This post was originally published on On Deck
Having a line of credit can be a lifeline for small businesses. It provides a safety net for unexpected expenses — and flexibility that traditional small business loans usually can’t match.
However, determining the right amount of credit you need can be challenging. Overextending your credit can lead to financial troubles, while underestimating your needs can leave you short during crucial times.
This guide outlines some of the steps of determining the appropriate amount of credit for your needs.
How do I determine how much my business’s line of credit amount should be?
Determining the right amount of credit for your business involves a thorough assessment of your short-term financial situation and long-term business needs. Here are some key steps to help you make an informed decision:
Evaluate your cash flow needs. Start by analyzing your cash flow cycle. Determine the periods when you experience cash shortages and the amount needed to cover those gaps. This will give you a baseline for your needs.
Consider your business goals. If you have plans for expansion, new projects or other significant expenditures, factor these into your calculations. Your credit line may need to be sufficient to cover not only day-to-day operations but
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