Summary:
- In today's competitive market, considering credit as an option to support your business growth is more important than ever.
- Read on for tips on using solid business credit to help grow your business.
Using business credit strategically can provide you with the necessary funds to purchase equipment, finance inventory, and renovate buildings, as well as maintain financial stability and flexibility. However, sometimes credit offers can be too good to be true, such as interest rates that are significantly different from other lenders or unrealistic promises with growth, which can ultimately harm your business. It is important to do your research. Getting smart about maintaining strong credit is a critical first step that will help to drive your business success. Consider these 5 tips for then using solid business credit wisely:
Borrow Strategically
Use credit to invest in growth for your business. This could be increasing your workforce, entering a new market, or acquiring real estate and expanding locations. Using credit to fund the growth steppingstones in your business can help bridge the gap between your current cash flow and the required capital expenses. For example, consider a drug store that originally operated from a single location and saw an opportunity to add sites. The business opted to use a line of credit to cover growth-related expenses, like hiring staff to manage new locations and upgrading IT infrastructure to ensure seamless inventory management across stores. By using credit wisely, the drug store was able to bridge the gap between its current cash flow and the significant working capital expenses required for expansion. Learn how lines of credit can help to scale your business efficiently without compromising financial stability.
Negotiate Favorable Terms with Suppliers
A solid credit history allows you to negotiate better terms with suppliers, such as longer payment periods or discounts for early payments. Longer payment periods can provide a business with more time to generate revenue before needing to pay its suppliers. This can improve cash flow and financial flexibility. For instance, consider a restaurant with an excellent credit history. Leveraging its strong credit profile, the restaurant was able to negotiate a 10% discount on food costs with its primary supplier. This discount significantly reduced the overall cost of goods sold, allowing the restaurant to allocate savings to other critical areas like kitchen equipment efficiency and dining experience/customer service. By negotiating favorable terms with suppliers, the restaurant not only improved its cash flow but also strengthened its competitive position in the market, ultimately driving growth and profitability.
Consider Refinancing Existing Debt
If your business credit has improved, refinancing existing loans can be a strategic move to secure lower interest rates to significantly reduce your monthly payments, freeing up cash that can be reinvested into other areas of your business. Term loans, on the other hand, provide a lump sum of money that needs to be paid back over a longer period and are particularly suitable for significant investments. The extended repayment period of term loans means that payments are spread out over several years, making it easier to manage large expenditures without straining your cash flow. Learn more about term loans that may be a fit for your business and how strong credit can help set your business up with favorable terms.
Diversify Your Product Line
Diversification is a key growth strategy that can help your business thrive in a competitive market. By using a line of credit to invest in research and development, you can create new products that meet the evolving needs of your customers. This investment not only fosters innovation but also positions your business to capture new market segments. Diversifying your product offerings also reduces dependency on a single revenue source, which can be risky if market conditions change.
Keep Your Business Prepared
Unexpected costs can be detrimental, especially when you are experiencing fast growth, potentially disrupting operations and straining financial resources. To mitigate these risks, using a line of credit can ensure your business has a safety net and the funds needed to handle emergencies quickly. Additionally, a line of credit can help manage other unforeseen expenses, such as sudden increases in raw material prices or unexpected legal fees. By having this financial cushion, your business can navigate these challenges without compromising its stability or growth plans.
As you manage your day-to-day operations and plan for your future, remember to assess your credit options. By understanding and managing credit effectively, businesses can build a solid foundation for sustained growth, stability and resilience in any market.
Strong credit is an important driver of business success. We take the time to understand your unique goals and how credit can assist. Contact a banker to learn more here.
The opinions expressed herein are those of the authors and do not necessarily reflect those of Eastern Bankshares, Inc., Eastern Bank, or any affiliated entities. Views and opinions expressed are current as of the date appearing on this material; all views and opinions herein are subject to change without notice. These views and opinions should not be construed as any specific recommendation. This material is for your private information and we are not soliciting any action based on it. The information in this content has been obtained from sources believed to be reliable but its accuracy is not guaranteed. There is neither representation nor warranty as to the accuracy of, nor liability for any decisions made based on such information.
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