Lines of credit are popular with businesses in every industry because they are the ultimate flexible and reusable financial product for companies with the resources to support them. While there are some unsecured options, credit lines that are secured with asset collateral are often the best choice for both maximizing working capital and minimizing the cost to access it. That is because collateral offsets issues like a short credit history or relatively low income by providing the lender with a way to recoup losses in the event of a default. So, how do you apply for a credit line that is secured with one or more of your company’s assets?
1. Shop Around for Your Perfect Program
There are a lot of lenders out there offering lines of credit, and each program is a little different. When shopping around, consider the advantages offered by both banks and private lenders, as well as the differences between program requirements, maximum credit line values, and maximum LTVs offered. That will help you pick a program that matches your needs and financial resources.
2. Document Your Income and Cash Reserves
Like many other financial products, business credit lines require you to show your income via bank statements, corporate tax returns, and other methods of documentation. Many also look for documentation of your existing cash reserves, although that is not a universal requirement. Your credit score is important to the exact cost of the credit line, but it is not a make-or-break issue for secured credit lines. Still, it does not hurt to check out your score while you prepare this paperwork, especially if there are any outstanding late payments you need to make.
3. Provide Evidence of the Assets To Be Collateralized
You’ll need to substantiate your ownership of the assets used as the basis for a credit line. This means both showing you own it and also providing evidence of its value. Depending on the individual program, this could be as informal as showing the value of similar assets on the market today or as formal as having a professional appraisal done. Generally speaking, the more valuable you assert the asset is, the more likely you are to be asked to provide substantial proof of that value.
4. Be Ready To Pick Up Miscellaneous Requests
Since business lines of credit are reusable whenever there is a balance open, your application is the beginning of an ongoing relationship with the lender. As a result, there is often a bit of back and forth between your tentative approval and your finalized credit line agreement. Be ready to show your business insurance policies, license to operate, or other documents if needed during those final stages of approval to close the deal and get your new credit line.