Qualifying for Business Lines of Credit (LOC’s)

Every business owner needs a way to handle cash flow problems, ideally before they crop up. The first year in business is often the toughest. Lines of credit may offer small businesses an easy way to get business capital quickly. There are several ways a business can seek out a line of credit.

The Small Business Administration or SBA’s 7(a) loan program guarantees but does not offer loans. Because the SBA is backing the loan, lenders are more likely to take on the additional risk. In addition, owners can often get an interest rate lower than they would on their own. The SBA has requirements for businesses that must be met to obtain the loan to grow, expand and operate their business. Lines of credit are granted for a maximum of $5 million, but the owner should seek a loan amount specific for their operations.

Crowdfunding has become a popular option for funding new ventures in the last few years. Places such as Kickstarter offer to host an online campaign to find investors. Beyond finding investors, crowdfunding allows businesses an easy way to tap into a large customer base already interested in their services or products. Effective and creative marketing are keys to making crowdfunding work for your business.

Entrepreneurs with less than stellar credit or low assets may look into seeking investors into the business. Lines of credit from a bank require a down payment and good credit scores. Investors however are more interested in the marketability of your idea or their interest in making additional money such as family or friends. An accountant can help you with any tax issues that may crop up. An attorney should be consulted to draw up a legally binding agreement stating the agreed upon terms of the investment both the investor’s commitment and your promises.

Then of course there is the traditional bank loan. Lines of credit obtained through a bank allows the owner to make draws on the line of credit when needed. Payments are due only when the line of credit is used. With each payment on the line of credit, the amount left to draw increases. Interest isn’t usually charged on the full amount of the credit line but rather on the amount used at any given time.

Keep your small business afloat in those first years with lines of credit. Seeking funding for a business is available in a variety of ways. Find one that suits your goals and financial history.

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