Applying for a business loan of any form can be challenging. By its nature, an unsecured line of credit is perhaps trickier than others. Discover the most common mistakes that business owners make and how to avoid them.
More and more businesses are turning to an unsecured line of credit. You can get the money you need at any time, and you only pay for what you use. And when your business’ revenue or cash flow picks up, you can repay the balance and keep the line open, safe in the knowledge that you’ll always have an option to fall back on.
What’s more, it’s easier to take out than many other financing options. With the right lender, the process is quick and the standards are not as stringent as applying for a traditional bank loan.
But this doesn’t mean that any business can just get one. To get a line of credit and make the most of it, you need to get everything right. Here are some of the biggest mistakes you’ll want to avoid:
1. Not Having a Clear Use For The Credit
Before you apply for an unsecured business line of credit, it’s crucial to know exactly what you need it for. While it’s versatile and can cover many different business needs, it’s not an almighty solution for all your problems.
As a general rule, an unsecured line of credit is best for businesses that need an occasional cash flow injection. If you have annual periods of low revenue, or even negative cash flow, it can help you weather the storm until the good days come around.
In addition, it’s always good to have a line of credit as a backup if you have to finance a project that will take a while to generate new revenue. The same goes for opportunities that might come up that you need money for to benefit from.
It would be best to have a specific goal before you apply. This will look good on your application, as it shows that you’ll use the money wisely. This gives the lender confidence in your serviceability, which means you can negotiate better credit terms.
2. Waiting Until It’s Too Late
As mentioned, an unsecured line of credit is usually easy to apply for and offers quick approval. However, don’t wait until there’s an emergency before you think about applying.
It’s much better to be proactive. Apply for an unsecured business line of credit before you actually need it. When push comes to shove, you’ll be ready for whatever surprises that the market throws at you. And the account doesn’t accrue interest until you access the credit. That means you don’t have to worry about spending money on something that you’re not using.
Staring early also gives you time to explore your options and prepare for the application. That leads into the next mistake…
3. Rushing the Application Process
Running a business is hard work, especially when you’re building it up. Since they have a stake in the company, business owners often work harder than their employees. They’ll put in longer hours because they’re more directly invested in the company’s success.
This is why it’s not uncommon for business owners to lose focus when filling out application forms. They don’t stop to double-check the application. But they should, as failure to check can cost them a lot.
For example, a mistake as simple as miswriting your tax file number might result in a rejection. You’d have to spend even more time filling out another application or looking for a new lender. It’d make a lot more sense to verify all the information and get the first application right.
4. Being Dishonest In the Application
Extending from the previous point, some errors in an application form are not mistakes at all but intentional. Desperate business owners might resort to lies to present their company in a better light. They do this either to get better terms or to qualify for an unsecured line of credit that they otherwise wouldn’t qualify for.
Make no mistake, this will almost always backfire. Lenders have all sorts of checks in place to spot dishonesty and automatically reject such applications.
But this isn’t the only problem. You might end up with a line of credit that you have no hope of repaying. Your company runs the risk of going out of business and you face potential legal actions.
5. Not Trying to Improve Your Cash Flow
Rather than inflating the numbers on paper, why not do it for real? Showing that you have a stable cash flow can help you negotiate better terms for an unsecured business line of credit.
Since you’re not putting up any collateral, the business’ cash flow is the key indicator of your serviceability. Even a minor boost in your cash flow can go a long way.
This is another reason why you should take your time and secure a line of credit before you actually need it. If you wait till you’re in a cash crunch, the lender will likely see that you’re desperate for a loan. This could result in outright rejection or a higher interest rate to offset the risk.
Haste Makes Waste
It really doesn’t take a lot of effort to get an unsecured line of credit and use it the right way. But this doesn’t mean that you shouldn’t think carefully about this.
Before you apply, take a look at your business’ financial standing. See what you’re trying to accomplish and the credit terms that you’re comfortable with. This will make you a much more reliable borrower.
Figure out what you can do to negotiate a lower interest rate. But if you’re in a crunch, you’ll want to go with a lender that can ensure quick approval.
We can help with that and a lot more. Visit our website for more information or to apply online.
