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How To Get a Line of Credit

Learning how to get a line of credit is often critical to the survival of a business. Businesses that can’t get a line of credit often end up in bankruptcy.

A line of credit is an agreement under which a lender will make a certain amount of credit available to a business. Businesses need lines of credit because they can tap into them to cover expenses when cash flow is short and pay for expansion.

Those entrepreneurs who learn how to get a line of credit will have a much easier time staying in business and making a profit. Fortunately the art of getting a line of credit is not a hard one to master or understand.

Have a Good Credit Rating

The first step in getting a line of credit is to maintain a good credit rating. The better the credit rating the easier it will be for a business to get a line of credit. A business will often be able to get more credit and pay less interest on credit with a good credit rating.

Therefore it is vital for a business to maintain a good credit rating. This means doing the basics, paying bills on time, paying off debts and not doing anything to make negative information appear on a credit report.

It also means monitoring a business’s credit report and making sure that no negative information appears there. Every business should run a credit report on itself on a regular basis and check the credit report. It should also take action to remove any false or inaccurate information that can damage its credit rating from its credit record. 

Where to Get a Line of Credit

The first place a business should look for a line of credit is its bank. If the business can run a certain amount of cash through its business checking accounts the bank will give it a cash line of credit. This line of credit can be accessed through the business’s checking account and can be used to cover day to day expenses.

Another place a business can look for a line of credit is to its suppliers and vendors. Vendors may extend cash lines of credits or make inventory and supplies available on credit. All a business needs to do to get these lines of credit is to apply for them.

There are many online lenders that provide lines of credit to businesses as well. Equity lenders will make lines of credit to business available if the business puts up real estate, inventory, equipment or accounts receivable as collateral for a line of credit.

Hard money lenders will make cash lines of credit available to lenders. These lenders will usually charge a high interest rate on lines of credit.

How to Get a Line of Credit

The way to get a line of credit is to demonstrate that you have the cash or income to pay off the line of credit to lenders. A good way to do this is to have evidence of the cash flow in the form of bank statements or receipts. Evidence of accounts receivable may also suffice for this purpose as well.

Sometimes businesses will be required to provide a business plan as well. Hard money lenders and investors will probably want to see a business plan before they extend a line of credit.

Businesses that learn how to get a line of credit will flourish. Those that don’t learn how to get a line of credit will perish.