Trade-In Tech
by on July 9, 2020

A line of credit is a standard borrowing limit that the borrower will be able to use at any time. Once the lender provides a line of credit, the borrower can withdraw money whenever they want until the limit has been reached. When you enter into this kind of business relationship with a supplier, you will be able to purchase services and goods with the line of credit that you receive. You will have a certain period of time to pay back the money that you use. It's important to understand that it's not always easy to obtain a line of credit from a supplier. They will have their own requirements that you must meet to receive a line of credit. To heighten the possibility that your line of credit request is approved, you should adhere to the following guidelines.


Make Multiple Transactions Before Offering the Option


Before you request a line of credit, it's highly recommended that you make several transactions with your supplier to show them that you are trustworthy and will provide them with payment when it's due. Even if your company has a strong reputation, suppliers that don't know you and have yet to do business with you won't be likely to provide you with the line of credit you're looking for. Making multiple transactions is simple and doesn't require a substantial amount of investment.


Keep in mind that making multiple transactions likely won't be all that you need to do to obtain a line of credit from a supplier. However, it can help you get started with the process and will also allow you to determine if you like doing business with the supplier in question. If you were able to obtain a line of credit from a supplier before ever doing business with them, you may find out after receiving the credit that the supplier isn't able to fulfill your business needs, which means that the line of credit you received would be worthless.


Build a Relationship Outside of Work


If you want to convince a supplier to provide you with a line of credit, consider building a relationship with them outside of work, which may help with approval of the line of credit while also giving you better credit terms. In the event that you build a relationship with your supplier, they may be willing to extend additional credit to you or provide you with the ability to pay back the loan over a lengthy period of time. If you have some good communication skills, it shouldn't be too difficult to find shared interests that may allow for a broader relationship.


By building a relationship outside of work, you'll also build trust with the supplier in question. These individuals and companies need to trust you before they are willing to provide you with the amount of credit that you want at the rates that you prefer. Make sure that you build a relationship with each supplier you want to do business with. If there are several different suppliers that offer the same products, inquire about lines of credit with each supplier. The terms that are offered to you from one supplier can then be compared with the terms you receive from other suppliers. Due diligence is necessary to avoid paying higher interest rates than you should.


Meet Them In Person


A great way to enhance the possibility of receiving a line of credit from your supplier is to meet them in person, which will allow them to learn more about yourself and your company while also putting a face to the name. This ties in with building a relationship outside of work. The supplier in question almost certainly provides products to many other companies that don't require a line of credit, which is why it's important that the supplier believes your business to be worthwhile. It can be easy for suppliers to simply reject a line of credit application from businesses that they don't really know. If you meet the supplier in person, they may take another look at your application.


Make sure that you also keep lines of communication open. Once you've cultivated a business relationship with the supplier, it's important to talk to them about what's going on with your business. You can discuss everything from new hires that you've made to the plans that you have for future growth. If your supplier knows you and your business, they will likely want to continue doing business with you in the future, which increases the possibility that your line of credit request is accepted.


Start With Partial Payment Option


When you're first getting started with a line of credit, it's recommended that you begin with a partial payment option, which will lessen some of the burdens that you have when attempting to repay the supplier. Whether you believe that you will have issues with making the full payment in the future or just want to make sure that payments can be made consistently, starting out with a partial payment option should help you adjust to making payments while also keeping the relationship strong.


Once you're wholly confident that you can make the partial payment, you can start paying the entire payment at the due date, which will invariably strengthen the business relationship that you have with your supplier. In most cases, the partial payment is around half of the full amount that you owe with each payment cycle. It's also much easier to start with a partial payment option at the beginning as opposed to asking to change to a partial payment later on.


Keep in mind that you'll need to have a good credit score if you want your line of credit request to be approved. Make sure that the suppliers you do business with submit your payment history to the various business credit bureaus, which will help you when you're trying to increase your credit score. If you have a consistent history of making payments on time, your business credit score should increase by a significant amount. In the event that a supplier doesn't provide credit bureaus with your payment history, consider asking them to do so. If they are unwilling to, take your business elsewhere.


If you have credit cards for your business, it's also important that you use them wisely. In order to increase your business credit score, your credit card utilization should be at 30 percent or less of the total credit available to you. The credit card bills you have should also be paid on time to make sure that your score doesn't drop points. Your suppliers may offer you discounts if you routinely make your payments earlier than when they are due. With these tips in mind, your line of credit request should be approved.


Leverage to Full Credit Line Over Time


Many businesses will start with a relatively small line of credit to begin with, which allows them to build trust with the supplier by making payments on time. This option also provides businesses with the opportunity to leverage to full credit over time. If the supplier grants you a line of credit and finds that you make all of your payments on time, they will be more likely to eventually grant you an additional line of credit. It's possible that they will also increase your credit line, which will allow you to do more business with the supplier. If you ask for too much at the beginning, you could damage the business relationship that you have with your supplier.


As long as you have a strong credit history and have done business with the supplier in the past, there's a good chance that your request for a line of credit will be granted. However, the aforementioned guidelines will increase the possibility that your initial request is granted. Make sure that you request a reasonable amount for your line of credit to reduce the possibility that your application is denied.


It's also important that you don't agree to a bad interest rate. The interest rates for lines of credit are relatively similar to the interest rates for personal loans, which means that you should look for a line of credit with a rate of 3-5 percent. Now that you know what it takes to obtain a line of credit from your supplier, the process should be relatively straightforward.

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