Securing a Business Line of Credit

Securing a business line of credit allows you to open a new business, expand your existing operation or even purchase new equipment and supplies. A line of credit can be either an installment loan or a revolving loan, like a credit card. In either case, though, you will have to go through an application process to secure the financing.

Step #1: Determine Your Financial Needs

The first, determine how much you will need. It is wise to overestimate slightly, but never simply go for as much financing as you can get. Remember, you will pay interest on your credit.

Step #2: Determine Your Ability to Re-Pay

Now that you know how much you need, ask yourself how much you can pay. You should base your ability to repay the loan on your current revenues plus modest financial projections. In best case scenarios, you will be able to repay your loans, pay your bills and pay your other overhead while still turning a profit for yourself. Do not base your ability to pay on this best case. Instead, use moderate estimates regarding what your revenues need to be to pay your overhead and loans. This will keep your business in the black even if you are not turning a huge profit just yet.

Step #3: Research Lenders

You should consider using your business bank, online lenders, government grants and private capital alike when you are seeking a business line of credit. If a government grant is available to you, this is often the least expensive, and you should go for the grant first. Many types of businesses will not have access to grants, and they will also not have access to private investors. This type of business is the best candidate for a bank or lender application.

Step #4: Prepare Applications

Once you have selected approximately five lenders you would like to work with, it is time to start preparing applications. Prepare your application diligently. You will be judged across the board on everything from your spelling to your neatness. If you are looking to keep your interest rates lower, try to go with a secured credit line. If you will put down collateral, you will usually get a better deal. Submit your application only after each detail is thoroughly addresses. You may get the loan with a less than perfect application, but it will be much more expensive that way.

Step #5: Negotiate Terms

If your application has been accepted, its not time to celebrate yet. The bank or lenders first offer is rarely the final offer, and its up to you to ask for a better one. Negotiating terms may require you to be flexible with your monthly payments or the length of the loan. Factor out the cost of each option over the life of the loan, and aim for the lowest overall cost.