Does Your Company Need an Unsecured Business Line of Credit?

Unsecured business lines of credit can be an excellent source of capital. They don’t require collateral and can provide spending flexibility so you can put your money where it will do the most good.

However, like most loans, a line of credit can be easier to obtain when your business is booming and you don’t necessarily need financing. To that end, it can pay off to build your business credit while your company is thriving. Then, when you want to expand, make changes or need an influx of cash, you have the good foundation you need to secure a loan. There are several steps you can take to make sure that when the time comes, you’re ready to apply.

1. Keep Your Bank History Positive

It’s not just your credit history that counts. If you have a habit of overdrawing or not meeting the minimum required balance in your deposit accounts, that can have a negative effect on your chances to obtain unsecured business lines of credit. Make sure you’re aware of any balance or withdrawal requirements on your accounts and take care to avoid insufficient funds reversals.

2. Create a Business Plan

Some banks may require a business plan when you apply for unsecured business lines of credit. Even if they don’t request a plan, this can still be useful to you as a roadmap for the future. The process of creating a plan forces you to evaluate your goals, needs and potential obstacles, which can help you determine if you’re headed in the right direction. This also gives you insight that you can share with a lending officer or personal banker who may have questions about your business, even if they don’t ask for a written copy of your actual plan.

3. Build Your Credit History

You want to bolster your credit history, since this is a big factor banks consider when evaluating loan applications. To do that, you have to actually have bills. You can build a positive credit history fairly easily by having vendors bill you for supplies, having cell phones in the business name or applying for and using credit cards, then making timely payments.

4. Register With Credit Bureaus

There are several business credit agencies with whom it is free to register. Look into Equifax, Experian and Dun & Bradstreet. Once you’re registered, you can obtain your business credit report for a fee.

Unsecured business lines of credit can be a great resource, but building the credit history required to qualify for them doesn’t happen overnight. If you plan well and take steps to boost your credit, you may be able to access financing when you need it most.

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