It’s practically impossible to run a successful small business without excess capital. Though some lucky business owners have as much as they need to pay for direct costs, operations, marketing, inventory, expansions, extending terms to clients and emergencies, most businesses simply do not have deep enough pockets.
This is where getting a business line of credit comes in. To help you through the ebb and flow of your cash flow, you can leverage credit to get (and keep) things running.
Although getting a line of credit can certainly be tricky, if you avoid the following mistakes when you apply, you will maximize your chances of receiving some well-deserved funds.
Waiting Too Long to Apply
Although it might seem counterintuitive, the best time to apply for a business line of credit is before you need one. The reason is simple: the stronger your financial status, the better offer you’ll get for your line of credit.
Since banks and other creditors look at your financial status when you’re applying, you should go for it when your credit score is solid and you’re not in a dire financial situation. One of the biggest factors used to evaluate potential loan recipients is cash flow, meaning that if you haven’t had healthy amounts of deposits coming in you might be setting yourself up for failure.
Instead of waiting until you’re desperate to find a line of credit, apply for one when you’re relatively comfortable. This will set you up for fewer rejections, lower interest rates and higher limits.
Applying for a business line of credit involves a fair amount of paperwork. When you approach a potential lender, you’ll need to have on hand all of the necessary documents for your application. This will ensure you appear prepared and able to handle the responsibility of a loan.
Many creditors collect bank balances, income statements, balance sheets, tax returns, outstanding loan information and more when evaluating qualifications for a line of credit. If you don’t know off the top of your head where to find these documents, you need to spend a little time getting them in order before you reach out to any potential lenders. If you don’t, you’ll look disorganized and unreliable – not a great impression when you’re trying to convince someone to give you money.
This process can get pretty complicated and consume plenty of time, but luckily there are resources available to help. Check out the Currency Quick-Start Guide to Small Business Loans This way, you can make sure you have everything you need to show your potential financier that you’re well organized.
Not Having a Plan
The finance world isn’t known for its love of spontaneity. Any creditor is going to want to know what you plan on doing with your credit. If you don’t have a well-thought-out business plan, it’s going to be difficult to convince someone to lend you money.
A common complaint among lenders is that small-business owners aren’t able to tell them how they plan on using their funding, how they’re going to pay it back and why getting a loan is important to them in the first place. Get ahead of your competition by providing this information before your potential lender even asks for it.
Explain your business goals and how you plan to reach them with the help of a line of credit. Make sure that your plan for the loan is within any restrictions the creditor may have, and stay concise and straightforward to ensure that you’re being understood.
Most alternative lenders today don’t require a formal business plan. Banks still do. If you decide to pursue the traditional banking option, consider using a resource like LivePlan to write out your business plan.
Keeping these basic planning principals in mind will ensure that you appear prepared.
Not Monitoring Your Credit
Finally, you can avoid rejection right off the bat if you make sure that you and your business have a solid credit record. If it looks like your business doesn’t repay its debts consistently or that your personal score is low, potential lenders won’t want to give you a line of credit.
In essence, make sure that you know what your credit score is. There are plenty of free services online. Look and see if there’s anything you need to repair before you apply for a loan. If your scores are strong, you’re much more likely to be approved.
Applying for a business line of credit is necessary for nearly every small-business owner. In order to put your best foot forward and get the loan you need to keep your business growing, avoid the issues noted above. If you don’t, you risk rejection and potential financial struggle along the way.
If you need help with any of this, reach out to Currency. Our friendly account managers are always available to answer questions at 877-358-4595 and would love to assist you in getting the process started.