Applying For a Business Line of Credit
Many business owners utilize financing at some point to cover both standard and unexpected expenses. Lines of credit are a common option because of their flexibility and ease of use. As you crunch numbers and consider applying for a line of credit, here are some tips to know before meeting with a lender.
Understand Your Financial Position
Most lenders will pull your personal credit report to review how you have handled credit in the past. It can help them determine what type of loan you might qualify for and whether it should be secured or unsecured.
They will also want to see a profit and loss statement to determine your annual revenue. Lenders want to ensure you will have the capacity to pay back the loan.
If you just opened a business, you might be too risky for a lender. They will want to see that you have some history with the company to lessen their risk.
You may be required to pledge collateral, so consider what you would be willing to put up. Examples can include real estate, equipment, invoices, or inventory. Strong collateral may get you more desirable loan terms.
There are many options with lines of credit. Consider how long you may need access to the money, which is called the term.
As previously mentioned, lines of credit can be secured or unsecured. You will likely need to have an established relationship with a lender to qualify for unsecured credit.
Where you apply for credit is another consideration. If you have a preferred, trusted lender, you should start with them. There are also online options to explore if you are not sure where to start.
Different lenders will require specific documentation with the application. Review the requirements and gather what you need before meeting with a lender. This might include both personal and business financials.
Complete an Application
If you do not currently have a preferred lender, you can submit multiple applications to see who offers you the best terms. Once you understand the important pieces like the term, interest rate, fees, and repayment schedule, you can select the lender you feel best aligns with your business.
Once you have completed these steps, you will better understand business financing. If you are a newer business owner, it is a good idea to establish a relationship with one lender. They will get to know your operation and can be a resource as your business grows.