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Cash Flow Confidence Part Two: From Application to Use with a Business Line of Credit

In our last article, we discussed business lines of credit and went industry by industry explaining why you might need a line of credit someday. In today's article, we'll discuss how and where to obtain one of these potential business lifelines. So lets start with what you need to get a line of credit for your business.

It seems daunting, but it's not any scarier than applying for a personal credit card. And like a personal credit card, the better your credit, the better chance of a high-limit, low interest line with better terms. You'll need a good credit score of 670 FICO and 661 Vantage or better and likely a minimum of $10,000 in annual revenue. They will also look at your debt to income ratio, which you can calculate by dividing your monthly debt by your gross income. For example, if your monthly debt is $10,000 and the gross income is $20,000, your DTI ratio is 50% ($10,000/$20,000). They factor all this in and look at how long you've been in business with a six months to two years minimum is preferred. If you don't meet all the above requirements, you still have a few options.

First, check out the Small Business Association (SBA), which mainly deals with microloans, but it's a great place to start. Some fintech lenders may instead look at your invoice and overall business health over your credit score, or you might have a better chance of obtaining a line of credit if you can offer collateral like property or other assets. If you bank with a credit union or a smaller local bank with whom you have a relationship, they might be more willing to work with you.

Startup accelerators and so-called incubator programs often have partnerships with financial institutions that provide funding options as well. You can also likely use your personal credit score especially if you're in a brand new business. However, this approach can be risky, as it potentially exposes you to personal financial risk if the business fails.

Next, you'll need to show that your business is stable, you have a viable product and a solid returns. You can do this by getting your financial statements together like your recent taxes, accounting documents, bank statements, along with your business plan. Also, make sure you're listed on Dunn and Bradstreet.

Finally you'll need to choose a lender. When shopping for a financial partner, you'll want to apply for the line of credit that has the best terms like fees and interest rates. Below are a few fintech options and a couple more traditional lenders available.

  • Business Blueprint (American Express formerly Kabbage) Known for fast, flexible funding options suitable for small businesses needing quick access to capital.

  • BlueVine Offers competitive rates and easy application process, a suite of business banking options and is ideal for businesses with steady revenue looking for quick approvals.

  • OnDeck Good for smaller credit needs with a super simple application process, speedy responses and known for great customer service.

  • Fundbox Uses a unique model to assess creditworthiness, focusing on invoicing and the overall health of your business rather than just credit scores. Requires 100K in annual revenue and 6+ months in business.

  • Wells Fargo and Chase can provide the credit in addition to traditional full-service banking solutions.

Once you are approved and you're flush with cash, it's vitally important for you to be as protective as possible with it and only use your credit line for strategic investments or expenses. You need to avoid using your credit line for ongoing operational expenses unless part of a calculated financial strategy, and be uncompromisingly diligent about repaying it back, as soon as you can when you're cash flow is good to avoid paying ANY interest.

And like personal credit cards, it's important to consider making more than the minimum payments during periods of strong revenue when you are flush with cash. Remember to regularly monitor your available credit to ensure you do not overextend your business financially.

Cash flow confidence is king and no one likes long term debt. A business line of credit can be versatile, dependable, and there for you whenever you need it. It can be used as a dynamic tool for uneven cash flow, and help get you out of an unexpected business snafus. You can use it to fund an opportunity and it can and empower your company to remain nimble and strategic. However you use it, wherever you get it from, it is quite possibly the biggest missile in your war chest to ensure your business's stability and growth for years to come.

A happy businessman stands in orange suit with his arms outstretched to receive the cash that is being handed to her by a bunch of hands and there is a bright sun burst behind him
TGC Line of Credit for Small Business


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