Every business runs into unanticipated circumstances that could lead into a cash flow crisis. Customers may delay to pay bills, influx of new workers would mean additional expenses and an unforeseen drop in sales would have an effect on working capital. All these are common examples of circumstances that lead a small business into dire need for cash.
A business line of credit becomes handy in these situations. It’s a business loan that’s intended to help you, the small businesses entity, to meet your short-term cash needs such as exemplified above.
It enables the small business to sustain itself in the middle of a crisis and be able to continue covering running expenses and even purchase additional inventory and supplies despite prevailing financial problems.
Here are some guidelines to help you acquire a line of credit.
Build good credit history
Banks will be willing to serve you a line of credit if you have a good credit history. Such credit history is always challenging for many small businesses to build. They typically find it hard to maintain a steady cash flow. The challenge is to balance revenue with the many payments such as operational expenditures, payroll, inventory and other business overheads at the start. This is the case even for those businesses that are making lots of cash.
With a well laid-out plan however, it is possible to build a clean history of credit right from the start. Begin by setting up a business bank account under the name of the business/company. Then habitually pay your bills on time. This will help you build a good credit and favorable regard for your business form potential lenders.
Apply for it when you have little need for the money
Odd as this way sound, the best time to acquire a business line of credit is when you really don’t need the money. Your cash flow is likely to be strong at that time and banks will generally be more willing to deal with you.
Logically, you are in a better position to pay it back promptly and establish yourself a good credit with the lender.
Do your homework
Look around to identify which lenders or banks offer loan terms and interest rates that are favorable for you.
If you have a less than great credit standing, you may want to consider platform business lending services instead of banks. First American Merchant in particular makes it easier for you to get approved for financing even with a poor credit situation.