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What not to do when applying for a business line of credit

Monday, May 07, 2018

It’s good to be optimistic when starting a new business, but one must also make sure that the business line of credit that you are applying for works best for you as well as your company.

A business line of credit allows you to draw funds against a set credit limit. Small businesses typically use it as short term working capital to help improve cash flow, or to finance other unexpected expenditures.

A business line of credit can be very flexible. This form of financing is also less expensive than other alternatives and can easily work with businesses that have low margins.

While business owners no longer need to rely on traditional banks to access business funding, applying for a business line of credit can be a complicated process.

Here are 5 mistakes to avoid when applying for a business line of credit:
#1 Last minute application

In a business, ups and downs are inevitable. While starting a business, not only should business owners be prepared for fluctuating returns, but they should also apply for a line of business credit when the going is good, as a back-up for rainy days.

This is because, when a company applies for a line of business credit, the stronger their financials, the better the offer that they will get from a financing company. Positive cash flow makes for a stronger case and works in favour of SME India applying for a line of business credit.

#2 Rushing an application
When business owners look for finances last minute, they rush through financing applications without giving it much thought and this can do more bad than good to the health of your business.

Putting in the correct information and giving the application questions sufficient consideration is vital when applying for a business funding and this practice must be followed diligently by all business owners.

#3 Not giving it your best
Applying for a business line of credit is a big step for any business. Careful and additional paperwork and documentation should be undertaken, even if it slows down the process. This is becausesuch a loan does have a bearing on the professional reputation of a company and may go a long way in defining its credibility. Being doubly sure is always advisable.

#4 Not understanding your needs
A business line of credit is a financial instrument typically used for an organization’s short-term working capital needs, and thus a plan to know what you are applying for and exactly why is a must.

A long-term strategy is always advised because it ensures stable business plans and a better credit rate.

#5 Misinterpreting facts
The financer needs to understand the exact situation of your business before offering you a business line of credit.

Even if your bank statements do not look very appealing at the time of applying for a loan, do not mess with the figures as that can permanently damage your chances of receiving any business funding.

Keep these simple points in mind when you next apply for a business line of credit to make the process easier.

"By association with Digikredit Finance Pvt Ltd , an NBFC, which operates under the name  SMEcorner and offers credit to small business owners."

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