Having enough money is vital for ensuring the smooth operation of your company. Without adequate funding, it can be difficult to take advantage of opportunities for growth or prepare for emergencies. If you need a flexible source of cash for your business, then lines of credit may be the right solution.
1. Review the Requirements
Not every company can meet the qualifications to obtain a loan. However, there are ways to improve the chances of approval. Your company’s credit score and financial history will be scrutinized by potential lenders. Check your company’s credit history and resolve any discrepancies before applying for a loan. Prepare your financial statements and use that information to create realistic financial projections. Do not exaggerate your company’s future profitability, as claims that appear misleading can result in the denial of a loan. The age and size of your company can also come into play when applying for a loan. Research the current requirements so that you have a full understanding of the process before putting in an application.
2. Select a Loan Type
While there are different kinds of lines of credit, there are two main categories you can choose between. The first option involves short repayment terms, often consisting of a year or less. This can help you avoid paying interest on a loan for long periods of time.
Long-term loans may be appropriate if you need to borrow a large sum of money and will be unable to pay it back quickly. Although you will be paying interest on the loan for a longer period of time, the prolonged repayment period can result in lower monthly payments.
3. Research Lenders
While some lenders typically prefer to work with companies that have an established financial history, others are more willing to take a risk on newer businesses. Examine the differences between traditional banks, credit unions and online lenders to determine which choice is the best option for you. Banks often have favorable terms, although they have more stringent requirements in place regarding qualification. Credit unions can offer lower rates but require companies to pay a membership fee and use their accounts on a regular basis. Online lenders usually have more flexible qualification requirements and are willing to take risks on newer companies. However, the interest rates may be higher from an online lender.
Whether you need to pay for an important project, weather a slow period or establish a source of emergency funding, a line of credit can be a great source of flexible financing for your company.