If you are starting a small business or you are already running one, there are times when you’ll need financial help. Whether to hire staff, upgrade your equipment, or opening up a new branch, having access to loans helps you to get things going. One of the best forms of loans to finance your business is through a business line of credit.
You may be wondering how do you know whether your business qualifies for the business line of credit? What are the requirements? Well, here’s how to apply for a business line of credit.
Requirements for a business line of credit
1. Personal credit score
Generally, your credit score influences whether or not you qualify for a business line of credit. Lenders look at both your personal and business scores to understand your financial situation and your trustworthiness.
Just like other financing products, you’ll be required to have a high credit score to qualify for a business line of credit. The specifics often vary, but a credit score of 680 is considered by most lenders as the absolute minimum.
Revenue is another important criterion used to determine whether your business qualifies for a business line of credit or not.
Your monthly revenue gives the lender a good picture of how much money your business is making and how much you can afford to repay. Your revenue can also indicate how much extra working capital is needed to help you improve your business.
Majority of the lenders require a minimum float of around $120k on an annual basis. However, most fintech lenders have programs suitable for smaller businesses that do not meet that minimum.
3. Time in business
Before approving your business line of credit, lenders will also want to have a look at how long you’ve been in business
As a general rule of thumb, if you have been in business for more than 6 months, you’ll find it easier to qualify for a business line of credit. Young businesses are often seen as high risk and generally find it hard to secure loans. For the best rates and terms, you will want to have been in business for at least 2 years.
If you are looking to finance a startup or a business less than 6 months old, you may find lenders (especially from fintech) who will be willing to work with you if you score highly in other categories such as credit score and your willingness to offer collateral.
Collateral helps the lender secure a line of credit (or any other business loan) in case you fail to repay back what you’ll borrow. Essentially, if you were unable to pay, your collateral will be claimed to recoup losses suffered by the lender. Common examples of collateral include equipment, physical real estate, home, car, and other high-value assets.
5. Basic business and personal information
Finally, a few other basic business credit requirements that you will be asked to provide might include:
– Personal contact information
– Form of ID
– Business entity type
– Business permits and/ or licenses
– Employer identification number
– Voided business check.
You now have a better sense of what you need to qualify for a business line of credit. It all boils down to your credit score, time in business, and annual revenue. In addition, lenders may also want to evaluate your collateral as well as your personal and business information.
As you consider getting a business line credit, shop around and compare the terms, rates, and requirements before you settle on one lender. This will help you choose the best option for your business depending on your needs.