Small business owners frequently encounter difficulty in managing their finances, specifically cash flow as a result of the seasonal or often cyclical type of businesses they run. This can be especially true when that business is in its infancy or still in development and has not secured consistent funding.
Building inventory forces businesses to wait out the cycle, until enough product has been collected upon to purchase more. These types of problems have forced many businesses under that looked great on paper, but just didnt have the financing necessary to carry them through their cycle or slow seasons.
Business lines of credit are available to accommodate the seasonal demands of the ups and downs in your business cash flow. They enable business owners to anticipate future sales needs. To acquire business lines of credit it helps to know your current business credit rating.
When you open a business account with your bank, its a good idea to have a discussion about business lines of credit in the beginning. That way youll have an idea of what expectations they have of you, and theyll know what your plans are. Most banks will not offer a credit line immediately, but with responsible spending from the beginning, most will approve once they can prove the business ability to repay the loan.
Banks will extend secured credit to most start up businesses. This purely means that the owner or investors will need to back the loan with some sort of assets for collateral. The line may be unsecured later on if the business can demonstrate consistent earnings, good financial positioning and more than one source for repayment. Some of these lines of credit will be short term, and others could be revolving or long term opportunities, depending on the same demonstrated success of the business.
If your business is relatively new and the bank is not satisfied with your sources of repayment, they may ask for personal collateral from the business owner to secure the loan. It is important that new business owners are well aware of their own personal credit history so this doesnt cause problems when it comes to their business line of credit.
Banks will require you to pay your line of credit down when you havent followed your payment schedule, even though the total amount you borrowed may not be due for several more months. A failure to pay back money on schedule indicates potentially negative issues in the businesses ability to manage cash and may make it harder in the future to secure additional funding
by: Andy Kyle
About the Author:
Corporate Credit Concepts specializes in business lines of credit. For more information about business lines of credit and how it might benefit your business, please visit: Business Lines Of Credit