How to Obtain Unsecured Lines of Credit for Your Business
Many businesses use unsecured lines of credit to fund short term working capital needs such as buying raw materials, increasing inventory levels or making payroll before the customer’s payment has come in. The business only uses and pays for the amount of credit needed and may still have additional borrowing and purchasing power available should a future opportunity arise. Because the loan is uncollateralized, the company’s assets are often still available to pledge towards other types of business loans.
Raise Your Business Credit Score
A strong business credit score is one of the primary measurement tools used when banks or other lenders are evaluating a loan application. They regularly assess both the business score and the owner’s personal score depending on the size of the business and its ownership structure. One of the easiest ways to improve both scores is making on-time payments towards outstanding lines of credit, including credit cards and other trade accounts. Lenders normally look at two or more years of history to confirm that the company has demonstrated managing cash flow to meet its obligations.
Manage Bank Activity
Both bank and non-bank lenders typically review a company’s bank activity to evaluate creditworthiness. Reviewing daily account activity frequently confirms that the prospective borrowers do not have negative balances or overdrawn accounts. When businesses show consistent and positive cash flow combined with the ability to meet their obligations, lenders may be more comfortable offering unsecured lines of credit.
It can also be helpful to build a positive relationship with your bank’s account manager before you need to borrow money. If financial issues arise you have the opportunity to talk with the bank representative, explain the circumstances and provide an understanding about how you are dealing with the issues. Building trust early is important for helping your local bank say yes to future credit requests.
Build Your Business Credit Profile
Registering your business with credit agencies such as Equifax, Experian and Dun & Bradstreet, and keeping records up-do-date over time, can help give your business credibility when potential lenders are reviewing publicly available data about your company. Business owners are often advised to periodically review their business and personal credit reports correct any errors prior to submitting credit applications.
Before applying for unsecured lines of credit, business owners may want to evaluate their financial history and take proactive steps to strengthen the company’s credit standing. Business owners who prepare early for future credit applications are often more likely to have their credit applications approved.