Used wisely, it can help finance growth and help a small company travel across the peaks and valleys of its cash flow. Conn. For example, a clothing manufacturer could draw on its credit line to buy material in the winter to produce dresses for the summer season. Most credit lines are for short-term financing of up to a year, but they can be extended from year to year. That said, credit lines can be used by any type company for a short-term working capital need. For example, a service company might need a credit line to meet payroll while awaiting payment for services rendered.
Credit lines work much like credit cards for consumers, but dispense with the plastic.
Each month they are charged on the maximum balance for the credit line. Credit lines may be secured by collateral, such as accounts receivable, or inventory. A company must be viable, have revenues and post a profit in order for it to be eligible for a credit line. When buying manufacturing equipment, a small company would more likely finance the purchase through a regular loan of between five and 15 years rather than through a revolving credit line. It goes up.