It’s not uncommon for startup business owners to experience cash flow problems, especially in the first few years of operation. Between seasonal demands for products and services and customers taking 90 days or longer to pay their invoices, the occasional cash crunch is inevitable. Then there is the need to purchase inventory without having the funds to do so yet. Fortunately, business lines of credit can provide much-needed cash until the business has a steady stream of revenue.
Understanding Business Lines of Credit
When you obtain a business line of credit from a bank, you can spend up to the credit limit and you only pay interest on the actual amount you use. It is easier to draw cash from this type of business financing than it is with a credit card because you can simply write a check to yourself. While it may be difficult to gain approval for unsecured lines of credit, most banks will work with startup businesses if the owner has something of value that he or she can pledge for a collateral.
You may borrow and pay on the line of credit several times during the course of the year. Each lender has its own guidelines, so be sure to ask about any limitations before you accept the loan. If you fail to follow the payment schedule that you agreed to, the bank may require you to pay down your credit line before allowing you to use it again. Bankers prefer to make this type of loan available for cyclical needs such as purchasing inventory rather than to help finance a business that has continual issues with cash flow.
You should be prepared to present several financial documents to a banker when applying for business lines of credit. Some of these may include tax returns, profit and loss statements, and balance sheets.
Contact Affinity Capital Funding to Inquire About Business Lines of Credit
Credit lines for businesses are just one service we offer. Please contact us today to learn more.