How to start a business line of credit
What is a business line of credit
A business line of credit, abbreviated as LOC (LOC) is a credit instrument that allows a business owner to draw against a an earlier agreed credit limit, as he needs it, instead of collecting the full loan sum at once. The advantage a business credit line has is that you will only need to pay interest on the withdrawn amount.
Today I would be talking about how to start a business line of credit or how to to get a business line of credit to boost your new business
Benefits of business line of credit
Obtaining a business line of credit for your small business can help boost your small business and lift it up the ground. A business line of credit has more advantage than a normal bank loan because with business line of credit you only pay interest on the actual amount you withdraw and not the entire sum allocated to you. That means a business line of credit lenders will not charge any interest if you don not withdraw and will charge interest only on the amount withdrawn. With business line of credit, you have the opportunity to build up your business credit . Your credit score determines the amount of money you can borrow and also the level of risk you are to the bank.
How to get a business line of credit
Below are some basic business line of credit requirements. To increase your chances in obtaining a small business line of credit, then you need to follow the under-listed steps.
The first step on how to get a business line of credit is to write your business plan. The business plan shows your business line of credit lenders how your business will make the needed money expected to partly fund your start up and pay for the interest on the line of credit. This is important for startups, as they are not likely to have verifiable cash flow.
2. Check your personal credit score.
Before you apply for business line of credit, person credit score evaluation must be carried out, as this is a major determinant steps on how to start a business line of credit. Due to the fact that the business is still new, it is most likely that it may not have it’s own credit score. This means that financial institution will not have to look into your business credit score but on your own personal credit score to make their decision. If your personal credit score is low, then your business line of credit will attract a higher interest rate, or the bank may have to totally deny you access to the credit facility. Checking your personal credit reports for any mistake that may make your credit core low is necessary.
3. Find the best bank for small business line of credit
There are so many business line of credit banks in America, and a handful of business line of credit banks in the uk and other countries. You need to carry out a little research on the different business line of credit in your country, their packages and business line of credit interest charges. This research will help you choose and apply for business line of credit that suites into your low interest business line of credit needs or other needs you may have.
4. Apply for business credit cards.
Carry out your research and apply for small business credit card, that offers good and low interest line of credit. Some credit cards offers rewards, like cash or airline meals if you use regularly. You will also wish to compare business line of credit interest rates and yearly fees. Be sure to read all terms, because credit card companies sometimes tend to increase interest rates after an initial introductory period or if you make a late payment.
5. Talk to your bank about a line of credit.
If you need above 10,000 USD to start your small business, then it is time to discuss with your local bank about a line of credit. Check with your bank about their business line of credit requirements. For instance, you will have to show your business’ bank statements, business tax identification number & your business plan.
6. Think of an equity line of credit to startup your business.
Obtaining a traditional line of credit for your business may be difficult especially when you are just starting the business. Without actual business cash flow, banks are not sure how you will get money to pay for the credit facilities if offered you. If the bank refuse to offer you a traditional line of credit, try using your home as a collateral for the equity. This is method is called equity line of credit.
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