You Don’t Have to Be Irish to Change Your Luck with a Business Line of Credit

Do business woes have you feeling a little green? You need a good luck charm to help you turn things around. A business line of credit could be just the thing. These little beauties cover a multitude of things that could turn into ugly financial issues. They aren’t magical, but they can definitely give your business what may seem like a magical boost.  It may be just the thing to get you over a hump and turn things around.

How do you get a line of credit? If you have great personal credit, you can get one from any traditional bank or credit union. If you have awesome business credit, that is even better. It’s never a good idea to mingle business and personal finances.  Strong personal and business credit allows you to qualify for financing from almost anywhere that offers it.

What if your personal credit is lacking and your business credit is non-existent? Then, it might take a little more time. It is possible though.  They key is to get to work now.  Do not wait until you need it.  If you have a line of credit in place, you will always have a way to turn things around when bad luck strikes.

What is a Business Line of Credit?

A line of credit is like a cross between a traditional loan and a credit card. It is a revolving credit line, but it has an interest rate similar to a term loan. So it is generally accessed by drawing down funds, as needed, through electronic transfer or via a checkbook.

Why Not Just Get a Business Credit Card?

Generally speaking, it is good to have both. For some things, a credit card may work better. You have instant access to funds, and there may be other perks such as points or cash back. However, for some things you may need the option to finance a larger amount at a lower interest rate.

How can a Business Line of Credit Help?

There are many situations in which a business line of credit can be just want you need to turn things around. Just remember you have to pay it back. If you forget that, you could end up in more trouble than you started with.

Working Capital

Sometimes no matter how carefully you budget, there is a need for additional working capital. It may not even be an issue that arises from something bad. Maybe you need to add a computer or take advantage of a sale on inventory. You can use your line of credit for that.

Then again, maybe you can see that you are not going to be paid on time for a large invoice, and you need something to bridge the gap in the meantime.

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In the first case the funds from the sale of the inventory can repay the draw.  In the second, you pay back the draw once the invoice is paid. Having access to the cash from a line of credit can keep you from missing out on a great deal, and it can keep you from falling behind when funds do not arrive as expected.

Expansion

If you already have a line of credit in place, you can start expansion without having to wait on a long loan application and approval process. You can simply start the project, and if you need more funds than the line of credit will handle, work on a larger loan application at the same time.

Repairs and Maintenance

Most of the time these things fall under working capital. However, if you neglect to budget for a maintenance project that only happens once a year, which is easy to do, a line of credit could save your hide.

The same is true of repairs. Budgeting for minor repairs is easy, but for larger scale repairs that you do not expect, and that insurance may not completely cover, a line of credit can come to the rescue.

Equipment Purchase

Suppose you need to add an automobile, commercial stove, or a large-scale printer. Those are not cheap. Even if you have the cash to cover one, it could leave you with a cash shortage. A line of credit can allow you to make the purchase you need without an additional loan, and without running into a cash shortage.

Seasonal Cash Gaps

If you have the sort of business that earns most of its profit during a specific season, it is likely you suffer from a cash shortage during other times of the year. A line of credit can help bridge the gap that shortage leaves, and when your season comes, you can repay the draw.

Unexpected Cash Gaps

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When bad luck really hits, you may find you have unexpected cash gaps. This is where it is very important to have a line of credit already in place. In these times, there usually isn’t time to go through an entire loan application process. You need funds fast. A credit card will work, but a line of credit can usually save you significantly in interest costs.

Having a line of credit already in place means you can take these unexpected cash needs in stride.  Your business will never skip a beat. Otherwise, you could suffer losses in more ways than one by being forced to shut down operations or fall behind on cash obligations.

How to Get a Business Line of Credit

Okay, so you get the idea that you need to have a line of credit in place before you need it. How do you do that? Typically, you apply for a line of credit the same way you apply for a loan.

Banks and other traditional lenders are going to require a good personal credit score, but there are some non-traditional lenders that may focus more on your business credit than your personal credit. That means even if your personal credit isn’t the best, you can still qualify for a line of credit.

The question then becomes, what if you don’t have business credit? We know how to fix that.

Establish and Build Business Credit

If you do not yet have any business credit, or even if you have bad business credit, you can start now to establish or rebuild. The first step, if you need to establish initial business credit, is to separate your business from your own identity.

If you have been in business for a while this may be a little more difficult than if you are able to do it from the beginning, but you can still do it.

How to Separate Your Business from Yourself

Start by ensuring your business has its own address and phone number that is not the same as yours. The phone number should be a 1-800 number or from some other toll-free exchange. Once you do that, you can head over to the IRS website and grab an EIN.

This is the business equivalent of a social security number. After you have it, you can use it in place of your SSN, along with the business contact information you set up, when you apply for loans. In addition, you will need to open a separate business bank account.

Run all business transactions through this account, and pay yourself from that account rather than running personal transactions through it. This will not only help establish your business as a separate entity, but it will make things easier come tax time as well.

Lastly, set up a professional website for your business with an email address that contains your business URL. Do not use a free email service such as Gmail, Yahoo, or Hotmail.

Build Business Credit to Qualify for a Business Line of Credit

Once you establish your business as a separate entity, you can begin the task of building business credit. Whether you have bad business credit or no business credit at all, these steps are the four-leaf clover that can turn your luck around.

In fact, there are exactly four tiers in the process, so you really can think of them as leaves in a lucky four-leaf clover.

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Vendor Credit Tier: The First Leaf

The first leaf on that lucky clover is the vendor credit tier. This tier includes those vendors that will issue you invoices with net terms, and then report your on-time payments of those invoices to the business credit reporting agencies.

The key here is that these vendors issue invoices with net terms and report your payments regardless of what your credit looks like. Sometimes you have to make a few initial purchases first, meet a minimum time in business requirement, or both to get these terms.

Who Are These Vendors?

There are several, but 3 of the most popular and easiest to get started with include:

• Quill– sells office supplies of all kinds, including janitorial supplies.
• Uline– they sell packing and shipping supplies, among other things.
• Grainger– sells supplies companies need for working outdoors as well as tools.

These are the first vendors that most start with. This is because they sell things that can used by virtually every type of business every day. You can order things you will actually use and build your business credit at the same time.

Leaf Number Two: The Retail Credit Tier

Soon you will have 5 to 7 accounts from the vendor credit tier reporting on-time payments.  Then you are ready to apply for credit cards from the retail credit tier. These are those cards from retail stores such as Amazon, Home Depot, and Best Buy.

Use these cards to purchase things you need for your business and make your payments on-time, consistently. Doing so will continue to grow your credit score to the point that you will be able to apply for cards in the next tier.

The Fleet Credit Tier: The Third Leaf

Once you have enough accounts reporting from the retail credit tier, usually 7 to 10, you can apply for cards in the fleet credit tier. These are cards offer by companies such as Fuelman, Shell, and WEX that you can use to purchase gasoline as well as pay for automobile repairs and maintenance.

Lucky Number Four: The Cash Credit Tier

After you have several accounts reporting to your credit from the fleet credit tier, you are ready for the big time. You can now apply for credit cards in the cash credit tier. These are regular credit cards from the well-known companies such as Mastercard, Visa, and American Express.

How Does This Help You Get a Business Line of Credit?

I know what you are thinking.  This is all about credit cards. What does it have to do with a business line of credit? Here’s the thing. Using vendor credit and these cards responsibly builds your business credit to the point that you can apply for, and receive, a business line of credit.

To be clear, a traditional lender is still going to check your personal credit score. If your business credit score is solid however, you may have a chance even if your personal credit isn’t the best. Some non-traditional lenders may not even check your personal credit if your business credit is strong.

Where Can I Get a Line Without a Personal Credit Check?

When it comes to non-traditional lenders, the exact requirements may vary. Almost all of them are more flexible than traditional lenders, however. Once of the easiest to access is Fundbox.

Fundbox has one of the lowest minimum time in business requirements available. You can qualify for a business line of credit with them after being in business for as little as 6 months. They also have no minimum credit score requirement or monthly income requirement.

This means you can get a business credit line with Fundbox even if you do not have great personal credit. And you can also use a business line of credit from Fundbox to help build your business credit, along with the credit tiers.

A Business Line of Credit Can Help You Turn Your Luck Around

With the knowledge of how to establish and build business credit using your four-leaf clover of the credit tiers, you can conquer most any business bad luck that comes your way. Remember, even when you find your pot o’ gold at the end of the rainbow, you must use it wisely.

If you fail to make payments consistently on time, you will find yourself with even worse luck than you had before. Don’t rush. Take your time. Don’t spend more than you can afford to pay back. And watch your business credit score grow. Then, you can snag a business line of credit so when bad luck hits, you can leave the blarney behind and turn your luck around.