When it comes to business lines of credit, several myths have persisted for years that keep business owners confused and maybe even prevents them from applying for funding that could help their company grow. One of these myths is that a lender will approve lines of credit based only on the strength of a company’s business plan. It’s also difficult for a new small business owner to walk into a bank and walk out with a line of credit. However, that doesn’t mean that obtaining this type of funding is impossible.
How It Works
The basic premise of business lines of credit is that a company can borrow up to the credit line. It will pay interest on the amount it borrows, but not the full amount of credit granted to it. The process is somewhat like taking a cash advance on a credit card but slightly more complicated.
This type of business financing is more flexible because a small business can spend the funds on anything it wishes. The funds can also be convenient when the business experiences a cash flow problem. However, it’s usually not a good option for large expenses such as equipment and machines for the business.
What Lenders Look for When Evaluating Applications for Lines of Credit
Lending money to a business is risky for bankers, especially when the company is new without an established financial profile. That means lenders look for applicants to have good credit and cash flow as well as a valuable item it can pledge as collateral. Most lenders look for applicants that have at least two years of operating history before even considering approval.
Some business owners apply for a personal line of credit based on the strength of their own credit history and finances. Applying for a loan through the Small Business Administration is also a possibility. Our company is happy to help whenever possible as well. Please contact Purevue Capital today to obtain more information.