Being a small business owner, you must know how significant it is to have access to capital. Whether you are starting a new business, expanding the existing one, or simply need some working capital to manage the cash flow, a business line of credit can prove to be an invaluable tool that can help you achieve your goals.
But how would you go about getting a business line of credit? In this article, we’ll discuss all the necessary steps to help you get started. But first, let’s understand what a business line of credit is.
Business Line of Credit
It is always preferable to stay ready for the unexpected, good or bad. Be it a new project with a dream client that will require a lot of upfront expenses or a slowdown of your business that’d require extra funds for payroll.
Dipping into your savings or using your business credit card can be enough for small expenses. However, a business line of credit offers a much higher credit limit and lower interest rates when compared to credit cards.
Although, for a business line of credit, you will need to apply and get approval as you would with a business loan. A business line of credit basically gives you the option to take out a loan, which is called a draw. However, it is not important for you to take a loan when you apply for it. In case it is approved, your account will have a maximum credit limit. Further, you can take out either a single loan or a series of loans against your credit limit, and you will pay interest only on the amount that you borrow.
While the application process varies, you can follow a few simple steps to get a business line of credit.
Step 1: Evaluate Your Business’ Creditworthiness
It is extremely important to assess your business’ creditworthiness before applying for a business line of credit. Simply check your business’ credit score, which is a number reflecting your business’s financial health and credit history. This score is used by lenders to decide whether you are eligible for a line of credit.
In order to figure out what your business’ credit score is, you can use a business credit reporting service. In case your business credit is low, you would need to take specific measures to improve it before applying for a line of credit. This may include paying down any kind of outstanding debts, opening new lines of credit to establish a positive history, or disputing any errors on your credit report.
Step 2: Determine How Much Funding You Need to Borrow
Once you have evaluated your business’ creditworthiness, you’d need to find out how much you need to borrow. This will entirely depend on your business needs. For instance, if you want to make a large purchase, you would need a more extensive line of credit as compared to when you are simply looking to manage your cash flow.
Step 3: Research Lenders
The next step is to research lenders. There are numerous lenders that provide businesses with a line of credit, including credit unions, traditional banks, online lenders, etc. It is important to consider factors like fees, interest rates, repayment terms, and more. Moreover, it is also essential to go for lenders that specialize in lending businesses of a similar sector to yours.
Step 4: Prepare Your Application
Preparing your application typically involves providing information about your business, including financial statements, bank statements, tax returns, etc. In fact, you might also need to provide a business plan that outlines how you plan to use the funds.
Apart from this, you will also need to fill out an application and offer any additional information requested by the lender. This may include resumes of key employees, financial statements, or legal documents related to your business.
Step 5: Review the Terms of Your Loan
If your application gets approved, the lender will provide you with the terms of your loan. This will contain information about your repayment terms, interest rate, and any kind of fees associated with the loan.
It is important to review these terms carefully before accepting the loan. Ensure that you understand the total cost of the loan and how it will impact your overall cash flow.
Parting Thoughts
Obtaining a business line of credit can be an invaluable tool, especially for small businesses it is definitely an advantage. However, it is essential to follow a few simple steps given above to be well on your way to obtaining a business line of credit. Remember that each lender is different, and hence it is crucial to find the right lender that works primarily for your unique needs.
And if you are confused as to where you can apply for your line of credit, you can check out Razorpay’s official website. You can get a collateral-free credit line with 24*7 withdrawals for your business.
So, do not stop your business growth due to a cash crunch anymore. Choose Razorpay’s line of credit for better short-term loans.
Visit their website today to learn more!
