Small business owners often recognize the need for additional funding in order to meet their goals for growth. A line of credit gives you access to a predetermined amount that you can draw on when your company requires a financial boost. Here are some tips on how to make it easier to get approved for this form of funding.
Research Your Options
Before you invest application fees and allow multiple lenders to pry into your company’s credit history, conduct research on which banks in your area offer lines of credit. Find out their requirements, and obtain recommendations from other companies that have used their services. Try to narrow the field down to a few lenders that might best meet your needs.
Have Paperwork Ready
Along with your application for a line of credit, you’ll have to submit a substantial amount of paperwork. This will include two years of personal and business tax returns, your business license, business bank statements, financial statements, and your business plan and projections. Have all these materials ready when it is time to apply.
Keep Your Credit History Positive
Lenders that you apply to for a line of credit will look into your company’s credit situation. Establish a good credit history by paying bills promptly, making effective use of business credit cards, and maintaining positive cash flow.
Start Small and Build Up
When you first apply for a business line of credit, you may be offered a smaller amount than you initially asked for. Consider accepting this limited funding as a first step. Your lender will probably be willing to increase the amount available to you after you demonstrate that you can make timely payments and periodically pay off the entire sum.
Be Wary of Factoring
It’s important to understand the difference between obtaining a business line of credit and factoring your accounts receivables. Although factoring companies usually use company cash flow rather than good credit history as a basis of acceptance of applications, you have to assign a percentage of your cash receipts to the lender. Additionally, the interest rate for factoring invoices is higher than for lines of credit.
For more advice on obtaining a business line of credit, contact Monstera Lending Group.