In today’s discussion we will be talking about the factors involved in obtaining a high quality business line of credit. There are many different types of lenders who offer this service and interest rates vary a great deal between different lenders. On average you will get much more competitive rates from traditional lenders such as banks however they will also be harder to get approved for. We will go over the primary factors involved in being approved for high quality loans in this discussion.
Business credit score: the credit score that your business has is one of the most important factors when it comes to the interest rate which you must pay for a loan. Not only will this drive the interest rate but it will also in many instances determine whether or not you will be approved at all. Most traditional lenders do not give consideration to special circumstances and will have cutoffs which you must meet in order to be approved for a loan.
Revenue to expense ratio: this is probably the second most important factor in most cases. The amount of money which you are authorized to borrow will be limited by the amount of free cash you have available in a given month. The amount of free cash which you have available can be expressed as your revenue to expense ratio. Essentially how much money does your company spend each month as compared to how much money it brings in? Once again there are certain thresholds which must be met in order to get a high-quality loan and you should discuss these thresholds with your local banks lending Department for a basic guideline of their standards.
Finally you must have a strong business history in order to get the highest quality loans. Most banks would like to see business history extending back at least 10 years showing that you have steadily increased your revenue and profits over that.. If your company has not been around for a full 10 years this will not necessarily stop you from getting a loan but it may affect the rate which you can get.
Essentially to get a high-quality business line of credit you must have good business credit and have fewer expenses with a large amount of revenue. Finally your company must demonstrate that it can be profitable over a long period of time and your business history is used to ascertain this information about your company.