Finding the Best Options for Business Lines of Credit
As a business owner, one thing you can anticipate is cash flow variability — whether you’re securing new equipment, waiting for invoice payments, or expanding your operations. It’s part of the excitement and challenge of running your own company. A popular option to keep cash flow more consistent is to establish a business line of credit. Here are some ways to determine what’s best for your situation.
Qualifications
It’s easier to qualify for lines of credit than for small business loans. Generally, a lender will not require collateral unless your ability to repay is in question, or you intend to borrow a large sum of money. Thorough documentation is essential — credit scores, tax returns, your company’s balance sheet, a profit-and-loss statement, and bank statements should all be part of the portfolio you present to the lending institution.
Interest
The amount of interest you pay is an important consideration when applying for a line of credit. The main advantage is that you’re expected to only pay interest on the money you use. You can also borrow any amount, up to your credit limit. Another thing to consider is that lines of credit are more risky for lenders, so interest rates tend to be higher than certain other kinds of financing. Also, interest rates may fluctuate.
Fees
When researching your options, it’s a good idea to find out about setup and annual fees from the lending institutions you’re considering. The amounts tend to range greatly and will make a big difference in your cash outlay. Some lenders don’t require setup and/or annual fees. In those cases, check carefully into their loan limits. It’s also wise to examine lender ratings through sources such as the Better Business Bureau (BBB) and Trustpilot.
Rules
Awareness of payment rules is crucial. The minimum monthly payments need to be affordable for your company. To maintain or increase your credit score, making payments over the monthly minimum is preferable. When you’re interacting with your lender, showing that you fully comprehend and intend to comply with the terms and rules of payment will inspire trust and increase your chances of approval.
Limits
Examine loan limits when you look at various lines of credit. This is the time to be proactive and realistic regarding how you plan to scale your business. A larger line of credit may give you more flexibility, but cost you more in the long run.
A line of credit can bring stability to your company’s operations. Consider these suggestions when looking at your options!
