When I talk to most business owners about getting a line of credit or applying for a loan, they typically need access to the money in the very near future, if not immediately. That’s really not the ideal time to be applying for either, and it tells me that there was some business financial planning that somehow got overlooked. There are ways to gain fast access to loans if you don’t have either – such as invoice factoring – but these typically carry much higher costs and interest rates.
The Ideal Time To Apply For Business Credit
The ideal time to apply for credit is before you need it. Applying for a credit card or line of credit for a business helps establish your company’s creditworthiness, which could be the difference between getting a larger business loan (or not getting it) later on. As with any type of loan, you need to be able to demonstrate creditworthiness before you will be given access to either a credit card or line of credit, so you should always make sure your accounting is up to date and accurate.
Credit Card, Line Of Credit, Or Business Loan?
A business credit card is the easiest way to establish a credit rating, and a line of credit comes in second. Both represent an amount of credit that is set when your application is approved, and they each give you access to the funds when you need them. Neither incurs a payment (or interest) until it is used. A business credit card enables you to keep your business and personal purchases separate, which is key to good business financial management. Hundley Advisors believes the getting a business credit card is a smart move, even very early on.
A business line of credit is like a Home Equity Loan for your business. It is there when you need to use it. You will be approved to borrow up to a set amount, but you don’t get the money or make payments until you use it, and you only pay interest on the amount used in accordance with the terms of the credit line. Applying for one doesn’t mean you need to use it, but it does give you greater access to a higher loan amount than a credit card. We see a line of credit as optional, but we recommend applying for the line before you need it.
Business loans, by contrast, are typically more difficult to obtain and the application process is more involved. Before you need to apply for a business loan, you should make sure your accounting system and business financial reports are all as accurate as possible and don’t raise any red flags. Hundley Advisors can assist you in understanding and applying for any of these financial tools.
Are you interested in learning more about gaining access to business credit or loans? Give us a call to have a conversation about what we can do to help.