Credit Options

Navigating the business credit lifecycle

As your business grows, your credit needs will likely change. Understanding the needs of your business now can help you choose the right type of credit.

Published: November 30, 2017

Depending on where your business is in its lifecycle, your credit needs will likely vary. Here, we breakdown potential credit needs for business at each stage — from the early stages of ideation to the day you retire — as well as potential questions you should be asking yourself and your advisors along the way.

SEED

This stage is all about planning. You’re putting together your business plan, thinking about what you’ll need to get your business off the ground, and creating realistic expectations about generating revenue. You don’t really need any financing just yet, but you do need to assess your and other owners’ personal credit scores, assets, and financial histories, to give you confidence in your ability to get credit when the time is right and when looking to obtain new credit in the next stage of your business.

Questions to ask

  • What personal assets can I leverage for my business?

  • Do I, or any of my business partners, have past credit issues that could hinder our plans?

  • Will the location of my store have enough foot traffic?

  • Can I learn something by interviewing neighboring businesses?

STARTUP

You are officially open for business and even have your first customers. You’ll want to begin establishing business credit, so you may want to consider opening up a credit card in your business’s name. A business credit card can help cover everyday business purchases and is an easy way to track expenses. Many business credit cards offer cash back or points programs to reward you for your business spending.

Now may also be the time to start looking for investors that may help you grow your business. For additional funding, you may turn to friends, family, grants, and angel investors for financial help.

Questions to ask

  • How soon will my business begin generating revenue?

  • How much will purchasing my inventory cost?

  • Does my personal credit report have any issues?

  • How much can I afford to borrow as I begin my business?

  • Will any of my investors also require ownership in the business?

  • How am I going to track and manage paying everyday business expenses?

GROWTH

Your business is growing, and so are your credit needs. You’ve started generating revenue and want to be financially flexible to take on new opportunities, such as hiring more employees, acquiring more inventory, adding another truck to your fleet, or moving into a bigger space. You may consider a number of different credit options to best handle the needs of your business. A business line of credit can help supplement cash flow for recurring expenses and unexpected opportunities. It allows your business to tap into funds to bridge gaps in cash flow or expand your business. Another credit option is a term loan. A business line of credit allows revolving access to credit that can be used again and again as you pay it down, while a loan provides an immediate one-time lump sum of cash with fixed monthly payments over a set period of time. Depending on your specific business needs, and whether you are looking for benefits from secured credit, you may also want to consider commercial real estate financing or specialized financing for vehicle or equipment purchases.

Research and consider your credit options which can provide crucial access to cash for your business.

Questions to ask

  • Do you have enough cash flow to replenish inventory?

  • What additional equipment, space, or employees do you need to keep your business growing steadily?

  • How often are you able to take advantage of trade discounts?

  • When you assess your needs, is a small business loan a better fit for your business than a line of credit?

MATURITY

You now have an established business, you’re generating sufficient cash flow, and you’ve built a loyal customer base. While there’s always room for growth, your focus now is on creating efficiencies. If your business has grown substantially over the last several years, assess your previous financing sources and current needs.

Questions to ask

  • How well does my existing business credit card support my current monthly spending patterns now that I have more employees using it?

  • Could turning business assets into collateral give me access to more credit or better rates and terms?

EXPANSION

You’re ready to take your business into new markets and explore new distribution channels. It’s a scary and exciting time for your business — similar to the seed stage. You’re researching possibilities and planning the next steps to grow your business. You will likely have more financing options, but you may want to consider a business loan, depending on your needs. A business loan is a one-time cash infusion for a set amount and usually for a specific purpose such as to purchase a vehicle or to remodel a location. Loans usually have a fixed term from 2 to 6 years or longer depending on the type of loan.

Questions to ask

  • What am I looking to expand — services, business size, employees, locations?

  • How much cash flow will I need to sustain an expansion until there’s enough revenue to cover it?

TRANSITION

You’ve decided you’re ready to move on, whether you’re retiring or moving to a new business venture. As you consider options such as selling the business or passing it on to a family member, you’ll want to enhance its value and stability by assessing your business assets and liabilities. If you’re planning on closing your business, you’ll want to eliminate or minimize any outstanding debts. You’ve worked hard to build, manage, and grow your business over the years; a happy retirement depends on this smooth transition.

Questions to ask

  • What future plans do I have for my business?

  • How does lending affect my ability to shop my business around to potential buyers?

  • If there is property involved, but I still want to sell my business, should I keep the property as an income stream?

As you navigate the business credit lifecycle, consider using the credit finder tool to get personalized financing options.

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