A covenant is the establishment of a relationship between two parties. In regards to a business bank loan, a covenant refers to the conditions the bank requires you to fulfill. However, is there a way to get a line of credit with no covenants?
Borrowing money can be stressful. It’s made more so when your business line of credit includes covenants. You must do your homework and know your options to make the decision that is right for your business.
What are some of the covenants typically imposed by a bank?
Forbids you from taking certain actions –for example, it can limit your ability to take out further small business loans.
Restricts activities until specific conditions are met— anything deemed harmful to your ability to repay the fast business loan will not be allowed until the debt is repaid.
Ensures you maintain precise levels of operation — this could be anything from keeping a certain amount of working capital to retaining the same key employees.
If you violate any of the covenants, it could trigger the bank to call your small business loan. This means that all future payments are fast-tracked and payment in full is due immediately. The bank may even decide to charge interest at a higher rate.
Covenants can be financial, informational or negative and can affect ownership or create problems for the debtor. Banks often use debt coverage service ratio, which measures the amount of cash flow necessary for debt servicing, interest and principal payments. This is used to ensure the loan can be repaid even when cash flow is low.
Does Anyone Offer a Line of Credit with No Covenants?
The line of credit product from Financing Solutions (www.financingsolutionsnow.com) doesn’t require any covenants like a bank does. Therefore, it is a lot easier to get in place and to keep in place.
Also, unless there is a default they do not report to credit agencies. As a result, you can have a bank line of credit along with their line of credit and you wouldn’t violate any covenants.
A bank line of credit is just so tedious to get in place nowadays and banks are really struggling trying to compete against companies like Financing Solutions. Since its owners have all built small businesses themselves and they don’t come from the Wall Street and banking crowd they know the crazy things that banks ask for and how they evaluate small business financing applications.
Things No Small Business Owner Should Be Without
Good business credit
While you may have used personal credit to secure your initial funding, it’s vital that you establish separate credit for your business. Your creditworthiness may one day be the only thing that determines whether you can get a small business loan and survive or have to close your doors.
A strong online presence
Today’s customers do just about everything online and they expect businesses to do the same. When you are easy to find and you optimize your website for all devices, you will see more success.
The right alternative lender
When your business needs cash now, time is crucial. You won’t have time to run around comparing terms and options. Turn to Financing Solutions today to ensure your business is ready for tomorrow.
