The Importance and Best Way to Obtain Corporate Lines of Credit

When you decide to go into business for yourself, you will need to establish your business reputation, which includes marketing your product or service, and you can use the credit available to you for operating expenses as your company continues to grow, including advertising.

In some respects, establishing corporate lines of credit is similar to building your personal credit rating. Your creditors will expect you to make your payments in a timely manner and show that you are aware of your financial responsibilities. When your business is new, personal credit will be all that you have to work with, and you will want to ensure that you have a good credit rating, and check your FICO score as well before you attempt to secure additional financing.

Why you need commercial credit

Small businesses use them to cover their short-term funding needs, including dealing with temporary cash flow problems during business slowdowns, building their inventory, and purchasing new equipment. Also, having access to these funds enables them to pay their bills from suppliers more quickly, rather than relying solely on receiving payment from their customers when they are due.

When you should apply for this type of funding

Once your company has been operating for more than two years, you will find that more options are available to you in regard to qualifying for credit because you have succeeding in passing what many in the financial world regard as an "invisible barrier" between success and failure, indicating that you have been through some sort of endurance test.

How you can obtain credit for your business

As they compile their corporate lines of credit in order to function, business owners typically focus on completing applications and having their financial records in order for approval. Often, they make the mistake of requesting a substantial loan even though they have never established a working relationship with the related financial institution, and their chances of succeeding are greatly reduced.

The following are some key factors that financial institutions will use to establish a relationship with you for extending credit and business loans:

-- One of the first things a bank will look at is the length of time you have been one of their customers, because this enables them to determine how much of a risk they will be assuming in providing you with the financing you need. With this in mind, they will review such items as returned checks and overdrafts on your account, if there are any. In addition, if you have borrowed money in the past, they will also analyze the history of that loan.

-- Note that financial institutions also look favorably on those customers who use many of their services as opposed to one, such as a checking account, savings account, merchant account, debit card and bill pay online. Banks profit from these customers, and they are usually more inclined to extend corporate lines of credit to them as a result.

-- Typically, banks look upon themselves as an integral part of the community, and they would much rather do business with you if you are based in their locality, as opposed to dealing with someone on a long distance basis. They also feel that the possibility of fraud is less in such a situation, because one of their representatives can actually visit you and analyze the nature and status of your company.

-- Financial institutions will also be more willing to offer you corporate lines of credit if they are familiar with your cash flow and borrowing patterns, and can meet with you face-to-face as well. Remember that when new customers apply for one of their services, they must always prove how creditworthy they really are, and that cannot be done instantaneously.

-- At the same time, if you have a substantial loan from another financial institution and are in good standing there, your potential lender will probably determine that this is a good indication of your creditworthiness and proceed to process your application. This also applies to certificates of deposit (CDs), low-interest merchant accounts and other financial services you may want or need.

-- For the sake of clarity, always keep your personal finances separate from you business accounts once your business is established, even if you only deal with one bank for all of your financial needs.

Choosing the best time to apply for credit

Financial authorities state that they best time to look for corporate lines of credit is when your need for them is virtually non-existent, so that that will be in place if and when the situation changes, which is virtually inevitable. They further explain that this option should be especially helpful when you are in need of working capital to stay afloat. As a rule, small business owners should have less difficulty in qualifying for credit than they would in obtaining a traditional business loan. Once their application is approved, they will only pay for the amount that they actually use, and this gives them greater control over their finances.

Remember to apply for these funds when your business has passed the two-year test and you have established a good working relationship with your bank as well. Also, be aware of the value of having access to these funds on a day-to-day basis, and make your payments in a timely manner. Finally, always act responsibly and professionally when dealing with your bank.

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