How To Get A Line of Credit
 By Alex R. Merriman

A business line of credit could be just what you need in times of tight cash flow. But to get the money you want, you have to take the right approach to your banker.

With a business line of credit, the bank agrees to lend your small business money up to a certain amount. The length of time you may use the credit line is also specified. Although the money is always available to you during that time, you only pay interest on the amount that you actually use.

Generally you can use the funds for any business need, such as purchasing new equipment, launching a marketing campaign or covering cash flow shortages. And accessing the money is simple – you can usually write a check up to your predetermined credit limit.

Business lines of credit may be secured or unsecured. Banks assume the most risk with unsecured lines of credit. As a result, borrowers sometimes find it tougher to qualify for an unsecured line of credit.

A secured line of credit means that you offer collateral to lower the bank’s risk in lending money to you. The collateral could be business equipment or other assets. Some banks now offer business lines of credit tied to a borrower’s home equity. But that can be risky. If you default on your line of credit, a bank can take your home.

Regardless of which type of credit line you apply for, financial institutions want to know that your small business can repay the loan. To make that judgment, loan officers need to see specific facts.

Here are some tips to help you prepare a written request for a line of credit.

A Brief Summary Statement
Include these facts:

1. How much money you want. Be specific. Name a figure.
2. How your business will use the money. Be honest. If it’s for equipment, say so. If it’s to cover cash shortfalls in your billing cycle, admit that.
3. How long you will need the line of credit.
4. How you intend to repay the money.

Answer these questions in a brief statement. Nothing fancy. No hype. Your statement might read something like this:

“ABC Technology Company is requesting $25,000 to purchase new equipment that is described later in this application. The company is asking for a line of credit for five years. The new equipment will allow the company to serve more customers and thereby increase revenues for repayment of the funds.”

If you get this statement right, you’re ahead of many borrowers. The remainder of your application supports your summary statement.

Business Documentation
A financial institution will want to see a number of business documents to evaluate your request. Be sure you have these neatly printed and error free.

• Business overview to help the loan officer understand your business, its history and its strengths. Include a description of your business, how long you’ve been in business, who your customers are and other pertinent information.
• Gross annual sales or revenues. If you can, present these figures for the past three years to show how your business has improved each year.
• Profit and loss statement (also known as an income statement). Again, provide reports that give lenders a look at the history of your profit and loss.
• Cash flow statement to show when your revenue comes in and how your business spends that money.
• Balance sheet to present current assets (what your company owns) and current liabilities (what our company owes).
• Current statements for your business bank and savings accounts.
• If your business is young, lenders may want to see your formal business plan and your financial projections for the company.

Personal Documentation
Depending on the age of your small business, financial institutions may want to evaluate your personal credit history and risk. In this case, be prepared with these documents:

• A list of liquid assets
• Personal debt, including credit cards, vehicle loans, personal loans and mortgage loans
• Statements for your personal banking and savings accounts
• Your personal credit score

Putting It All Together
Prepare your presentation in a neat, orderly manner. No hand-written notes. No typos. Put it in a three-ring binder. Show your professionalism and you’ll impress lenders.

(Posted September 2004)

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