Tips for Securing Business Lines of Credit

Emergency expenses or funding for expansion can pose challenges for many business owners.  A business line of credit can provide immediate access to cash.  Having a line in place, even if you do not currently anticipate a need, is prudent planning to manage the unexpected.  

The funds from a business line of credit can be used for nearly any business purpose, including covering operational expenses, purchasing inventory or equipment, or hiring employees. 

You may seek a revolving or non-revolving line of credit. If you have a revolving line, funds can be replenished as you pay down your balance.

When you apply for a line of credit, some lenders offer secured lines, while others offer unsecured lines. An unsecured line does not require specific collateral but typically requires a personal guarantee or UCC blanket lien on all assets.

Interest rates are set by lenders based on perceived risk and other factors. A lower interest rate is often available for a secured line of credit.  Additional factors such as time in business, credit score, and annual revenue trends also have an impact.

When you apply for a secured line of credit, a business asset is used as collateral to secure the loan in the event the loan Is not paid as agreed.  There are a few different types of assets that can be used to secure a business line of credit including accounts receivable, equipment, inventory, and commercial real estate.

The application process for secured lines of credit versus unsecured lines is generally quicker, while the documentation and borrowing requirements are typically not as extensive.

In this challenging COVID environment, projected cash flow looks quite different for many businesses and real estate investors than it did in February and prior.  It is extremely helpful for lenders to have cash flow projections and a business plan that reflects current conditions and plans.   

Application requirements vary by lender but there are a few common requirements: personal and business tax returns, collateral detail, time in business, bank statements, legal documents, and recent and projected financial statements. 

If you want continuous access to capital to cover operational expenses or grow your business, a business line of credit may be right for you. 

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