Amid cautious consumer spending and an overall economic and legislative uncertainty, having a reliable source of credit and short-term financing is a necessity for small business owners. One of the more popular credit options among small businesses has been a bank sponsored business line of credit. But these days, many current small business account holders are seeing their credit lines being slashed or closed down, often with little reason or notice.
So how can a small business owner hope to secure a new business line of credit at the bank? Here are three tips that you may not of thought of:
Tip 1: If your credit score is low, consider the option of transferring 100% of the business to your business partner if he or she has a strong personal credit profile. The ownership transfer can be easily arranged and filed in the company’s records. Ownership can be transferred back once you complete the application for a corporate credit line.
Tip 2: Apply for a credit line below $50,000. Loans up to the $50,000 mark are approved much more easily than $100,000 ones, mainly due to the documentation and amount of financials required for the latter. If the credit line you seek exceeds the $50,000 mark, you will have to provide two years of personal tax returns, two years of business tax returns, profit and loss statements and financial statements. So think twice before going for the larger amount.
Tip 3: One of the lessons of the recent credit crunch is not to put all your eggs in one basket. Diversify your business credit and develop relationships with more than one bank. That way, if one bank reduces or cancels your line of credit, you will still have other options.
However, be sure not to open more than three business bank accounts within a 90-day period because the loans might end up stuck in the ratings systems (known as chex systems) which are applied by banks when opening up a business bank account.