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The ins and outs of getting a business line of credit
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One of the things you will need to do to start a business is obtain funding and financing for it. There are many different ways you can obtain funding for starting up your business, from traditional loans to personal savings.
However, once your business is up and running, there are times when you'll have financial obligations and needs that will need to be covered, but you might not have the necessary cash flow to do so.
Rather than trying to get a loan, many business owners get a business line of credit. Basically, a business line of credit is like having a loan you can access whenever you need it-you withdraw money from your line of credit as you need it.
Do you need a business line of credit?
A business line of credit is a great idea for any business for a number of reasons, some of which include:
- Lower interest rates. Interest rates for a business line of credit has a lower interest rate compared to credit cards. Even if you have impeccable credit, credit card rates are much higher than a business line of credit would be. Interest rates on lines of credit are higher than traditional bank loans, but still much lower than credit cards.
- Help you out in a crunch. Having a line of credit will help you with your cash flow when business is slow, or if you have a seasonal business. And like a credit card (but unlike a loan), you can pay off your balance on a business line of credit and continue to access it.
- Good for in between purchases. Sometimes, you don't have the money to purchase necessities with cash. Yet the purchases are too large to be put on a credit card with high interest, and too small to try and take out a loan for. In cases such as these, a credit line can be a good alternative.
If you think a business line of credit is right for you, keep in mind they can be difficult to obtain, as with any source of funding.The following are a few things to keep in mind when it comes to getting a business line of credit.
Go to a bank you already have a relationship with.
If you already have a business checking account or similar with a bank, go to them first and talk about obtaining a business line of credit. Banks are more apt to help customers they trust.
Be prepared.
The lender is going to look at a few things to make sure you qualify for a business line of credit before extending it. This includes:
- Financial history. Most lenders will want to see a profitable financial history of at least 2 years before extending a line of credit.
- Records. Tax returns, bank statements, financial records, and so forth will also be considered when lenders look at providing a business line of credit.
- Co-signer. If your business itself doesn't qualify for a line of credit, you may still be able to get one with a cosigner or with collateral.
A business line of credit is a great option for some businesses. The above tips are a few things you need to know about getting a business line of credit.
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