In order to maximize the growth potential of their companies, most small business owners recognize the need for additional outside funding. One of the best means of financing your company is a business line of credit. Although obtaining lines of credit from banks can be challenging, here are some tips that will help ensure your success.
Numerous banks offer lines of credit, but some are friendlier to small businesses than others. Before you commit to paying application fees and having your credit history analyzed by multiple institutions, conduct some research. Find out where most small businesses in your area go to for lines of credit, prepare your paperwork, and approach two or three of the most likely candidates.
Maintain a History of Good Credit
By the time you apply for a business line of credit, you should have already made a good start in establishing a credit history for your business. This includes maintaining positive cash flow, keeping up with payments on your business credit cards, and paying your vendors and all other bills on time or early.
Prepare Your Paperwork
When it’s time to go in and formally apply for lines of credit, lenders want to see a formidable amount of paperwork from your company. Be ready with documents such as a business plan, business projections, and a business license if one is required for your company. You’ll also need your personal and business tax returns, business bank statements, and yearly financial statements.
Accept What You Can Get
Even if your application is approved, the lender may offer you a smaller line of credit than you were hoping to get. Consider taking the offer anyway as a first step. If you handle debt from this line of credit well, the lender may be willing to increase your credit line later.
Know the Differences Between Factoring and Lines of Credit
Making a factoring agreement with a lender is not the same as establishing a line of credit. Factoring is based on your cash receipts. When you factor your accounts receivables, the factoring company takes a percentage of your earnings, handles receipt of payments, and charges high-interest rates.
For more advice on obtaining lines of credit, contact Avery James.