Having a line of credit for your business can be a great way to be ready for unexpected costs or slow sales. It is something that should be in every business’s financial arsenal. However, a lot of business owners have very little idea of how to get a line of credit. More specifically, the requirements to qualify for lines of credit are often unclear.
Time in Business
Many lenders are online willing to extend a line of credit if a business has been operating for at least two years. This isn’t always the case. Some lenders offer special programs for startups. However, it is often beneficial to have been operating successfully for at least a couple of years.
Line of credit approval decisions is often based significantly on the revenue of the business. If you have well-established annual revenue, you will have a much easier time getting a credit line. Again, there are some exceptions for startups. Nonetheless, it always helps to be able to show that you can generate revenue and operate profitably.
The credit profiles of applicants have a big impact on the approval decision. Different lenders have specific requirements. However, you should expect to need overall strong credit, especially for an unsecured line of credit. Both the owner’s and the business’s credit profiles may be considered.
Sometimes collateral is needed to secure the line of credit. Whether or not it is a hard requirement for a credit line depends on the lender. Some offer unsecured lines. However, even if it is not needed, collateral can help to improve the terms of your line of credit. Capital assets, inventory, accounts receivable and other assets can be used to secure a credit line.
Finally, many lenders require guarantees from the business and/or the owner. This is especially common for unsecured lines. With this arrangement, the guarantors agree to repay any borrowed money and have special legal liability for it. Owners need to pay special attention to this. Should be the business go under, they may be liable for repayment, even if the company structure otherwise provides limited liability.
Discover more about business lines of credit and their qualification requirements today. It is a good idea to contact potential lenders to understand their specific requirements. This can help you to make an informed decision about the right line of credit for your needs.
Contact us today. First Class Lending has been in the business of commercial finance and business loans for a long time and we have earned the respect of the industry with our specialized financing programs and high level of expertise.