Episode Notes

Myth 1: Lines of credit are not ok. In fact, lines of credit are completely fine. A lot of businesses use their line of credit to purchase inventory that they can sell in the next 30 to 60 days. Myth 2: Lines of credit stay open forever. Lines of credit do not have to stay open forever. However, you should connect your line of credit to your checking account. That way any balance in your checking account goes toward paying down the line of credit. For example, if you have a $1,000 line of credit attached to your checking account, it will be automatically paid off when $2,000 comes into your account from sold inventory. Myth 3: You shouldn’t be paying attention to interest rates. That’s wrong, you should be. Interest rates for lines of credits are going to be higher than long term fixed rates. They’re variable rates. They are going to fluctuate a lot. When rates are higher, it can get expensive. Myth 4: Once you have a line of credit, you’re stuck with it. You’re always going to be paying the higher rates. This is incorrect. You can convert your line of credit to a long-term loan at a fixed rate. Myth 5: You don’t need collateral for a line of credit. In fact, a line of credit must be collateralized against something. It’s normally collateralized against accounts receivable and inventory because that’s what you’re using it for.