Business lines of credit

Business lines of credit are used to provide working capital for a business. This credit facility is often used to ease uneven cash flow or for short term business expenses. In an ideal situation the business line of credit would be paid down to a zero balance within a one year period. The business is able to draw funds as needed for inventory, supplies, machinery, payroll, and other short term expenses and then pay the balance down with cash flow when the revenue is generated from the investment made by using the line of credit facility. Interest is normally charged only on the funds drawn or funds employed so the business incurs little or no cost if the line of credit is not in use. It’s a very good credit facility to have for peace of mind or unexpected expenses.

An example of use for this loan would be if your company needed to purchase inventory and hire and train two new employees to complete a large new order from a customer. You could draw on the line of credit to purchase the inventory and make payroll expenses needed to begin work on the project. Later, after the profit starts arriving in the form of cash flow you could pay down the balance of the line of credit. In this example you have flexed the line of credit and invested into growth, then paid the balance down after the profit flowed back to the business.

The line of credit is the loan of choice for working capital for most businesses if they can qualify. Most banks will require at least 3 years in business and two consecutive years of profit. In addition they will also want the business owner to have a personal credit score of over 680. This is not a loan choice for startups or a business operating with losses. A traditional line of credit requires solid business financials and business owners with good personal credit.

Who Qualifies for a Business Line of Credit?

  • Have you been in business at least three years?
    Most banks will want to see at three years in business. Some banks may consider approval on the line of credit with two years in business if they were profitable with strong company financials.
  • Have any of the business owners or the business filed for bankruptcy within the past 10 years?
    If any of the business owners or the business had declared bankruptcy within the past 10 years banks will not approve the loan - unless you have repaid all of your creditors.
  • Does the business and business owners have good credit scores?
    If business owner credit is below 680 it’s unlikely a line of credit will be approved. The business credit report will need to show expenses are paid on time.
  • Any past due taxes or judgments?
    If the business owners or the business has any tax liens or unpaid judgments the loan will not be approved.
  • Has your business been profitable for the last two years? Your tax returns must show two years of profitability to qualify for the line of credit.
  • Business Finance Ratio’s
    Does your business bring in $1.50 in cash flow for every $1.00 paid out in expenses? The bank will look at your ability to repay the loan. If the business does not have $1.50 in cash flow for every $1.00 in expenses the loan will most likely be declined.

If you do not feel your business will qualify for this loan we have other loans that may fit for you. You may want to look at the cash flow loan, merchant cash advance loan, Business Financing or factoring.

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