Business lines of credit are a great way to fulfill your business financing needs. You can take out a line of credit once and then only borrow what you need at the time when you need it. The only problem with a line of credit is that it can sometimes be hard to get. Here is some information that will help you know what to expect when you apply for a line of credit for your business.

Qualifying the Business

There are some qualifications that your business needs to have in order to obtain a line of credit. You need to have been in business for at least two years. Banks may waive this requirement if you have excellent personal credit. You will need collateral that the bank can take if you fail to pay back the line of credit. The financial performance of your business needs to be good in order to qualify. The business needs to guarantee the loan, and the owner and major shareholders may need to give their personal guarantee as well. Finally, your business will need to follow certain rules, called covenants, to keep the line of credit active.

Qualifying the Owner and Major Shareholders

The bank will scrutinize the owner of the business and major shareholders, too. The bank will check the experience level of these major players. Their personal credit must also be good. They must have enough assets that the bank can use as collateral in case the line of credit is not paid back. The bank will probably also do a background check on the owner and major shareholders.

SBA Programs

The Small Business Administration can help you to get a line of credit. If you are approved by the SBA, you still get the line of credit from a bank, but the SBA will guarantee that the bank gets its money back if you default. The SBA will require the bank to try to collect from the business, the businessowner, and the major shareholders before it will step in and fulfill its guarantee to the bank.

Alternatives to Lines of Credit

If you are not able to qualify for a line of credit, you may be able to use accounts receivable factoring instead. This source of funding is easier to get because it is backed by the accounts receivables owed to your business. Another alternative is sales ledger financing, which is also tied to your accounts receivables.

Lines of credit are an ideal type of financing for a business that has cash flow problems, and if it is hard to get, the alternatives mentioned above may work for you.