If you’re a business owner, you’re subject to fluctuations in cash flow. It’s especially likely if you’re a consultant or professional service provider. Whether you’re waiting for invoice payments, purchasing new equipment, or expanding operations, steady revenue is rare — especially in today’s economy. Fortunately, there are wise options that can help provide a safety net in hard times, including business lines of credit. Here are some things to consider.
Good news: lines of credit are easier to qualify for than small business loans. Unless you plan to borrow a large sum of money or your credit is questionable, lenders generally won’t require collateral. Your lending institution will likely ask for your tax returns, balance sheet, bank and profit-and-loss statements, and credit scores.
When applying for a line of credit, look at the amount of interest you’ll be expected to pay. Interest rates may fluctuate, as well. Lines of credit are riskier for lenders, so expect the rates to be higher than certain other kinds of financing. You’ll be expected to only pay interest on the money you’ve used; that’s a relief for most entrepreneurs. The amount you borrow is flexible (up to your credit limit).
It’s vital to stay aware of your payment rules. Your company should be able to afford the minimum monthly payments. If you make payments over the monthly minimum, you’ll increase your credit score. If you want to boost your chances of approval and inspire trust, demonstrate to your lender that you understand and plan to adhere to the payment terms and rules.
When researching your potential lending institution, find out about setup and annual fees. This is an area where you’ll tend to see a wide range of amounts; it’ll make a big difference in how much you ultimately spend. You might find that some lenders don’t require annual fees and/or setup; check their loan limits carefully. Taking a look at lender ratings (via sources such as Trustpilot and the Better Business Bureau) is a smart idea, too.
Find out about loan limits as you compare lines of credit. Be realistic regarding how you plan to scale your business. You’ll get more flexibility with a larger line of credit, but it may cost you more in the long run.
Lines of credit can bring you a feeling of stability and peace of mind. Take into account these factors when considering financial assistance!