And there you are – fresh from college, with a fantastic business idea in your head. You want to start the business, but you lack the money for that. The line of credit sounds like the perfect way out of the situation. A line of credit is a reserve of financial resources that you can use whenever the lack of liquidity emerges in your business.
However, let’s be real – getting the line of credit as a recently graduated person will be incredibly difficult. Banks are known for their strict policies; they always require businesses to operate at least for six months to a year before providing a loan. Also, they will surely require you to prove your earnings, but you cannot do that if you only have ideas. Nevertheless, consider it as your first encounter with your boss in the entrepreneurial game, and you are ready for it!
First of all, make sure to keep your business separate from the rest of your life. Never combine the money of your lemonade stand and your video games. Go to such banks as Chase or Wells Fargo and open a business checking account there. That will demonstrate to the future lenders your seriousness and organizational skills. You will create a paper trail.
Secondly, a terrible credit score. Because you are still young, your personal credit score is most likely insufficient. Build it right now. Obtain a secured credit card of Discover or Capital One and start using it for small purchases. Make sure to pay for it in full every month. Your credit score is your financial reputation, and without it, you will not be able to move any further.
While applying for a line of credit, you will need a good business plan. Not a vague one, which you only can think about, but a real one. Describe your product, target market, and how you are going to generate profits from your business. The lenders want to see a business plan.
Also, prepare the documents. Take your government ID, your social security number, your business registration certificate. If you have some assets, list them too. This will show that you are really serious about the project and not trying to take a loan for fun.
Actually, it is unlikely that you will get your line of credit right away. This is okay. Consider obtaining microloans from various sources, for example, Kiva or SBA microloan program. They were specifically created for young entrepreneurs, and they have fairly loose conditions.
There is one more option – a business credit card. It works exactly like the line of credit but requires fewer steps to obtain it. Start with low credit and use it responsibly. Make purchases, repay your bills, and gradually increase your credit.
The process of obtaining a line of credit will mostly happen online. You will have to fill out the required applications on the website of the lender. Be honest about your age and experience. Do not try to mislead the lender, as it will never work, and the lie will ruin your chances forever.
Be prepared to hear “no”. This is absolutely normal. Each “no” is a chance to learn something new. Ask the lender why he rejected your application, and apply this knowledge while filling out the next application form.
Use the credit wisely. Do not waste it on some fancy office interior, but rather invest it into stock purchases and marketing campaign that will increase your revenues. Remember that a line of credit is a borrowed money that will cost you a certain amount of interest, and you should repay it.
You are about to enter a world of people who feel comfortable there twice as old as you are. But you have energy, fresh ideas, and desire to learn something new. This gives you an advantage. Keep working and obtaining credit, and success will follow you!