One of the most important & valuable perks for small businesses is a business line of credit. It is a vital source of working capital for small business owners. Instead of a lump-sum payment upfront, as with a term loan, you will get a revolving line of credit that you can pay off and use again over a set time.
If you are thinking about the ideas on how to save money for a small business to run your business smoothly, then a business line of credit can be the most feasible option.
While considering this financing option, keep in mind that business credit line requirements can differ from other types of small business loans, though there can be a lot of overlap.There is two types of business line of credit are discussed below:
A secured and unsecured business line of credit
A secured business line of credit needs you to put up an asset as collateral for the loan. That assures your lender that they can take hold of your asset to cover what you owe if you cannot repay what you borrowed. It has a lower rate of interest.
Once you are clear about the significant differences between secure and unsecured line of credit, it’s time to get familiar with their key requirements.
Crucial Requirements for Business Line of Credit
Good history of credit score
Lenders, like any other type of financing, want to see whether you and your business have a good credit history or not. In this evaluation, they will pull personal credit scores, business credit reports, and other indicators of creditworthiness.
If you or your business has a bad credit score history, it can lose your chances of qualification, limit the loan amount and increase the interest rate.
If you want to apply for a business line of credit from an alternative lender, you will most likely need to have a minimum annual revenue as per required by the concerned authorities. In order to qualify for bank lines of credit, you may be required to show an influential yearly revenue record.
Overall, a business line of credit may request various financial documents to assess your annual revenue and cash flow. Both of these factors will assist a lender in determining your ability to repay the credit you’re applying for.
Time in business
As a general rule, if you have been in business for at least six months, it’s easier to qualify for a business line of credit. In order to get the best rates and terms, you should be in business for at least a year, preferably two years.
While looking for a startup business line of credit, you may be able to find bankers who will work with you. However, you will most likely need to have strong qualifications in other areas. Such as credit history and is willing to offer collateral to secure your credit line.
Basic personal and business information
One of the simplest business lines of credit requirement is basic personal and business information. Lenders will ask you to provide the following information:-
- Personal & contact information
- All information of business
- Business license
- Business entity type
- Form of ID
- All other legal documents & agreements
Now you have all the information crucial to determine if you are a qualifying applicant or not.
Finally, while there may be some variation depending on the lender, you’ll generally find that business line of credit requirements are much simpler in comparison to other types of business loans. We hope all your dire needs for the right information have been fulfilled.