Business Line of Credit Requirements: Everything You Need to Know

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A business line of credit can be a great source of extra cash. Business lines of credit are extremely flexible financing solutions – you can use them to manage cash flow gaps, unexpected expenses, expansion opportunities, and more. 

Unlike a business loan, which provides you with an upfront, lump-sum amount you’ll need to pay back over a fixed timeframe, a business line of credit comes with more freedom

You’ll have access to a revolving line of credit you can withdraw from as needs arise. You’ll only have to make payments on what you borrow, and you’ll have the ability to repay and reuse. If you’re considering taking out a business line of credit, you’ll need to be prepared for the potential requirements. Although there are many different types of lenders, you can expect these factors to have an influence over your eligibility.

General business line of credit requirements

Business line of credit requirements are there to help lenders mitigate risk. No matter what type of financing you’re seeking, lenders will always want to feel confident in your ability to pay back what you’ve borrowed. 

The more confident lenders are about your business, the better interest rate and terms you’ll be able to secure. 

Business line of credit requirements will vary according to different lenders. Some lenders may also put more weight on certain requirements over others. 

For example, traditional lenders, like banks, will emphasize your annual revenue, business history, and credit score. Online lenders tend to be more lenient. They typically look at your revenue and your company’s potential for growth and are more willing to accept various credit scores. 

Nevertheless, here are some of the most common business line of credit requirements

Business credit score

Your business credit score is a major determining factor on whether you’ll be approved and what kind of interest rates you’ll qualify for. This is especially true for traditional lenders, like banks.

In order to qualify for a business line of credit. You’ll need your score to be at least 700 or higher. The higher your credit score is, the more likely it is you’ll be able to secure lower interest rates and more favorable terms.

If your business doesn’t have credit history, or if it’s still pretty young, lenders will emphasize your personal credit history.

Personal credit score

In addition to your business credit score, lenders will also run a personal credit check. You can expect lenders to stress your personal credit score if your business is young or hasn’t built up enough credit history. 

Another reason some lenders will run a personal credit check is to ensure a personal guarantee. By involving your personal credit history, lenders make sure you have some “skin in the game” – motivating you to repay your business line. 

You can expect any business owner or partner with at least 20% of ownership to have their personal credit history checked. 

If your personal credit score is less than 700, you may have a hard time securing financing from a traditional lender or bank. In this case, you’ll want to improve your credit score before applying for a business line of credit. 

Another option is to work with online lenders. They tend to be more lenient when it comes to financing. For example, National is a fintech marketplace with lenders that don’t maintain credit score requirements. 

Business financials

Your business financial statements are a good indicator of how financially sound your business is. Lenders want to know that you’re bringing in enough cash to manage your payments and still stay afloat. 

You will most likely be asked to provide business financial statements, including:

  • Balance sheets
  • Personal and business bank statements
  • Profit and loss statements
  • Personal and business tax returns 

You may also be asked to provide some legal documents, such as business licenses, proof of ownership, registrations, or franchise agreements.

Sometimes, lenders will also want to evaluate certain financial ratios, such as debt to equity, current ratio, fixed-charge coverage ratio, or debt service ratio. 

Time in business

According to the U.S. Small Business Administration, only half of all small businesses survive past the first 5 years. Lenders are well aware of these risks and show a preference for businesses that have been around longer. 

Most traditional lenders and banks will want to see that you’ve been in business for at least 2 years. Other lenders, such as fintech companies, maintain more relaxed requirements. In some cases, you may be able to get approved with only 3 months of business history.

Annual revenue

Your annual revenue is one of the most important factors lenders will use to judge your business. Your business bank statements will provide insight into your cash flow and revenue levels.

Strong, consistent, and revenue that grows over time is a sign that you’ll be able to pay back your business line of credit. 

Most lenders will impose a minimum annual revenue requirement in exchange for funding. Banks usually will want to see you can consistently bring in about $250K annually, while online lenders may be willing to approve businesses with $120K in annual revenue. 

Industry

Some lenders will want to learn about your industry before they approve your business line of credit. Lenders may inquire about your industry’s risk, its potential for growth, and who your major competitors are. 

Some lenders may choose to restrict funding to businesses in risky industries, this can include restaurants, bars, retail stores, and transportation businesses. 

It’s not impossible to secure funding if you operate in a risky industry. However, you may need to put in more effort to show lenders how your business is different from competitors and how you plan to grow. 

Creating a business plan complete with industry analysis, company summary, profitability projections, and more can give lenders a better picture of your business and industry. You can use this guide as a reference for building a business plan. 

Credit card line of credit 

You may also be considering a business credit card, or wondering how they’re different from lines of credit.

Business lines of credit work very similarly to business credit cards. Both provide access to a set amount of funds, which you can draw from, repay, and reuse as you need. 

Business lines of credit usually come with higher credit limits than credit cards. Business lines of credit also feature lower interest rates than credit cards, except for promotional 0% introductory periods. 

On the other hand, credit cards are renowned for offering rewards and cashback programs. 

Most small business card issuers will make a decision on whether to approve you based on your personal credit score and income sources. As a result, credit cards may be slightly easier to obtain than a business line of credit, especially for young businesses seeking a small amount of capital. 

Ultimately, business credit cards work best for managing everyday, smaller expenses, such as office supplies, meals, travel expenses, or the like. 

A business line of credit is best suited for larger, ongoing expenses or as an emergency fund. 

Business line of credit requirements for different lenders

We’ve covered the most common types of business line of credit requirements, however, you should expect some variation for different lenders. 

Traditional lenders, like banks and credit unions, will maintain the strictest qualification requirements. You’ll have to provide all the details we’ve outlined above, and possibly more. If your credit score is less than 700 or if you’ve been in business for less than 2 years, you may be disqualified from financing altogether. 

The application process is also notoriously slow and rigorous when you work with traditional lenders. It can take months to receive your funds, and any errors or mishaps on your application will set you back. 

It’s much easier and faster to work with online lenders. This is especially true for younger businesses or those with less than perfect credit. 

National is a marketplace with over 75 different fintech lenders. Our Business Financing Advisors will work with you to help you identify the best solutions based on your unique qualifications. We have financing options for all different kinds of businesses. 

Ready to get started? Fill out our 1-minute application and a Business Financing Advisor will get in touch!

Last Updated on May 13, 2021

National Business Capital is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

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Joe Camberato

About the Author, Joe Camberato

Joseph Camberato, CEO at National Business Capital & Services, developed a passion for business at a young age. Joseph has a true respect for anyone who owns a business and enjoys engaging them in discussions of how they “made it happen.”


Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advise from National Business Capital and the author. Do no rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely in this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there maybe errors, omissions, or mistakes.