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First Line of Credit

It can be very difficult for a business to arrange its first line of credit. Trying to arrange a first line of credit can be a very confusing and frustrating process for entrepreneurs.

The first place businesses turn in an attempt to get a line of credit is their bank. Bank credit can be hard to get because many banks only lend to those with good credit ratings. Some banks will only give lines of credit to businesses that have accounts with them.

Many banks have a variety of lines of credit available for businesses that qualify. It is often easier for businesses that run a lot of money through their accounts to get a line of credit from a bank. Unfortunately the only line of credit many banks offer to news businesses is credit cards which have high interest rates and restrictive terms.

Fortunately there are many alternatives to traditional bank credit that businesses can take advantage of. These alternatives include vendor credit, hard money lenders and equity lenders.

Other Lines of Credit

A good source of credit for businesses is their vendors and suppliers many of which do make credit available. Many vendors may make inventory available to businesses on credit. A business with a good history of sales should be able to get a line of credit from its vendors.

Some vendors will only make inventory available as credit but others will finance their retailers’ operations. In some industries suppliers do make credit available for example some breweries and beer distributors will finance bars and liquor stores. UPS will also extend lines of credit to companies that do a lot of shipping.

Vendor credit can be a life saver to many start-up retailers. The owner of a new store might be able to get merchandise on credit and not have to pay for it until sales. Manufacturers of products that don’t deteriorate often have floor plans and other deals where retailers can keep their products available for sale.

Some wholesalers may also be willing to advance lines of credit to new businesses. A business will usually have to have a good credit history to take advantage of vendor credit. 

Other First Line of Credit

Another first line of credit that a business can get is equity credit. Equity credit is available to new businesses because it is usually secured by some sort of collateral such as real estate equity, inventory or equipment. Many private equity lenders will advance first lines of credit.

There are also investors that might be willing to advance first lines of credit to businesses. These include angel investors, venture capitalists and hard money lenders.

To get money from these lenders and investors a business will have to have a business plan it can show to the investors. The business owners may also have to supply references and personally guarantee some of the credit. 

Why Should Arrange a First Line of Credit

Most business startups should arrange a first line of credit so there will be financing available to cover day to day costs and emergency expenditures. Having sufficient credit available is often the difference between survival and shutting down for new businesses.