A business line of credit allows you to have flexibility when it comes to the funds of your company. It can give your company additional working company and allow you to take on bigger business opportunities.
But getting a line of credit for your business — as with any kind of credit — isn’t exactly easy. When you apply for business line of credit, lenders look at your business’ financial capacity and cash flow and your own personal credit history.
Here are some considerations when you apply for business line of credit.
Consider the requirements
A business line of credit is intended for companies; therefore, expect the requirements to bit stringent.
First off, lenders will check how long your business has been operating. Normally, banks and lenders require businesses to have been operational for no less than two years before giving them a line of credit. But other lenders only require a year.
Lenders also look at the company’s revenues. The revenue of your company should justify the line of credit. Depending on the amount being taken out, lenders look for companies with annual revenue of at least $50,000 — although many would require $75,000 annual revenue (or even $100,000 annual revenue for those looking to get bigger lines of credit).
Other lenders might even check your cash flow to make sure you are eligible for the line of credit.
The company should also have no recent bankruptcies and tax liens.
In addition to this, lenders also look into the person taking out the line of credit.
If you are getting a line of credit, you should have a good credit score (no lower than 600, although some companies only require a 500 score). Some lenders might even look into your personal assets and might run a background check on you, to see if you have underlying financial issues.
You should also own no less than 20 percent of the business you are applying a line of credit for.
Knowing your options
Of course, when you apply for business line of credit, you need to fully understand the options. Are you sure you need a business line of credit (or maybe a business credit card would suffice)? Will you apply for a secured line of credit or an unsecured line of credit?
Check the specifics of the line of credit you are considering as well. Look into the repayment plans and see if they make sure in the context of your business operations. Consider finding lenders you won’t do a personal credit check on you if your credit score does not fit the requirement for business lines of credit. Make appointments with different banks and lenders so you can choose the best line from numerous possible options.
When you do get the line of credit, make sure you pay off your debt to keep it in place (and so you can avoid incurring additional fees).
Lastly, be conscious of when you get a business line of credit. Remember: the best time to get credit is before you need it. Some lenders may not give funding immediately; the more pressed for time you are, the more likely you get a line of credit that does not fit your needs.
Business lines of credit open a lot of opportunities for businesses. Learn more how it works at businesslineof.credit. Here’s also a good perspective about credit lines for business: https://www.sba.gov/blogs/right-way-think-about-credit-lines-business.
Check out our guide at businesslineof.credit on how to apply for business line of credit, how to spend it, and more.