Business line of credit requirements

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    Chris Godfrey

    Page written by Chris Godfrey. Last reviewed on April 11, 2024. Next review due October 1, 2025.

    Ideal for businesses that want maximum financial flexibility, a business line of credit can give you all the funds you need when you need them, lower your borrowing costs, and provide perfect peace of mind.

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      What is a business line of credit?

      A business line of credit – also known as a revolving line of credit – is a business loan that functions like a high-value business credit card. Unlike a standard term loan, where you get all the cash in one lump sum, revolving credit lines allow businesses to withdraw as much as they want – up to their credit limit – from a floating loan account. 

      The key benefit of this type of borrowing is that you only pay interest on the amount you withdraw, not the whole credit line. This can significantly reduce your finance costs whilst giving you reassurance that extra funds are available if and when you need them. Businesses typically pay the line back with regular payments, or by transferring funds from their business bank account to the credit line as their cash flow allows. 

      Important note: Business credit lines can often be obtained on an unsecured basis. However, if your business is very young or your credit history is limited, collateral may be required.

      How do I qualify for a business line of credit?

      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. 

      Where can I find business lines of credit?

      Business lines of credit are often custom deals, shaped to fit your business, which means no two loan offers will look alike. It therefore makes sense to shop around before settling on a lender. You can do this by approaching banks, credit unions and online lenders one by one, or you can use the services of a loan marketplace that will immediately introduce you to a choice of credit line deals from different lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for borrowers who have never taken out a business line of credit before.

      Get started with Swoop

      No matter if you’re seeking your first business line of credit or you’re a seasoned borrower, working with business finance experts can make all the difference when applying for funding. Contact Swoop to discuss your borrowing needs, get help with your application and to compare high quality business lines of credit from a choice of lenders. Give your organization the financial flexibility it deserves. Register with Swoop today.

      Written by

      Chris Godfrey

      Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.

      To read our editorial policy, please click here.

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