Top 3 Things to Consider When Opening a Business Line of Credit
You should consider every day as a new beginning for your business. A chance to fix mistakes, improve your processes and find new sources for fast business financing. You may also want to consider opening a business line of credit.
When people think of your business, they only consider what they see on the outside. They don’t know about your struggles and stresses that take place behind the scenes. The same can be said for obtaining instant business financing. Before you take the leap, here are the top three things to consider when opening a business line of credit (LOC).
3 Facts to Keep in Mind When Opening a Business Line of Credit
- The worst time to apply for a LOC is when you actually need it
- Successful business owners get the LOC in place just in case and keep it in place when times are good
- Stuff happens, such as recessions, delays in customer payments, unexpected expenses like taxes, and emergencies. You need to prepare to weather any storm. Those who have access to quick business capital survive and come out stronger.
- If you don’t have a LOC now and you have a financial issue, it may be too late to go through an application process and still get your money in time to save your business. In addition, you are more likely to get turned down if you apply while the problem is occurring. During this time, it’s doubtful that you will be able to present a rosy financial picture.
- You should consider alternative lenders
- this is the best option for small businesses with sales under $7 million
- they don’t require collateral
- you will not be personally liable (except in cases of fraud)
- alternative lenders move faster than banks. You will typically receive your fast business financing in as little as 2-7 days
- an alternative lender like Financing Solutions (www.financingsolutionsnow.com) will give you a very good idea if you will be approved up front
- they don’t charge you application, closing fees, or maintenance fees
- the structure of a Financing Solutions business line is better for small businesses
- Forget about going to commercial and local banks
- Banks demand 100 percent collateral to back up your LOC. As a result, you may have to pledge equity in your home, investments or accounts receivables. Your approval might also be contingent on having your spouse cosign this business bank loan.
- banks will not even look at your application if you don’t have better than a 680 personal credit score
- you will be charged for application, closing fees, or maintenance fees
- a loan application at a bank requires a ton of paperwork. What’s worse is that a bank will often back out of an initial application approval after seeing remaining documents related to your application
- when you go to renew your line each year, the bank will want audited or reviewed financials again, which you accountant will charge extra for
Top 3 Financial Challenges for a Small Business
Every business encounters trials and challenges at some point. Small businesses tend to feel the weight of these issues even more because they don’t often have the manpower or tons of resources to fall back on. It’s best to identify potential problems early on and develop a plan for how you will handle them. Taking care of financial woes when they are small will help you avoid big headaches in the future.
Emergency expenses are one of the biggest tests for a small business. Just when you think you’ve got your finances all worked out, you are hit with something unexpected. This could be an important piece of equipment that breaks down, loss of a major customer, a lawsuit judgment against you or a natural disaster that affects your business area. Even small surprises such as a rise in fuel prices or an increase in taxes can derail your small business. This is usually due to the fact that you don’t have a huge cache of working capital. Finding the right source for short term business financing before you need help will prevent a catastrophe.
Having accurate, helpful and timely financial statements can also be a challenge. Most small businesses only focus on financial statements when it’s time to apply for a quick business loan or prepare taxes. However, the information contained in these documents is essential for making the right financial decisions in the long term. You should include items like market projections, changes in the owner’s equity and your financial position. Keeping this type of data at your fingertips will help you make quick decisions to stay ahead of the competition.
Of course, cash flow continues to be the foremost concern for every entrepreneur. Without cash, you have no business. Just running the day to day aspects of your business and keeping your head above water is hard. Still, you must stop periodically to think about how to stay on top of the matter. This requires knowing your business’s true operating cycle and using the cash you do have wisely. Managing your cash correctly will give you more control of your business and what happens around it.
Top 3 Ways Your Business Benefits from Opening a Business Line of Credit
Flexible control of your cash
When you get a small business loan, the bank will ask why you need the money. If you veer away from your stated purpose, the bank could decide to call in your loan. With a line of credit, you spend the money when and how you need to. Also, you don’t have to keep applying. The money is there for you to draw from at any time. For instance, if you have a big client who is late with their payment but you still need to pay for supplies, you will have the cash you need right now and your business can continue without interruption. It’s also great for those expenses that are too large to put on a credit card but not big enough to require a quick business loan.
Helps you build your business credit
In the beginning, your business credit is typically connected to your personal credit. As a result, when you apply for a loan for your business, your personal credit suffers. You need to create some separation between the two and one of the best ways to do that is with a line of credit. When you use it to pay your bills, you will start to establish a credit history for your business. Just make sure you always pay on time. The last thing you want to do is to ruin both. This will also make it easier for you to obtain fast business loans and other types of funding in the future.
Better terms and interest rates than credit cards or business loans
With any type of quick business financing, the interest rates must be considered. This is what helps determine the true cost of your monthly repayment. These payments cut into your profits. The less you have to pay each month means you can keep more cash in your pocket. Having easy access to fast business cash will keep your company financially stable.
Top 3 Things Every Small Business Owner Must Do to Survive
Use data and use it wisely — while trusting your gut may have gotten you this far, you need to track your data to get your business to the next level. Understanding key performance indicators and how the numbers affect your bottom line can help you make the right decisions. Having this kind of information can assist you in everything from when to launch a new product to which marketing campaigns are working. The more data you collect, the better you will engage your customers and improve your business.
Develop a strategy for attracting and keeping the best and brightest talent — your business is nothing without the people on the front lines servicing customers and those in the background making sure it all runs smoothly. It gets very expensive if you have to keep hiring, training and then losing staff members. You must hire right the first time to avoid this. Some companies use freelancers or temp agencies. This allows you to try someone out before you make them a permanent employee. Before bringing on new team members, think about issues like your company culture and what the position actually entails. You may want to start by using a temp agency or working with freelancers.
Always remember that cash is king — when businesses fail, the reason is not lack of profits. It’s a lack of cash. Without cash, you will be unable to make payroll, pay bills or handle daily expenses. Understanding the factors that affect your cash flow is crucial. Things such as how long it takes your customers to pay and how much inventory you keep on hand can either make or break your cash flow situation.
Like most challenges, you can manage them if you know how. Good cash planning and a line of credit from Financing Solutions will make all the difference.