Business line of credit requirements

Although every lender will have their own qualifying criteria, getting a business line of credit is usually decided by several key metrics: How long your business has been operating, your credit history (business and personal), your business bank account data, annual turnover, financial history and the strength of your business plan. Let’s look at these important factors in more detail:

Time in business

The longer your business has been operating, the better. Many lenders like to see proof of at least two years of solid operation, although some online lenders have more relaxed rules on this requirement and may provide a line of credit with only 6 months trading history.

Credit score and history

Lenders may use your personal FICO score or your business’ credit score when considering your loan application. Some may use both. A FICO score of 300 to 579 is considered bad credit, 580 to 669 is fair credit and 670 and above is good credit. The higher your score, the better your chances of loan approval. Many lenders will want to see a FICO score of at least 600 to consider your application, although if you can provide collateral, you may be able to get a revolving credit line with scores in the mid-500s. 

Some lenders may place more importance on business credit scores than FICO – especially if you are seeking a large credit line. Business credit scores vary depending on the model being used, although a range of 1 to 100 is most common. Scores below 50 are considered bad credit and may make it difficult for you to get the loan you want. 

• Re-build your credit

If your credit score is in the ‘poor’ zone, you should take steps to improve this key statistic. Actions to improve your credit score include:

• Pay your bills and loan repayments on time
• Reduce your debt levels and only apply for credit when you need it
• Start to build a credit history – taking out a business credit card is a good place to begin
• Keep old credit accounts open, even if you rarely use them – it helps to grow credit history
• Move home or business location less frequently – lenders usually like to see at least two years at your current address

Bank account

You will need an open business bank account in good standing to get a line of credit. Lenders will also usually ask to see recent bank statements (6 – 12 months) so they can see how your account performs – average daily balance, highs, lows, etc. Lenders also like to see positive cash flow. If your business regularly misses payment dates or has checks returned it could have a negative effect on your loan application. 

Annual revenue

Most lenders will have a minimum annual revenues limit. This could be as high as $250,000 or as low as $2,500 depending on the lender’s loan criteria. Generally, the larger your turnover, the better your chances of getting a loan. Lenders want reassurance that you can repay any funds you borrow from the credit line. 

Financial history

This goes back to the length of time your business has been operating. Lenders will typically ask for two years’ trading records – bank statements, tax records, profit and loss statement, balance sheet, cash flow, sales projections, etc. – although some lenders may accept documents that cover a much shorter trading period. 

Business plan

Many lenders will expect a detailed and insightful business plan that explains why you need the funds and what they will do for your business once you have them. Business plans should do more than paint a rosy picture – explain the risks involved, what the downsides could be – and how you intend to overcome them. If you cannot produce a business plan yourself, it may be worth paying an external service to do this for you.