yet qualify for business loans. In addition, using these loans has the following advantages:
- You can use your personal credit score to apply.
- They are very flexible. You can put funds towards any expense.
- You only pay interest on what you’ve borrowed.
- They provide cyclical cash flow to draw on your line continually.
- You can use personal LOCs to build business credit.
- They have favorable interest rates.
Cons of Using a Personal LOC
Personal lines of credit won’t provide the same amount of funds as business LOCs and, despite their flexibility, can carry harsher terms than business loans. Below are the following disadvantages of taking out a personal line of credit:
- They provide fewer funds than business LOCs.
- They require a very high credit score.
- They contain stricter terms than business LOCs.
- They often come with additional fees.
- It can hurt your credit score if you apply for too many.
The Verdict
While they are more flexible than other funding solutions, this option should only be used if you do not qualify for existing business lines of credit. If you are a startup or lack the requirements to take on business loans, this is a suitable lending option that you can use to build your business credit and take out larger loans in the future.
Get Approved for a Personal Line of Credit Today with BitX Funding
New businesses need money to grow. However, they often lack the requirements to take out significant loans. A short-term funding solution business owners can leverage to their advantage is personal lines of credit.
Similar to credit cards, personal LOCs provide a flexible and revolving cash reserve that can be applied to virtually any business expense. Further, these loans can be used to improve your business credit. If you’re interested in applying for a personal LOC today, contact BitX Funding to get started.
For more information on small business loans of all kinds, contact BitX Funding by phone, email, or fill out the form below.
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Published by Chris Davies, Creative Copywriter at The Labate Group in Westport, CT.