All businesses are strapped for cash every now and then. Once you discover that a business line of credit is right for you, you need to address five key questions with your lender to make sure you understand what will happen next.
Armed with these questions, you’ll find out whether this option makes sense or aligns with your business objectives. With this knowledge, you’ll be able to get the ball rolling on your loan and have cash in hand the same day.
How Do I Qualify?
Every lender has a different set of requirements for eligibility. Qualifying for a business line of credit involves meeting several different criteria including your credit score, your time in business, and your revenue and financials.
You must present your business’s credit report to your lender. Some small businesses or new companies may also have to provide the owner’s personal credit report. Most lenders require a FICO score of at least 600. Traditional banks require even stronger scores.
A lot of lenders may require you to be in business for at least two or three years and want to see your business history. If you have a new business, you’re better off going with an online lender, because the approval rate is higher.
Lenders use your revenue and financials to calculate the financial ratio. Your working-capital ratio is determined by your current assets divided by current liabilities. This gives a snapshot of your company’s fiscal health.
Some lenders require that you provide some sort of collateral or short-term assets like invoices or inventory. Sometimes you can use real estate or equipment as well. Online lenders are less likely to ask for collateral, so if you don’t have any, this is your best bet.
What is the Credit Limit?
If you find that you meet the lender’s qualifications, that’s great. But you should also assess whether the line of credit meets yours. Find out how much money you need to ensure that the credit limit works for you.
Factor in your plans for the future and your spending behavior. Can you manage the line of credit and still afford to repay it? Are you going to need more financing in the near future? These things may help you determine whether you need more or less money right now.
What Documents Are Required?
You may be required to provide documentation proving your financial standing. If your company is not in good financial standing regarding debts, you’re less likely to get approved. You may need to prepare detailed paperwork, so figure out if the money is worth the time investment for you.
Loans through traditional lenders require more paperwork including proof of business registration, revenue, time in business, bank account information, and tax returns. If you don’t have a substantial business history or the time to gather all of this paperwork, an online lender is your best bet.
How Long Does It Take?
How soon you get your money depends on how long it takes the lender to assess your situation and get you approved. The less paperwork you have to supply, the less paperwork they have to go over, and the faster you get your money. It’s often the same day.
What are the Rates and Fees?
Your interest rate is based on your credit score. The better your credit score, the lower your interest rate. Having a sound financial history saves you money in the long run. Some loans have variable interest rates, but beware of how the interest rate may change (i.e., go up) over time.
Every lender has different up front or yearly fees to use their product, so get clarification upfront about what exactly applying and receiving this loan is going to cost. You may also pay a fee every time you draw on the line of credit.
Ultimately, you should ask yourself whether you can afford the line of credit before taking it out. Even if you’re eligible, as a responsible business owner, it’s up to you to make the right decision.
Quick Loans Direct offers business lines of credit as well as other small business financing when you struggle with cash flow. The application and approval process is quick and easy, and with same day funding, you often get your money within twenty-four hours.