Is Opening a Line of Credit a Window of Opportunity for Your Business?
When extra cash is needed to cover payroll or invest in new equipment for an expansion, business owners may look to lines of credit as ideal ways to fund those expenditures. This popular form of financing allows a business to maintain its positive cash flow while covering new capital expenses. Unlike other forms of financing, business lines of credit only require interest payments to be made on the balance, similar to personal credit cards.
Before you pursue this type of funding, consider the following:
General Requirements of Different Lenders
Time is money. Therefore it’s wise to assess the requirements of different lenders before going through the application process. For example, a traditional bank will review applications from a business operating for at least 2 years with annual revenue of $250K and a minimum credit score of 680. Six months in business, 500+ credit score and $50K in annual sales are required to secure a credit line from an online lender. Credit unions, however, require membership, a minimum of 3 years in business and $100K in yearly revenue.
Two Types of Credit Lines
Once you’ve determined your business is a candidate for this type of financing, you need to evaluate if a credit line with either a short or long repayment term is most beneficial. If you can pay off the line of credit within six months to a year, thereby saving money in interest, then a short repayment term is optimal. Applying for this type of credit line is best done using an online lender, as you’ll get a decision and access to funds within a few days. On the other hand, if you desire an extended repayment schedule, applying to a traditional bank for a long repayment term line of credit is the right choice. While the application process is stringent and time-consuming, the terms and rates offered are very reasonable. Finally, don’t overlook your credit union as a path to securing a line of credit.
Application Process
If possible, apply for a business line of credit when your business is running smoothly, as this can increase the likelihood of approval. In addition, review your application thoroughly for both personal and financial accuracy. Finally, be ready to submit the following with your application: bank and financial statements, debt schedule, tax returns, legal documents and other personal information.
Assessing your needs and researching the options are wise steps to take before applying for a business line of credit.
