Commonly Asked Questions About Business Lines of Credit

Sometimes, if you’ve been unable to secure a small business loan or other financing for your small business or startup, you can apply for small business lines of credit. You can start small, with whatever size credit the lender is willing to extend. The important thing is to establish yourself as a good credit risk. Before you apply for a line of credit, here are a few questions to ask.

How Can I Use Business Lines of Credit?

It’s important to know why you want the credit. Sure, you may have startup expenses you need to deal with, but have you also considered how the line of credit can help you grow your business? If you pay the debt back faithfully, the bank will be willing to offer you even more credit in the future. Even if you don’t have an immediate use for the credit, you’ve given yourself a tool to use if you ever need it. You only pay interest on what you borrow, but it’s good to know that money is there if you need it.

 How Do I Apply for a Line of Credit?

You apply for business lines of credit much like you apply for any other credit. You will probably need to disclose financial information about your business and about your personal finances, particularly if your business is not yet established. Be prepared to show business reports such as cash flow statements and balance sheets, and personal information such as tax returns. Banks will also almost certainly pull a credit report, so make sure your personal finances are in good order.

Also, don’t go to just one lender. There are a number of institutions that will grant this credit. You should meet with several lenders to compare options and find the best terms you can get.

 What Else Should I Know Before I Apply?

The best time to set up business lines of credit are before you need them, so don’t wait for an emergency to strike. Being proactive will give you a much better chance of getting the cash you need. Also, ask about interest rate protection. Some lenders will lock you in to a rate so you won’t be paying higher rates without knowing it. Finally, be creative. If your business doesn’t qualify for a standard line of credit, ask for an asset-based line, in which you provide some sort of collateral for the loan. You might also consider getting an unsecured line of credit. Many of these are backed by the Small Business Administration’s CAPLines program, and can be a great source for meeting short-term needs, especially if your business is less than four years old.

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