• Dave Webb

When should a small business get a line of credit?

I recently had a conversation with a client who had strung together 3-4 years of great profitability. Within a matter of months, his commercial roofing business encountered a perfect storm of difficulties and recently found himself facing a severe cash flow crunch. This is one of those things that seem particularly prevalent among small businesses in growth mode.

The point is that when everything is going great and you have plenty of cash, it seems a waste of time to set up a line of credit. However, that’s exactly when you should apply...when you don’t need it.

Once you need a line of credit (or finally admit to yourself that you need it), the chances are pretty good that your balance sheet and bank statements will look less than ideal, and it’s these documents that creditors want to look at to determine your company’s health. When your business is in good shape and your financials look strong, the better the offer you’ll probably get from a financing company.

When it comes to a line of credit, one of the biggest factors that lenders use to evaluate a potential client is cash flow. This is usually reflected in your bank statements. They typically look at the last three months of a business’ bank statements, and in some cases, they look at 12 months. Many non-bank lenders are actually less interested in your income or even your profit figures and more interested in whether you are able to pay off debt.

Of course, every business goes through rough times. That’s why it’s best to be prepared for and even anticipate them. Yes, it would seem counter-intuitive to apply for financing when you don’t need it. But applying for a business credit line when your business is doing well is a smart way to be ready for cash crunches.

Webb Capital & Consulting offers its clients a revolving line of credit. Credit lines up to $250,000 (unsecured) and $1,000,00,000 (secured). Contact Dave Webb at 239-247-1096 or for the details.

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