Basic accounting for increasing your credit
If your business is generally healthy but you still face periodic cash shortages, a business line of credit may be the answer to your financing needs. Or you might receive a large order from a customer and need short-term financing to get a project started or purchase inventory. Again, a business line of credit may be what you need.
Business line of credit: What is it?
A business line of credit is a flexible bank loan that typically only requires monthly interest payments. You can draw on the line of credit when you need the funds, and pay back the principle when you have the cash flow. Usually a line of credit is cheaper than using credit cards and more expensive than fixed loans that are collateralized by real estate or other property. Larger lines of credit will require collateral such as real estate, inventory or accounts receivable, but many small lines of credit don’t require any collateral.
While it is possible to fund a new business with a bank line of credit, many lenders prefer a business to have at least two years of financial history, especially if there is no collateral. Be prepared to show potential lenders:
- up to date financial statements
- tax returns
- a sound business plan.
Other documents that may be required are business licenses and articles of incorporation. Also, most lenders will require that you maintain on open bank account with their institution.
If your business would benefit from a line of credit start preparing as soon as possible. Make sure your financial records are up to date and you are following sound bookkeeping tips. Prepare a business plan that lays out your goals and how you will achieve them. Build your company’s credit by paying your bills on time, and register with the credit bureaus such as Dun & Bradstreet, Equifax and Experian so that you can start generating a credit history. Then when you are ready, begin making contacts with local banks to find out which lender is right for you. To get more helpful bookkeeping advice visit our blog where we discuss this and more on Tulsa bookkeeping.
LUXA Enterprises offers outsourced accounting services for small businesses in the Tulsa and surrounding areas. If you’re considering a short or long-term approach to outsource accounting, give us a call for more information at 918-928-7288.