How to Get a Business Line of Credit: Step-by-Step

A business, be it in any industry, needs money to meet their working capital needs, fund a new project, or aid its expansion plans. Getting a business loan is a tedious task at times, thus, companies prefer having a predefined limit that they can use anytime. This limit is given in the business line of credit to these companies by banks and other financial institutions that are into commercial lending.

It is important to have a credit card for businesses that they can use at will; it is how the business line of credit works. This is a one-stop solution for your business’s inconsistent cash flows.

A step-by-step guide to getting a business line of credit

1. Step-1: Check Your Credit Score

The credit score is the foremost thing that every lender checks before assessing the line of credit application. As a borrower, you can negotiate better repayment terms and conditions with the lender if you have a decent credit score. In your business line of credit, the interest rate being charged by the lender will be significantly higher if you have a substandard credit score. This is because your credit history tells about your fiscal discipline during repayment.

2. Step-2: Collect All Your Documents

Organise all your documents in one place to be uploaded or to be shown to the lender. Make sure to keep all your documents updated, and don’t use ones from the previous years. If you want to know how to get business line of credit, then this is one of the vital stages. Some of these documents are your business’s audited financial statements, statement of your business’s bank account (current account), income tax returns of the past 5 years, business registration certificate, your PAN card, etc.

3. Step-3: Search for the Right Lender

There are several banks, NBFCs, and other financial institutions in India offering a business line of credit. You have to do your research in finding which lender is offering the lowest interest rate and flexible repayment terms with quick approval and no collateral. Do a comparative analysis of several lenders, which includes banks, NBFCs, direct lenders, Fintech lenders, etc. Know what this business line of credit costs you, and how easy or difficult it is to apply for one and get it approved without much hassle.

4. Step-4: Fill the Application Form

Now that you have identified the right lender for your business and gathered all the documents, it is time to apply for a business line of credit. Go to the lender’s website and apply online, or walk into their office with all the documents to physically submit your application. You can sit with the loan officer or relationship manager to negotiate certain terms and conditions in the latter option. You can also ask them about the processing fees, annual maintenance charges, if any, penalty on late payment, any hidden charges, etc. This is an important step in understanding how business line of credit works.

5. Step-5: Signing of Agreement

Once your business line of credit is approved, the lender will prepare an agreement that is legally binding. You will have to sign the contract which has all the details, terms, and conditions related to the line of credit. Now, it is your job to read each line of the agreement, and approach the lender to clarify all your doubts before signing it. You have to be extra cautious to avoid any surprises later. It is as important as knowing how to get a business line of credit.

This was all about how business line of credit works and how to apply for it. Make sure to follow all these steps in detail, and read between the lines in the agreement.

How you can increase your chances of getting a Business Line of Credit

1. Business Conduct

When you are in a business, ethical business practices are of utmost importance. This aspect is considered by lenders as well, and if there are any red flags in your business conduct, they will reject your business line of credit application. To ensure this does not happen, start paying all your raw material suppliers, rent and utility service providers on time. All this is shown in your cash flow statement, and the lender assesses that.

2. Apply When not Needed

This may sound counter-intuitive, but it is better to apply for a business line of credit when you least need it. This is because the lenders will believe you when your cash flows are promising, and you are not desperate for a line of credit. Your credibility will be higher, and you only pay interest on the amount used, so no interest payment if you don’t withdraw from your sanctioned line of credit. This is another important lesson in how business line of credit works.

3. Maintain Your Credit Profile

This is one of the key areas on which you have to work if your credit history is not inspiring. One of the important answers to how to get business line of credit is to have a good credit profile. Make sure you report your financials properly, pay your vendors on time, pay instalments on your existing loans on time, keep a low debt ratio, etc.

These are some of the ways by which you can enhance your chances of getting a business line of credit. Keep all these points in mind, and do a thorough research of the lenders before finalising one. We at “FlexiLoans” offer a line of credit to businesses at competitive interest rates. You can visit us on the following link. Here, you get the facility of flexible repayment options, and the best part is you won’t have to pledge any of your assets as collateral with us.

At “FlexiLoans”, you can fill and submit the application form in less than 5 minutes with an online document upload option.

This is all we had in this edition of how to get a line of credit for your business. Keep tuned to know more.