Steps To Secure a Line of Credit for Your Business
While traditional business loans are a good option for many financing needs, a line of credit can have advantages in some situations. A business line of credit can cover short-term cash-flow problems and supplement your working capital when revenue is low. It can be easier to qualify for this type of funding, and you benefit from increased user flexibility.
How To Obtain a Business Line of Credit
A credit line can be an excellent option when you need quick access to money to help manage your cash flow, pay for unexpected repairs, or replace inventory. You can use the funds as you need and only pay interest on the amount you draw. Application processes will vary depending on the lender, but the general steps to gain approval are as follows:
Assess Your Needs
First, determine the loan amount appropriate for your needs. Your loan will have a total credit amount you can draw from as necessary. If you are confident you will only use funds as needed, consider asking for a higher limit to secure sufficient access to financial assistance. You can request a credit increase later as well.
Know Your Qualifications
It is best if you know your credentials before applying for credit. Preparing your information ahead will save time and allow for faster approval and fewer hiccups along the way. You will likely need the following details:
- Business history: the length of time you’ve been operating determines your risk to the lender. Lines of credit typically do not require as much operational history as traditional loans.
- Annual revenue: Financial institutions need to see that you can pay back the credit you use. Your income determines your credit line amount, terms and rates. Some lenders have more flexible revenue requirements than others, making it crucial to compare options.
- Personal and business credit scores: Lenders look at both scores to analyze your ability to repay borrowed funds. You may need additional collateral if you have poor creditworthiness.
Gather Essential Documents
Obtain the necessary paperwork to facilitate quick application and approval procedures. Some personal and business documentation you may need includes:
- Financial statements
- Tax returns
- Bank statements
- Business license
- Business plan
Submit an Application
After comparing different lenders, submit your application according to the bank’s rules. Be prepared with vital data, such as your social security number, identification, business name, tax ID, credit line amount and intended purpose for the funds. Approval times are generally fast but depend on the financial entity offering the line of credit.
With adequate preparation, you can secure a credit line to cover operational needs when revenue fluctuates, or you must cover unexpected expenses.