Thinking of expanding your business? Are finances the only remaining hurdle?
You’re looking at a business line of credit. Businesses generally use a line of credit to maintain or expand their business processes or to assist with development. A line of credit will give you the ability to begin expanding your business or meeting payroll, paying vendors, or buying raw materials.
The only hindrance to you is having a low credit score, being located in areas with an economic downturn, or having few unencumbered assets. FICO defines a bad credit if the score is 300 to 629. One way you can ease your issue with low credit score is to establish rapport with a banker before applying for a loan. The banker should be someone who understands your line of business. An advisor on par with your lawyer or accountant.
Here’s some of the areas loan officers will inspect before granting you a line of credit:
How you will use the line of credit. Lenders will generally look at how the funds will be utilized. The most typical uses include capital equipment, funding inventory, and accounts receivable. They will also look at what your company does, who does it sell to, as well as who you buy from. They’ll also investigate your company’s business model.
Your annual net revenue. You need to prove that your business has a continuous earning power, which means you must be generating a good net income. Yearlong monthly cash flow statements will show your net income. Lenders will investigate if you have enough cash flow to cover all of the expenses, including the proposed loan repayments.
Your account receivables. Normally, a credit line is secured with the account receivables. Lenders prefer detailed accounts receivable aging – categorized as current, more than 30, 60, or 90 days. Many financial institutions do not include accounts receivable that’s more than 90 days past due when assessing the line of credit.
The debt-service coverage ratio. Lenders normally look for 1.25:1 debt-service coverage ratio. It means that for every dollar of debt that you loaned or want to finance, they prefer that you have $1.25 income. Both financial net worth and liquidity are vital to the lender when they start looking for another source of repayment.
That’s not to say that only bank can help you finance your growing business. There are alternative lenders who can provide you with a business line of credit. Third-party lenders normally don’t investigate your past, but look at how your company is doing at the present. This means that they’ll be able to understand the health of your business as well as the line of credit you can afford.
Eligibility criteria. Alternative lenders utilize a simpler criterion to determine your businesses’ eligibility. For example, if you’ve been in the business for over 12 months and managed to achieve a turnover of more than $100k per annum, then you meet their minimum assessment requirements.
What’s best is you can sign up for free online, and receive a no-obligation business line of credit approved in a day. Try it out!