When is the Best Time to Establish a Business Line of Credit?

Sidney T. Curry and Saundra Curry

BCH’s AMEN Corner – Affluent Minority Entrepreneur News

Strange as it may seem, the best time to establish a business line of credit (LOC) is when you don’t need the money. A mistake that many small business owners make is to apply for a LOC when they are in dire need. It’s best to apply when you are in a position of financial strength not weakness. Read on to learn how to secure a business LOC. 

As business owners, we understand that cash flow is king. At times our accounts receivable and accounts payable may get out of balance. This can happen when we expand operations, make significant investments in technology upgrades, or face an industry slowdown such as during the pandemic. Regardless of the reason, if cash is tight, it can impact the ability to pay suppliers or make payroll. One thing is clear, when you’re feeling desperate and depleting your reserves, it’s not the best time to try to secure a business line of credit.

Most financial experts recommend securing a business line of credit before you actually need the funds. The small business line of credit is the most popular financing option for business owners in the U.S., consisting of 43 percent of all applications according to the Federal Reserve System.  

A line of credit provides small businesses with flexible, short-term funding to cover operating expenses. It functions like a business credit card, in that borrowers are approved up to a certain amount and draw on their line of credit as needed, paying interest on the actual amount borrowed. The funds are renewable and the amount can be replenished once the borrower makes required repayments. Business lines of credit may be approved for months, or even years, making it an attractive and flexible financing option for borrowers that can be used ongoing.

The requirements for lines of credit differ depending on the source of the funds. Traditional banks and credit unions may require a good personal credit score (680 or higher), minimum of $100,000 in growing revenue and be in business for at least two years. Online lenders may be quicker to approve and provide access to funds within a few days but may charger higher interest rates and fees. You may qualify for a secured line of credit with a lower interest rate if you can provide collateral such as equipment, real estate or investments. 

As we’ve mentioned in previous columns, it’s important to have a relationship with a business banker. Reach out to them for the eligibility requirements and approval process to apply for a business line of credit and carefully compare the terms with other banks and online lenders.

A business line of credit is another tool in your financial wellness toolbox that can be a lifeline for a small business owner. It’s good to know where you stand in terms of business credit and have access to funds in an emergency that doesn’t leave you stressed and scrambling for cash. As a business owner, you have enough on your plate.

Last month, we asked, “Do You Engage Your Employees in Your Business Finances?” with 40% responding “Yes” and 60 percent saying “No.” We invite you to take part in this month’s poll that is a two-part question. “Do You Currently Have a Line of Credit? Have You Used it in the Last Year?” Scan the QR code with your mobile device or click on the link below to participate. The results will be revealed in the next column. See you next month!




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