The longer someone runs a business, the more they realize that the old adage, “You have to spend money to get money” definitely rings true.
Of course, this poses a problem: how does a business owner go about doing that when there are times that the business has limited discretionary funds?
One way to do it would be through a business line of credit.
1. What is a Business Line of Credit?
Also known as a commercial line of credit, small business loans are designed to help businesses maintain their cash flow and continue to operate smoothly. One of the best things about a business line of credit would have to be that business owners can get a high amount of funding.
Moreover, they only pay interest on the amount they borrow and not on the whole amount of the loan. The best thing about a loan of this type is that the business can repay as needed. According to the professionals at Lantern Credit, “This is a great way to maintain cash flow since you are only borrowing what you need.”
2. How Does a Business Owner Get a Line of Credit?
Of course, there are certain steps to take if a business owner wants to strengthen their case for getting a line of credit. First of all, they should fully review their credit score and finances. After examining both of these items, they should realize that they are more likely to be approved if you have a higher credit score.
Next, the business owner should compare their options and look at the different requirements. Not all financial institutions are created equal, so there is nothing wrong with shopping around. Keeping costs in mind is the next step. A business should thoroughly research all of the interest rates and fees from any potential lender.
3. How Do a Business Owner Even Apply For a Line of Credit in the First Place?
Of course, the next step is simply figuring out how to apply for this line of credit in the first place. Much like the first part of the process, there are some steps that a business owner will need to follow. First, they should find out if their business is qualified. All in all, one of the best ways to find out if a business qualifies is to simply just go ahead and apply. After all, the worst the lending institution can say is no.
Of course, the first step is to understand what the lending institution is going to look at when they consider a credit line. First, they are going to consider the credit score. Business owners must have a score that is at 680 or above to EVEN be considered. Next, the lender is going to look at the monthly and yearly revenue of the business. Ideally, they should be able to show that they can organize their revenue effectively.
Finally, the lending institution is going to consider the general history of the business as well. Generally, if the business has been around for at least two years they will stand a better chance of getting their credit line approved.
4. Consider Other Financing Options as Well
Of course, if a business owner is turned down for an unsecured business line of credit, it can be easy to feel dejected. Two words: they shouldn’t. Simply put, up to 90% of these types of lines are turned down for whatever reason. The good news is that there are alternatives out there. For example, a business owner could consider a short term bank loan that is good for either for one to three months or even one to three years.
They could consider a SECURED line of credit as well. Indeed, some business owners actually prefer this simply because it offers a lower interest rate. Additionally, if a business owns any type of equipment that is worth more than $10,000 they could lease it back to the credit in order to gain some cash flow. There are also options such as a merchant account cash advance, a long-term bank installment loan, and even a home equity loan that a business owner could consider.
In conclusion, a business line of credit is one of the best ways for a business to keep their cash flow going and to remain competitive within today’s market. All businesses that fit the criteria should absolutely look into it.