Applying for a Business Line of Credit

If you’re a small business owner, you know that extra cash is always a good thing — especially at times when cash flow is sparse, like during on and off seasons or if your business is in its early stages. That’s where lines of credit come in. These loans help with the growth and operation of your business in the event you need a small loan, like to cover the costs of items such as supplies and inventory, for example. (A line of credit isn’t used for bigger expenses, such as property or new equipment.)

These loans help with the growth and operation of your business in the event you need a small loan, like to cover the costs of items such as supplies and inventory, for example. In order for your business to receive a line of credit, you must meet certain criteria. A financial institution will need to be convinced that you can pay back the assets you’re given. To establish that, they will need to look at your past and present cash flow and revenue. That will ensure that the loan can be repaid in the amount of time allotted. Similar to credit cards, lines of credit give you a maximum amount to repay the loan. So the amount you’re given will depend upon your business’s current revenue performance.

“The right time for any business to apply for credit or open a credit account would be … [when] they are able to pay their bills in-full every month and they’re not struggling,” says Michelle Dunn, founder and president of Never Dunn Publishing, LLC, Plymouth, NH. “Because if they’re struggling already and then they apply for credit, they’ll probably be denied credit.”

The best part of having a line of credit? Besides the financial help it provides, it gives you better control over your spending.

“The good thing about a line of credit as opposed to another kind of borrowing is you have that money at your disposal but you’re actually only paying for the amount that you use,” says Barbara Weltman, a small business and tax expert. “If you obtain a $50,000 line of credit, but only use $10,000, you’re only going to be paying interest on the $10,000 and then as you pay it back you have a greater pool to borrow from again.”

If you think that applying for a line of credit is right for you and your business, follow these steps:

1. Set up an appointment(s). Make an appointment with your financial institution of which you wish to secure a line of credit. You’ll want to either go to the location where you have your business accounts (if you have a good relationship with them, it’s more likely you’ll be approved for a line of credit). Make sure to check all terms and requirements. For example, some financial institutions require you to have been in business a certain amount of years.

2. Get documents ready. Your financial institution will notify you on which financial documents you’ll need to bring to the meeting, but you’ll likely need to bring with you the following items: business tax returns, credit references, statements that display your business’s financial activity, bank account information, business registration documents, etc.

3. Choose the best option. The financial institution(s) will likely get back to you within a few weeks with their decision. Choosing which financial institution you’ll be receiving a line of credit from is important so stick with one who knows you best. They will then give you the information with how to proceed. You’ll likely be able to access your line of credit through online banking transfers, bank tellers or checks.

As always, stop by one of our banking centers whenever you feel to see what line of credit options we have in store for you.


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