Credit is responsible for lubricating the machinery of a business. And, getting it is of key importance for the permanency of business. Regardless of whether credit is for expansion, buying inventories, purchasing capital, or meeting operational expenses, every business will need credit at some point.
The sad reality is that in the recent past, businesses have had trouble while trying to secure credit. This means that businesses have had a harder time offsetting their difficult times. During such times, a business line of credit (LOC) can be beneficial.
This type of loan can give a business access to funds to enable it to continue its operations; whether it is performing an upgrade or embracing a new business opportunity. In addition, it provides a business with the flexibility that is not available on a regular loan.
A business line of credit simply gives you more control over the amount of interest whenever your income or expenses fluctuate, and you need more cash.
Here are five ways to ensure your business secures a line of credit:
Maintain successful business practices
Have a good history in your business practices to increase your chances of getting the amount of credit that you need. For example, ensure that you pay your bills on time: suppliers, utilities, rent, and outsourced services.
A positive cash flow is a sign of success. Your business will need to be reviewed, and your cash flow will be under scrutiny. Lenders will also be interested in your present and future earnings to determine if you are fit for a line of credit. Therefore, maintaining a positive cash flow will give them confidence in your ability to repay a loan.
Ensuring your business credit cards are not maxed out is another recommended business practice. Maxed out credit cards will certainly hurt your credit score and will likely raise your cost of borrowing.
Therefore, keep your business credit cards in check and make sure you monitor any expenditures. Overall, if you can manage your business credit, you will be better positioned for a loan.
Apply for a line of credit when you do not need the money
The best time to go for a business line of credit is when your business does not need one. Why? Banks will mostly be willing to come to your rescue when your cash flow is promising, and you are not desperate for a loan.
Having positive numbers will send the right message to the lender and will put you in a better position of repaying the loan. In the long run, you will establish a good reputation as a borrower who may be considered for future loans.
The intention is to convince the lender to provide you with financing ; not to display your dire need for money. And since you are not paying interest, applying for a business line of credit when you do not need the funds makes more sense.
Establish and maintain a good business credit
Your business needs to build a strong credit profile. Even though you may be making plenty of cash, sometimes your expenses may be overwhelming, and you may end up with a bad business credit.
The best way to implement this is to ensure you pay your bills on time, rectify any misreporting about your business finances, and keeping a low ratio of debt to available credit on credit lines. Doing this should make your business appealing in the eyes of lenders.
Stay in check by monitoring your credit score regularly.
Create relationships with more than a single lender
While traditional banks are the largest source of lines of credit, they are not your only shot. Making appointments with other financial institutions can put you at an advantage. Banks tend to change their policies overnight and can inconvenience your business when you least expect.
Another way to look at it is to have a relationship with more than one bank to avoid overreliance on one bank.
If you have more than one bank, visit the one where you have a business account. Banks are always willing to take risks with existing customers and approaching them as a customer will give you an advantage over strangers.
You need to conduct extensive research on other lenders to find out their loan terms and interest rates. Seeking information will put you in a better position to get a better deal. Some lenders may have conditions that may work in your favor, and you may be surprised.
While conducting research, gather your end-year financials and prepare a statement that describes your business’s performance at certain periods. Use the records to review your commitment to the financial institution of choice. Go through your records to confirm you have met all the terms and have a ready response for areas that you may not have covered.
You also need to keep detailed records of your assets in case they are needed.
Asking for a business line of credit is simply asking a lender to take a chance on your business. Therefore, you need to wow them with a confident proposal and clean records. Have your business records in order, know what you can afford, then go out there and seek extra funding.