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Benefits of a Business Credit Line

August 26, 2010

Establishing a business credit line is one of the best ways to create a positive financial environment for a business to grow through gradual investments. Although a lot of businesses choose not to establish a business credit line, for fear of damaging the company\'s credit, the benefits usually outweigh the risk of negative repercussions caused by irresponsible spending. The following are the benefits of a business credit line:

Building a Credit Score

Positive credit scores are beneficial for businesses as they foster a reputation for financial trustworthiness that can be established no other way. Almost all businesses check the credit scores of potential borrowers or partners frequently to gauge their financial stability and reliability. With a good business credit score it will be possible to gain approval for business loans and to participate in joint ventures.

Once earned, a good credit score must be maintained to reap its full benefits. If the credit line is neglected and repayments to creditors are not made each month on time, the credit score can decline.

Improving Cash Flow and Investments

Operating a business can be difficult without a positive cash flow, and properly used, a business credit line or card raises productivity by freeing capital for investment and capital expenditures, and by streamlining the repayment of miscellaneous business expenses. An extensive business credit line also makes larger capital expenditures possible, by removing much of the reliance upon day-to-day cash flow receipts. A business credit line also makes it possible to purchase merchandise and business-related necessities on a monthly or seasonal basis, rather than tying up capital in inventory and supplies. For repayments, keep in mind it is best to pay at least twice the amount of the minimum payment to prevent interest accumulating.

Tax Benefits

Having a business credit limit can also prove beneficial when filing taxes, as there is a tax deduction for interest paid. Instead of manually separating business expenses, it is much more convenient to keep track of all business expenses with a separate business credit card and/or transaction account. Any business-related item purchased with a business credit card is considered an automatic tax deduction, which simplifies the process of sorting deductions enormously.
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