Financing a small business is not easy. Lenders are not likely to extend loans to a business that is relatively unestablished. Therefore, most small business owners need to rely on their own resources to finance their businesses.
A credit line is designed to meet the short-term financial needs of a business. This is especially true for small businesses with a single product that has seasonal demand. The owner will often need money to see them through the development and production stage until the business is able to sustain a regular, profitable cash flow.
Credit cards meet this requirement to some extent, with some credit card companies having developed products to address this specific requirement. This, however tends to be one of the most expensive options for short-term borrowing.
How to Get a Line of Credit
There are lots of ways to get a line of credit for your business. The most important thing that you have to do first is to get educated about where to look for a business line of credit. Generally, most business seek a line of credit from banks, credit unions and the SBA. Of these, banks are the most commonly used, followed by the SBA.
Bank: Your bank is generally the best place to get a line of credit. You already have an existing relationship there and they know about your credit worthiness so the processing time tends to be much shorter. You will still need to provide documentation to prove your repayment capacity. They will examine your company’s financial records and tax returns for the last 2-3 years.
Guarantors: Any lender will require a guarantor or collateral for the loan amount, so that if for some reason you are not able to meet the repayment schedule, they still have a way of recovering their money.
Favorable Terms: As a borrower, you would probably like to negotiate for lower interest, lower penalties for delayed repayment and a longer loan period. The lender’s decision to loan your business money will depend on the local regulations as well as the risk assessment by the lender.
There are lots of online resources that you can take advantage of when it comes to getting a line of credit for your business. iBank.com is business financing website that will help you get a business line of credit with the most favorable terms, based on your business type and credit profile.
Websites like these help connect small business owners with lenders, based on the type of loan that is needed. You simply input your information, which is sent to the website’s network of lenders. The system will then give you the terms and conditions of each different lender, so that you can then make a better lender choice.
As with any lending source, it is important to be educated on different types of lenders, interest rates and your credit history – both business and personal. When looking for a business line of credit, many small business owners neglect this step – resulting in not being educated enough on the different products available and not being able to intelligently negotiate a good deal.