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Nov 30, 2023
5 min read
Last update: May 17, 2024

Business Line of Credit Requirements: What To Know

If you need access to quick and flexible working capital, applying for a business line of credit may just be your best option. A business line of credit is revolving credit issued by a lender, which includes traditional banks, credit unions, and online lenders. It’s different than receiving a lump sum from a loan provider. 

A business line of credit works like a business credit card. You’re approved up to a certain credit limit and can spend your funding on growing your business until you reach that limit. 

In exchange, you may be required to sign a Personal Guarantee and pay interest, draw fees, and annual fees over time. 

A line of credit is ideal if you’re experiencing a slow season and need financing to cover your overhead expenses. 

So, what are the requirements for applying for a business line of credit? This guide will cover the standard eligibility requirements for a business line of credit so you can fully prepare before hitting “Submit” on your application. 

Why Choose a Business Line of Credit?

Applying for a business line of credit can benefit your small business. Here are some benefits and reasons why you should take out this revolving line of credit:

Improve Your Company’s Cash Flow

Late invoices, reduced profits, and limited cash are all signs that a business is facing a slow period. In a slow season, paying your bills, paying your employees, and keeping vital operations running can be challenging. 

Applying for an unsecured business line of credit can give you the short-term funds to cover your company’s operating expenses immediately. With more cash flow, you can keep your head above water and focus on growing your business.

Ultimately, a secured line of credit gives small business owners peace of mind in stressful business situations. 

They’re Highly Accessible

A business line of credit offers a unique blend of flexibility and stringent eligibility criteria. While obtaining approval can be challenging, this type of small business loan considers a variety of factors beyond your business credit score, such as annual revenue.  

This flexibility opens doors for businesses with varying credit histories, including those with bad credit scores, by offering them flexible loan amounts. 

The business line of credit caters to a diverse range of business needs. Whether managing cash flow, investing in growth, or covering unexpected expenses, a business line of credit is a flexible and strategic option for various types of businesses.

Build a Better Relationship with the Lender

Applying for a business line of credit provides the opportunity to demonstrate your responsible financial habits. Over time, borrowers can negotiate a better line of credit with more favorable interest rates and repayment terms if they prove they can manage the loan through proper payments. 

On top of that, you can even open a business bank account with that lender and take advantage of other business financing options after repayment. 

Grow Your Business Credit Score

If your lender reports your credit activity to business credit bureaus, you can realistically increase your business credit score. A higher business credit score can improve your chances of applying for a small business loan or another line of credit with a lower interest rate. 

Understanding Business Line of Credit Requirements

Now that you have the benefits of applying for a business line of credit, let’s cover some of its requirements. Here is how you can know if you’re eligible for a business line of credit. 

6+ Months in Business

The number of months or years you’ve been in business can affect your approval chances for a business line of credit. Lenders are very cautious about providing funding for new businesses and startups. 

If you’ve been in business for at least six months, a bank or personal lender will be more comfortable extending you a line of credit. This approval is especially true if you’ve been profitable for the entirety of this time frame. 

500+ Business Credit Score

Your creditworthiness will significantly impact the chances of your application’s approval. The higher your FICO score, the more favorable terms and interest rates you’re likely to receive. 

Any business with a poor personal credit score can be at risk of getting a line of credit with higher interest rates, or they may be denied altogether. The minimum credit score for a line of credit application depends on your chosen lender and is often a sliding scale based on your FICO score. 

However, it’s important to note that approval for a line of credit isn’t solely based on credit scores. Lenders also consider key factors such as your industry, time in business, and cash flow. 

$250k in Annual Revenue

The revenue your business makes is also a vital determining factor in your line of credit application. The more revenue your business accumulates, the more likely your business will be approved. 

Online lenders often ask that you present the last four months of bank statements during the application process. It’s important to remember this as you apply for your loan, especially if you’re considering applying during slower months. You’ll want to hold off on your application until your business hits its peak monthly revenue. For example, if your business is highly profitable during the summer, you should apply during this time to prove you can support the loan.

To improve the success of your application, you can submit bank statements from your peak operating months. Otherwise, you can show tax returns that provide information on your annual revenue from past years. 

4+ Most Recent Bank Statements

Many lenders will want to see your most recent business checking account statements. By doing so, they are observing your business’ current financial strength. 

With your most recent financial statements, you can show your lender you have the financial capital to support the requested loan. 

Building a Strong Application

If you meet the business line of credit requirements, your next step is applying. Before you do, it’s essential to properly prepare to avoid delays in processing your application and a potential denial. 

Here are some great ways you can build a robust application:

Review Your Credit Score

Traditional lenders want to see that you have a good credit history. For example, if you have defaulted on previous loans, it may not be the best time to apply for a line of credit. On the other hand, if you have a good credit history, you may be eligible for a higher credit limit. 

Before you apply for a small business line of credit, check your credit rating and learn more about your credit history. This review will save you a lot of time later.

Prove Your Financial Stability

When a lender requests to see your financials, you should come fully prepared with essential business documents that prove your financial strength. 

Here are some financial documents you should incorporate into your application:

  • Balance sheet
  • Profit-loss (P&L) statement
  • Income Statement

If you’re using accounting software, you can typically generate these financial documents as they’re ready each month. 

Shop Around

Not all lenders are created equal. Some lenders work primarily with small businesses; others don’t. Some cater specifically to woman-owned and minority-owned businesses, and some don’t. Like other major financial decisions, you’ll want to find the right term or amount that will best benefit your business. 

You’ll also want to consider lenders’ reputations as you search. You’re sharing sensitive financial information, and it can be detrimental if it lands in the wrong hands. Ensure your lender takes extra precautions and adheres to any data protection laws. Review client testimonials and the company website for more information on a lender’s reputation before making a final decision.  

If you want to apply for the best business line of credit, you should shop around to assess your options. Ideally, you should select a lender that appeals to your specific business profile. 

Unlock Financial Flexibility With SBG Funding

Applying for a business line of credit provides the working capital to cover regular business expenses during seasonal shortages. A line of credit could be just what your business needs to stay afloat during a difficult stretch. 
If you’re ready to begin your business line of credit application process, look no further than SBG Funding. Get started today and submit your application.

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