The Importance of Business Lines of Credit

If you are considering starting a small business or you have recently started one, you need to make sure that you have some type of line of credit in place. As your business gets larger, so will the need for more money. With business lines of credit, you will have access to cash  that will help with things like short term funding, increasing your inventory, dealing with slow cash flow or even taking advantage of an opportunity that might pop up. These business lines of credit can help a small company operate and continue to provide services to their clients, even when they might not have cash available on hand.

Getting a Line of Credit Might Not Be Easy
Now that you know a bit about why a line of credit for your business is important, you might think you can run out and get one. Unfortunately this isn’t the case. Getting this type of credit can be difficult for a small business because the vast majority of them will not survive…and traditional lenders don’t want to take that chance. There are some ways around this, however. For instance, you can provide something called a personal guarantee or you can offer some type of collateral to the lender in order to secure this money. This way, you will be able to ensure them, if something happens with your business, they will still be able to get their money back. This also tells them that you, as the business owner, are serious about the company.

Things Might Be Easier if You Wait
Often times, when a business has been in operation for at least two years, lenders are much more likely to offer up a loan than before. This is because more companies will fail within the first 2 years of starting up. If they can get past that two year point, it shows the lender that the company is well managed and able to survive well on its own. Though it might now be ideal to do something like run your company out of your home for the first two years, it can save you a lot of time and frustration.

New Business Help
For those businesses that are not established it is much harder to get a business credit line. There are alternatives; owner of the business creates a personal credit line, a partnership creates a credit line, or creating an investment pool in which equity of the company is exchanged for helping to establish a credit line.

Creative Options
Family and sphere of influence. While friends may not want to write a check, they may be willing to co-sign or extend the money through a personal loan.

Co-ownership. Growth with the potential to be part of something successful in the future may be appealing to the wealthy. With this option, you could sell a percentage of ownership resulting in an immediate capital infusion.

Grants. Government and non-profits may have funds available if your business fits within the framework of the targeted segment. This may be a time consuming and frustrating process because unlike a bank, when applying you do not know if there are any funds available and there can be a considerable length of time before you are notified of acceptance.

There are certainly lenders out there that will offer lines of credit to small business owners of all kinds, but you might need to do some research. Take your time and you will find the right company for you.

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