It’s not uncommon for new (or even established) businesses to go through financial pains. The ups and downs of cash flow are a normal part of doing business and there are a number of ways to handle these hills and valleys.
For example, if your company’s past financial reports show that April is a financially difficult month because of higher than average expenses and lower than average revenues, you can plan ahead and make spending adjustments. One tactic is to differ certain expenses to a later date or accelerate them to before cash flows dip down.
But, not all financial challenges can be predicted so it’s not always as easy to simply move money around. In this case, your business needs a business line of credit.
The difference between a business line of credit and a business loan is flexibility. A loan is a specific amount of money for a specific purpose that must be repaid in regular instalments. A line of credit allows you to borrow against it when you need and make variable re-payments depending on your balance.
For example, a restaurant may use a business loan to renovate the kitchen but a line of credit to purchase every day supplies.
The thing about a securing a line of credit is that the bank requires more proof of stability than with a business loan. This is where having a solid business plan, including a business development plan, is important. A business plan is the blueprint for your business but the business development plan shows exactly how your business intends to achieve the goals laid out in the business plan.
By arming yourself with these documents – as well as a concrete (and reasonable) ask for the amount of credit you need – your lender will have the confidence in your business and a firm understanding of your financial performance, needs and goals. After all, you’re asking your bank to invest in your business, so wow your lender with a thought-out and confident proposal.