5 Tips on How Businesses Can Qualify for a Credited Loan
Financial struggles should be expected when running a business. Entrepreneurs, usually, have to face and conquer these financial challenges repeatedly. Good thing there is a solution to this problem that entrepreneurs, big or small, have used over the years. This is the line of credit.
A business line of credit is an amount of money businesses can borrow, which can be paid back later. This amount of funds is already predetermined, similar to a credit card’s credit limit. Having a business line of credit is crucial for any business. Businesses need to thrive, especially in a highly competitive industry.
If you still don’t have a line of credit for your business, this is the time to get one. Here are five tips to increase your chance of qualifying for the best line of credit deal for your business.
Improve Your Business Credit Score
Similar to any other financial product, the first thing you must do to qualify for a business line of credit is improve your credit score. Your business credit score should not fall below the 700 threshold for it to be considered good.
However, some creditors will consider startup businesses, which is why you need to talk to your local credited loan company regarding the credit score for newly established businesses.
Suppose you plan to improve your credit score before applying for a line of credit. In that case, you can start by making sure you pay all your business bills on time, including any business loans you acquired. You also need to bring down your credit utilization ratio under 15%.
Establishing a good payment relationship will also help your business’ credit score increase. This tip can be possible if you have been working with certain suppliers repeatedly.
Offer a Collateral
For startup businesses who want to qualify for a business line of credit even before establishing a good business credit score, you can opt to offer collateral instead. This is called a secured line of credit, similar to a secured personal loan. However, a secured line of credit doesn’t require you to offer huge assets such as equipment, a car, or a home.
Instead, you can pledge an alternative source of funds, like the value of your accounts receivable, referred to as invoice financing. This method is best if you want to apply for a business line of credit but are still in the process of building a solid business credit score.
Research and Choose the Right Creditor
Your eligibility for a loan’s approval also lies with the creditor you choose. So, it’s best to do your research and compare creditors. Each creditor has a unique eligibility requirement for the products they offer, including a line of credit for businesses.
You can start your research online and include all financial institutions that offer a business line of credit products. Then, search for private lenders, online lenders, credit unions, and banks that offer a good line of credit deals and requirements. Remember to take your time searching for the best creditor that you think best fits your business and its current condition.
Wait for the Right Time
The majority of creditors will require your business to be operating for a specific period before it can be eligible for a line of credit. There are lenders, including banks, who will only allow businesses operational for at least two years to be eligible for a business line of credit.
However, this should not dishearten startup businesses. If the creditor sees that your business has sound credit and excellent collateral, they might consider some exemption of the ‘time in the business’ rule.
But keep in mind that this exception is very rare. In addition, the business operation time requirements for a business line of credit differ from one creditor to the other, so it’s best to inquire first.
Generate a Solid Revenue
One of the vital requirements for a business line of credit is for your business to generate solid revenue. During your application process, you will be asked about your business health. In fact, creditors will require you to submit proof of revenue. A good revenue will ensure creditors that your business can pay back your business credit.
Having a solid revenue is equivalent to a stable source of income when you apply for a personal loan or a personal line of credit.
To Sum It Up
The requirements of a business line of credit are similar to the requirements of a business loan. So, whatever you think will help put the creditors at ease will surely increase your chance of being approved for a business line of credit. You should always ensure that you take care of your business finances, so if you need to acquire any financial products, including a line of credit, you’ll have a good chance of approval.