Though many lenders view new businesses as a risk when it comes to granting lines of credit, there are things you can do to boost your chances for approval. For example, keeping your credit clear of late payments and defaults may boost your chances of qualifying for a line of credit for a new business. Seeking the help of a cosigner or offering collateral may help as well. If all else fails, you may also consider taking out a home-equity line of credit to fund your business instead of specifically seeking a business line of credit.
As the owner of a brand-new business, it is unlikely that you will have an extensive business credit history. As such, lenders will likely examine your personal credit history when deciding whether or not they should approve your credit line request. You will typically have the best chance of securing a line of credit for a new business if your credit score is good. For this reason, you may do well to check your credit report for any errors and have them corrected before you apply. Additionally, it is important to avoid late payments when you are preparing to apply for a line of credit for a new business.
If you have poor credit, you will likely have a hard time securing a business line of credit on your own. In such a case, you may ask a cosigner for help. If you have a family member or friend who has good credit, you may ask him to cosign for the line of credit. It is important to note that a person who agrees to cosign for you will be responsible for payments on the line of credit if you fail to keep up with them. This fact may make some people reluctant to cosign on loan applications.
Many lenders will also look more favorably on business credit line applications that include offers of collateral. If you have something of value to offer, many lenders will see you as less of a borrowing risk. Your collateral helps guarantee repayment, as a lender can sell your property to recoup some of the money you owe if you default on the line of credit. Some examples of collateral may include real estate, art, and stocks.
If you own your home, you may also consider opting for a home-equity line of credit. In such a case, you will use the equity you have in your home as collateral. This may not be referred to as a business line of credit, but you can use such a credit line however you wish. In most cases, lenders have no say in whether you use it for business equipment or to fund a dream vacation.
In general, it is harder to get a line of credit for a new business with no credit history than it is to get one for an established business with a good, or even average, credit history. Most lenders consider brand-new businesses serious risks and are reluctant to offer loans to their owners. This doesn’t mean, however, that getting a credit line as a new business owner will be impossible. Instead, it may just take more time and effort to secure the financing you need.