5 Steps to Secure a Business Line of Credit

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.

5 Ways to Ensure Your Business Secures a Line of Credit

  1. Maintain successful business practice 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.
  2. 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.
  3. 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.
  4. Get to Know Your Alternative Lending Options Although the bank is probably the first place that springs to mind when considering a line of credit, you may be better off looking into alternative lenders. Banks tend to have stringent qualification requirements and lengthy approval processes, which can be both complex and frustrating. Alternative lenders have simpler applications and may be able to secure a line of credit for your business in 24 hours or less. Many also work with networks of partners to provide access to a wider range of funding options.

    You can usually fill out a prequalification form on these lenders’ websites to get an idea of how much credit is available for your business. Since the application process doesn’t cost anything, you’re free to learn how much funding you can qualify for with less-than-perfect credit or while bouncing back from financial difficulties, two circumstances which are likely to result in rejection by a bank. 

    Applying through a marketplace like National means you’ll learn about potential offers from 75 lenders, who may have differing qualifications in place.

  5. Conduct research 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.

When to Use Your Business Line of Credit

Lines of credit aren’t only for emergencies, although having one can certainly help if you find yourself in a financial bind. During slow times, it gives you a ready source of cash to cover basic expenses like payroll and inventory. When business is booming, your line of credit can be used to fund growth through expansion projects, new products or services or equipment upgrades without putting a huge dent in cash flow.

Closing Thoughts

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.

National Business Capital & Services is the #1 FinTech marketplace offering small business financing and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

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About the Author, Megan Capobianco
Megan Capobianco is the Marketing Manager at National Business Capital & Services. Megan is passionate about helping business owners along their journey - providing them with relevant content they can use in their day-to-day operations.