5 Reasons To Look Into Securing A New Business Line Of Credit
The year is 2021. You’ve successfully navigated the murky waters of 2020 and, although you took a few hits, you made it through. Right now you’re staring down the second half of this year with new levels of creativity in your back pocket, and a business plan and marketing strategy that could take your business to the next level. If only you had the resources to get started.
You’ve heard a few anecdotal stories about what finance solutions worked well for your peers, and you’ve picked up enough over the years to have a rough idea of the familiar path you’ll probably take. Until disappearing down rabbit holes on Google one night, you discover that there’s so much more out there than the traditional business loan.
Read the fine print, weigh up deciding factors - like required collateral and flexibility in terms of the loan agreement and repayment terms - and you’ll see that it’s worth considering all options available to you, in order to guarantee securing the best possible finance for your business situation.
One of the options you may want to investigate further is an application for a new business line of credit - here’s why:
- They’re similar to business credit cards
Meaning they allow you to borrow funds up to a preapproved set limit, and to only pay interest on the amount borrowed. You can then choose to either pay off the full amount every month, or simply make the minimum repayment. Similar to credit card repayment terms, any balance you carry will accrue interest - and as you make repayments you can also re-draw those funds up to the agreed credit limit, without having to reapply or get reapproved.
The repayment period can be anywhere up to 24 months or longer and if you choose wisely and select a trusted direct lender there should be no hidden charges and no early repayment fees.
- They provide an ongoing cash flow boost
Each new business line of credit is specifically designed to meet short-term financial needs, such as buying in extra inventory, and paying additional seasonal employees over Christmas, Summer and the school holidays etc. They also work great as emergency funds, to be kept out of reach until there’s an immediate need for them. If (when!!) an emergency does arise, the funds are quickly and easily accessible through the prearranged line of credit. If we’re wrong about the (when!!) and you don't draw any funds, then there’s nothing to repay and the line of credit stays in place long term as a backup plan.
- They’re eligible for use on multiple purposes
If you’re wondering which expenses you can use your new business line of credit to cover, you’re about to be pleasantly surprised. Although not recommended for investments or major purchases, business lines of credit are excellent for managing anything from cash flow fluctuations and paying employee wages, to fulfilling supplier invoices and buying necessary stock. If you’re looking to innovate or invest in new technology or equipment, purchase inventory, materials or supplies, this type of finance is essentially cash at hand, and on demand.
They’re also a great alternative for borrowers whose credit score is not high enough to successfully apply for a traditional term loan as well as those with an earnings history that’s not in depth enough to qualify them for a similarly traditional arrangement.
If you’re looking to build credit for these reasons, then securing a new business line of credit is a great way of working towards these business milestones. In certain industries there’s also the issue of payments to suppliers who don’t accept credit cards, or who charge additional fees for credit card use. In this instance a new business line of credit is a clever solution for logistic simplicity, and to reduce costs for more efficient cash flow and spend management.
- They typically don’t require collateral
Don’t stop at traditional bricks and mortar banks when checking out how to apply for your new business line of credit. They’re also available online from trusted direct lenders, as they’re typically lesser amounts than the bigger loans that banks prefer to administer.
A new business line of credit can get you access to anywhere from $2k to $300k of funds at your disposal - and most lenders don’t require collateral with this particular type of finance. This means a complete absence of the stress of putting your family home or business assets up against the loan, and frees you up to focus on making the business a success, while putting you in a financial position to do so.
- The application process is simple and accessible
It’s also fast, secure and can be directly linked to your accounting cloud software. So you don’t end up wasting precious time knee deep in paperwork when your efforts and energy can be better focused elsewhere in the business. These low doc applications can be completed in as little as two minutes. Yes, two minutes. With outcomes available just 2 hours later, and the ability to access funds the same business day.
Next steps...
If you’ve read this far, applying for a new business line of credit must feel like a viable solution for you - and if you’re an ABN or ACN holder with a minimum of 6 months in business and a monthly turnover of at least $5,000, you’ve already crossed three items off of the application checklist. Bear in mind that the eligibility criteria for a new business line of credit varies from lender to lender, so make sure you do your research upfront.
Next up you’ll need to do a housekeeping sweep of your business creditworthiness and personal credit history and credit score in order to proactively position yourself for a successful application outcome. Start by clearing any outstanding balances or overdue payments that might negatively affect your credit score, and get your finances in order for a smooth new business line of credit application process.
Lenders love a well thought out, professionally presented application so have ready any supporting documentation, which could help strengthen your case. Bank statements, profit and loss statements, your personal and business credit scores and recent tax returns go a long way to consolidating a new business line of credit application. Plus a business plan is always a good idea, the more detailed the better.
Every application is assessed on a case-by-case basis, so be sure to improve your chances by highlighting your professional experience in the industry.
