Four Ways to Know if a Business Line of Credit is Right for You

by Crestmark 11. September 2013 11:05

crestmark lending

Starting a new business is not the only time an entrepreneur may look for help with financing. Some small business owners—especially those who operate seasonally—experience fluctuations in cash flow throughout the year. A line of credit can help to smooth over the ebb and flow of sales and cash flow throughout the year. 

A business line of credit provides on-demand funding, and there are a number of different types of lines of credit ranging from unsecured, meaning that it is not backed by any kind of assets; to secured, backed on a general basis by all assets of the company, or by specific assets that are structured into the funding formula of the line of credit.

Here are four questions to ask yourself before approaching a lender:

1.) Does your business have uneven cash flow? The best use of a business line of credit is for paying off expenses in the short term that can be easily paid off in the long term. This works well for short term expenses such as payroll and inventory.

2.) Are you able to pay off the balance of your credit line? It can be tempting to carry a balance on a line of credit, but this will ultimately damage both your relationship with the lending bank and your company's financial health. Unless you are able to pay off the balance quickly, you should not run the risk of borrowing against a line of credit, but possibly consider a term loan for long term items like buying equipment.

3.) Would a business credit card be more appropriate for your needs? A line of credit will have a lower interest rate and higher credit limit than most business credit cards. It will not, however, provide line by line tracking of expenses along with date and location of purchases. This can be very valuable for record keeping and future planning, and also allows you the flexibility to provide individual cards to key employees/staff for travel or other day to day business expenses.

4.) Are all business owners available to apply? If your business is a partnership or has multiple owners, at least 80% of the owners must be represented in the credit application. This makes applying for a line of credit a decision that must be made across all owners of your business.

If you are just starting out, looking to obtain working capital for your existing business, or want to grow from your established base, Crestmark’s business development team can work with you to determine which type of financing solution is the best fit for your current business situation.





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Documents You Need To Apply for a Small Business Loan

by Crestmark 19. September 2012 05:22


When you apply for a small business loan, you'll be required to provide several items regarding your company and its financial situation. While it may seem difficult to get this various paperwork together, it’s good for both parties that this documentation is required: it helps ensure that the final loan you're offered is what's best for you, something that you can afford and that really fits your needs. While the exact documents needed may vary between loan types, everything on this list is virtually guaranteed to be useful during the application process.

Business Plan

In order to be granted small business capital through the SBA, you'll need to show evidence of a solid business plan to show future steps and goals. In many cases, the required information could go well beyond the business plan. Additionally, you'll need to show personal information to identify yourself, and sometimes include a resume that shows your leadership and management experience.

Credit Reports & Tax Returns

Expect the prospective lender to pull your individual credit report and the credit report for your business, if you have already started it. Before you apply, it's smart to pull your own report(s) and check them for inaccuracies. It's not uncommon for the reports to have an error or two, , and even a slight problem could have a big impact when you are applying for credit or a loan. By the same token, most lenders will want to see three years of personal and business tax returns (if you have them).

Financial Statements

You will likely need to show your personal and business financial statements to the lender. This helps them determine your small business capital needs and how much debt you can realistically afford to carry. Expect to present both financial statements of your own and documents from your current bank.

Agreements, Leases, and Licenses

If you've had to fill out any kind of official form or agreement, you'll likely need to present it as part of the loan. This applies to articles of incorporation, any kind of local business licenses or accreditations required in your area, franchise agreements, and lease arrangements. And in some cases, you may be asked to provide information on who your customers are.

This is not an exhaustive list covering every potential situation for every lender. You should always check and ask them what, specifically, they'll want to see so that you can be prepared. But if you're just starting the process and want to have some idea of what they're looking for, this list is a good starting point. 


Term Loans Or Line Of Credit?

by Crestmark 11. July 2012 05:45

There are two basic types of credit that are available from most lenders. The first is a basic term loan, where you receive a set amount of money at a certain time and repay it incrementally over a longer period of time. The second option is a business line of credit. Here you have a maximum amount, beyond which you may not borrow. But up to that maximum you are permitted to borrow as much or as little as you need. Depending on what type of business line of credit you have, the upper limit may be able to be adjusted.

The main difference between the two is their flexibility. Term loans are a one-time thing; you can't simply request more money without negotiating a separate loan and all the associated paperwork. But with a business line of credit, raising the credit limit can be much simpler.

These differences mean that they're best suited to disparate applications. If you're making a one-time purchase or a one-time investment, then go with a term loan. You'll be able to pay for the entire purchase at once, and you'll know exactly how much you'll owe on it over the coming months. But be certain that you're really going to need it just once. Don't get caught with a loan that's smaller than what you actually need because the amount you get isn't negotiable after you've signed the agreement.

A line of credit offers more flexibility. It's great for creating a bridge between your current financial resources and what's necessary to finance a new project. You can pay it back on your own schedule and you can easily expand the amount you're borrowing to fit potentially unforeseen costs. 

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Asset Based Loans | working capital

Savvy Ways To Use Your Business Line Of Credit

by Crestmark 10. May 2012 06:14

Having access to a business line of credit provides a lot of freedom for your company. You have the leeway to make decisions without worrying about securing new funding for them, allowing you to move faster than your competitors. You also have a number of opportunities to make changes within your company, temporarily absorbing costs during the shakeup. Here are three ways that you can make good use of the opportunities a business line of credit provides.

Purchase Inventory At A Discount

When an opportunity arises to save your business money in the long term, you can use your credit to make it work in the short term. This can include everything from taking advantage of a short-term promotion to negotiating a longer term deal that allows you substantial savings for purchasing in volume.

Fund Payroll

As your business changes and adapts throughout the year it is not uncommon to find yourself coming up short for payroll. Your line of credit can help you ensure that everyone in your office gets paid while you wait for things to settle down.

Consolidate And Expand

Reorganization can be a costly process in time, money, and productivity. But in the long term, it almost always yields better rewards. Supplement it with funds from your line of credit and you'll be able to weather the short term chaos in favor of longer term benefits. The same is true with expansion. You might find yourself financially strapped in the short term as your merger takes effect. A credit line will help you meet your expenses while things level out. 

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working capital

What Is Asset-Based Lending?

by Crestmark 21. March 2012 09:51

Asset-based lending is a form of line of credit, and is sometimes called a revolving line of credit. In essence, asset based lending looks at your company's current assets, and then provides you funds up to a certain amount depending on the value of those assets. Because asset based lending is a line of credit, the the borrower and lender will have an ongoing relationship and  will be in fairly close contact. The borrower should be able to receive more funding as needed, up to the pre-agreed limit. In addition, it may be possible for the borrower to increase their credit limit if additional assets are acquired.

Defining An Asset

Technically, any asset could be considered for asset based lending. In that sense, mortgage loans are a form of asset based lending – but they are rarely referred to as such. In most cases, ABL involves receiving financing against the current assets such as  accounts receivable and inventory. The idea is to obtain financing based on expected money to be paid once invoices come due at a later time. The company receives funds from a lender now and turns over the funds from those invoices once they do become available. Asset based lending can sometimes involve other assets such as machinery and equipment, but accounts receivable is the most popular.

A Highly Reactive Line Of Credit

One of the common characteristics of asset based lending is its ability to increase or decrease as a company's invoices increase or decrease. Because the amount that can be borrowed is determined by the expected value of the asset, i.e. the amount expected from invoices, higher or lower invoices thus lead to higher or lower levels of funding. This is particularly useful to seasonal business, high growth businesses, or companies that have a opportunity to grow. Because asset-based lending is typically more focused on collateral and less on the financial performance of a borrower it also creates opportunity for highly leveraged borrowers or companies in turn around to arrange liquidity.

As with all types of funding, the details of asset-based lending can and do vary between different companies. To learn how Crestmark can help your company, we encourage you to contact us via phone or email for more information.


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