What Do You Need to Get a Business Line of Credit?
From proof of your repayment capabilities to collateral, here are six answers to the question, “What are some important things you need to get a business line of credit?”
- High Individual Credit Score
- Length of Operating Time
- Collateral
- Proof of Your Repayment Capabilities
- Annual Revenue of $25,000 or Higher
- Proven Track Record, Without SSN
High Individual Credit Score
You might ask why your personal credit score is considered at all, considering that it’s your business that’s borrowing money. It is because business lines of credit frequently demand a personal guarantee, meaning that if your company is unable to repay the loan, you will be held personally liable.
Lenders will often do a personal credit to make sure you can fulfill that personal guarantee. With a low credit score, getting a business line of credit is still workable, but your options will be constrained, and your interest rate will most likely be higher.
Peter Bryla, Community Manager, ResumeLab
Length of Operating Time
Lenders look at the time a business has been in operation as a gauge of its stability. Most banks and lenders require at least one to two years of operations to approve you for a business line of credit. There are some online lenders that would only require six months of time in business, though this is rare. The rule of thumb is that the longer your business has been around, the higher your chances are for qualifying for a business line of credit.
Mark Woodbury, Co-Founder, Minerva Equity
Collateral
While getting a business line of credit, you need collateral. Collateral is the security for the lender if you can’t pay it back. With non-payment of credit, the lenders can claim your collateral and use it as compensation for their loss.
Some lenders have specific requirements for collaterals; some can ask for traditional collateral that can be physical assets, or they can ask for real estate assets. Sometimes lenders can be satisfied with a personal guarantee. If you sign it, you will pay back the fund by any means. This case occurs when your business can’t compensate for the funds. There is also an option for a UCC lien; it’s a formal statement that allows lenders to get your business assets to reimburse your debt.
Cynthia Hamilton, Marketing Director, Oglf
Proof of Your Repayment Capabilities
Requirements for getting a business line of credit will vary depending on the financial institution or private lender. However, one thing you’ll need is proof of revenue because every lender will want to know if you can pay them back.
The supporting documentation you can provide as proof of revenue includes your bank statements, income-tax filings or returns, and your profit and loss (P&L) balance. Some may also want to see your debt-to-income ratio to make sure you can sustain monthly repayments over the long term.
Michelle Maiellaro, Content Marketing Editor, Jeeves
Annual Revenue of $25,000 or Higher
To gain a line of credit, your small business must show that it can become profitable, which is usually shown by its annual revenue. Most lenders will require that you have an annual revenue of $25,000 or higher before they approve your application. Knowing what you need to get a business line of credit can help make the process more efficient and effective in growing your operations smoothly.
Haya Subhan, Management Executive, Sheffield First Aid Courses
Proven Track Record, Without SSN
The most critical factor is the business track record of at least six months. When I started my Amazon FBA business, being a non-resident, I didn’t have an SSN number, so getting lending was difficult in the beginning.
However, after seeing the sales growth in my business and margins, the online lenders based on my Amazon sales history could provide a business line of credit. I got the first line of credit from SellersFunding. After 12 months of doing business, I got a line of credit from Amazon Lending, which was a much bigger line of credit than the earlier lenders. Basically, a great and proven track record of sales history helped me get a business line of credit without an SSN number.
Samrudha Salvi, Founder, Buildfba
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