For the 33.2 million small businesses in the United States, a business line of credit can make handling a variety of operational and expansion costs easier. Plus, it’s more flexible than a traditional business loan, providing a revolving line of credit and only charging interest on the amount borrowed at any given time. Determining eligibility for a business line of credit is reasonably straightforward, too. Here’s a look at how to qualify for a business line of credit.
Common Lender Requirements and Eligibility
Business Credit Score
Like FICO credit scores for individual borrowers, business credit scores relate to the creditworthiness of a particular company. They use different scoring models and ranges, but the general purpose is the same. Typically, these are issued by three business credit bureaus: Experian, Equifax, and Dun & Bradstreet.
Credit line issuers review the information in your business credit report and assess the company’s credit score to determine if it meets minimum borrowing requirements. Precisely where that cutoff falls can vary by lender.
As with consumer financial products, higher business credit scores increase the odds of approval. Additionally, they can lead to better interest rates and terms, as well as the ability to secure higher credit lines.
Time-in-Business Minimums
Most lenders have minimum time requirements relating to how long the company has operated. Generally, this requirement ensures the company is proven, at least to a degree.
The minimum required times can vary. Most lenders have time-in-business minimums of one or two years, though some may require longer time frames, and others may work with companies that have operated for as few as six months.
Usually, the longer a company has operated, the less risky it appears in the eyes of lenders. As a result, small businesses with lengthy tenures often secure better rates and terms and higher credit lines than newer companies with the same credit scores and financial standings.
Business Revenue
In the world of business, revenue is a reflection of gross income before subtracting expenses. Revenue requirements reflect the minimum amount of monthly or annual revenue a company must bring in to qualify for a line of credit. Again, the minimum amounts vary, with some lenders requiring $100,000 in annual revenue. Others may need more or allow less.
Understanding the Application Process
Generally, applying for a business line of credit is straightforward. First, you determine how much funding you need, allowing you to declare the credit line amount you’d like to receive. Next, you’d gather the various required documents that you’ll need to supply the lender.
Usually, lenders need the following documents:
- Tax returns (both business and personal)
- Business licenses
- Articles of incorporation (or similar formation or operational documents)
- Bank statements (both business and personal)
- Financial statements
- Profit and loss statements
- Business plans
Certain real estate-related documents, such as building leases, are also potentially required. However, what’s needed could vary depending on whether you rent or own.
Once you have all of the information, you fill out the application to outline personal and business details, such as names, Social Security Numbers, Employer Identification Numbers (EINs), requested credit line amount, credit line purpose, and annual revenue figures. Attach or provide any requested documents, submit the application, and wait for a decision.
If approved, you’ll receive documents that you’ll need to review and sign. These outline the terms of the credit line, so you need to sign them to complete the process.
What to Do If You Don’t Qualify
If you submit an application and don’t qualify, you do have options. For example, you could explore credit lines with another lender, choose a secured business credit line or business loan instead of an unsecured one, or improve your financial profile before applying again at a later date.
The option that’s best depends on the reason your application was rejected, which is usually provided once the decision is made. Use that to determine which courses of action are viable. This can then allow you to secure the funding you require to meet your business goals.
