Mistakes to Avoid When Trying to Get a Business Line of Credit Loan
As small business owners we often run into unexpected expenses during business operations. These situations could be equipment breakdown, supplies running low or sometimes you find a new income source and you need cash to take advantage of this new business opportunity.
These are the times when you need a good business line of credit to finance the unexpected, both negative and positive, situations that occur in every business.
Access to small-business capital has been drastically reduced due to the recent housing crisis and economic downturn. Luckily this does not mean that you as a small business owner cannot get this line of credit, just look beyond your local bank to alternative online lenders.
Applying for a business line of credit is a complex process that can be difficult. Here are tips from successful business owners about how avoid common mistakes that can reduce your chances of business credit line approval.
Don’t Rush Your Loan Application
Small business owners are amongst the most time challenged executives in America! You work long hours and wear many hats to manage your both business and employees. As such you have only a small amount of time to complete the paperwork and gather documentation for your business line of credit application. However do not let this time crunch negatively affect your chances of getting approved by rushing your application preparation.
Put aside a few hours to focus on your credit application. You need to be sure that you are entering the correct information about your sales, assets and expenses for the greatest likelihood of approval. Additionally you may need to include information such as your employer identification number and corporate bylaws. Allow time to be able to look up this information and access these documents.
Also be sure that both the telephone number and email that you list on your application goes to you directly and not to your retail location.
Don’t Wait Until It’s Too Late
Some business owners don’t plan ahead for their cash flow shortages and don’t realize that they need a line of credit until they are out of money. Instead the very best time to apply for your business line of credit is before you need it.
Not only is this prudent planning, but also your financial statements will appear stronger to your bankers eyes.
Lenders will closely scrutinize your cash flow as the primary indicator of your ability to repay the line of credit.
Thus you want to show a full 12 months of positive cash flow in your financials. If you wait until you get into a negative cash flow position that lack of credit worthiness will become part of your application and could result in your loan rejection.
Don’t Be Vague About Why You Need the Funds
All lenders will ask you what you plan to do with the proceeds of the line of credit. They want to know how you intend to utilize this cash in your business operations.
Bankers want to understand your strategic business goals and see that you have thought out this process for the next six to twelve months.
If you are vague about how you will use this cash it indicates that you are a poor planner and do not manage your cash flow well. This will send up a red flag to lenders and could get your application denied.
Now that you know some of the mistakes not to make when trying to get a business line of credit I recommend that you read this Kabbage loan review.