Your small business might need a line of credit for many reasons, from a sudden opportunity that requires quick investment to an unexpected downturn that makes it hard to cover expenses. Whether you apply for credit at the bank where you have your business checking account or shop around for other sources, you must be ready to show that your company is a good candidate for a business line of credit.

Benefits of a Business Line of Credit

It’s hard to overstate the value of an open credit line for a small business. One of the biggest advantages to having lines of credit is that they offer quick capital in urgent situations. If your revenue varies a lot from one month or quarter to another, an available line of credit can help you smooth out those steep differences. You can rest assured that you’ll always have the cash to meet your payroll and other expenses. Having an open line of credit also provides you with some flexibility in managing your debt. That’s because you can tap only as much of your credit line as you need and only when you need it.

Business Criteria

Of course, you can only benefit from a credit line if you can qualify for it. One thing a prospective lender will look at is how established and stable your company is. Lenders can be reluctant to provide lines of credit if you’re still in your first year of business. Your bank will naturally take a hard look at your company’s finances, considering some or all of the following:

• Revenues and expenses (especially the ration between the two)
• Debts or other liabilities that you already have
• Business assets (as potential collateral)

Some lenders will also require you to agree to terms that include guaranteed repayment or various guidelines required to keep your account in good standing. If your lender is unsure whether your business is able to meet those terms, they can evaluate your personal finances as well.

Owner Requirements

Your individual creditworthiness can also help or hurt you when applying for lines of credit. Your lender may inquire into your personal credit history and may also want to know what personal assets you have in addition to business assets. Your level of professional experience may also factor into lending decisions. Don’t be surprised if your bank even requires a personal background check to ensure you don’t have a concerning criminal record.

Once you’ve established a business line of credit, you’ll feel the same peace of mind you get from having a good insurance policy. If you’d like the assurance that unpredictable events won’t leave your business strapped for cash, applying for a line of credit is a good place to start.