Business Line of Credit Requirements

A line of credit can allow you small business to quickly bridge cash flow gaps and grab business opportunities such as purchasing inventory. However, small businesses are often required to meet given criteria before accessing business lines of credit to indicate that they are financially sound. Here is a list of requirements that you may have to comply with to obtain a line of credit.

Bank Account

You may have to prove that you have a good-standing bank account to qualify for a business line of credit. Lenders can also look at the daily balance in your business account. Lenders often prefer bank accounts that are not frequently overdrawn. It’s wise to maintain a positive flow of cash in your business bank account to increase the chances of obtaining a line of credit.

Credit Report

A good credit score often represents creditworthiness, and financial institutions consider it a primary determinant for loan qualification. Your business credit report can indicate your loan payment history. However, you can access a line of credit even with a low credit score, but you may have to present collateral.

Annual Revenue

Lenders can look at your monthly or yearly revenue from your income statements to determine whether or not you can repay your line of credit. You can easily access credit lines when your sales grow monthly. Lenders are also likely to increase your credit line over time.

Time In Operation

Credit line lenders often offer funds to businesses that have been operational for over two years. The time in operation can indicate that your company has experience and longevity. However, you can also obtain lines of credit if your business is a start-up only if you have good personal credit or solid collateral.

Financial Ratios

You may have to present your financial ratios to your lender to qualify for a line of credit. They offer a lender an idea of your business performance. Lenders often use different ratios, but some of the commonly used include debt to equity, current ratio and fixed charge coverage ratio.  It’s wise to put your ratios in order if you want to access a line of credit for business growth.

Financial History

You might have to prove your venture’s financial history to qualify for a line of credit. It can show that your business can continue its operations without folding. You may also provide banking documents, tax returns, and financial statements to prove financial history.

You may require more than employees and a business plan to qualify for lines of credit. Knowing the requirements can make the application smoother. You can take advantage of lines of credit to grow your venture.

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