Out of all of the business loans and other funding solutions on the market, a line of credit will be one of your most flexible options.
With a business line of credit, you receive a credit line in a specified amount, and you can draw funds (in any amount, up to your limit) whenever you need them. You’ll only need to pay back the funds you draw and you only accrue interest on those funds, as well.
You might consider a business line of credit if you’re looking for financing for your business, whether to support your cash flow, purchase inventory, or upgrade equipment.
Here are the business line of credit requirements you need to know:
Let’s break down the business line of credit requirements you’ll need to meet if you want to qualify for this type of financing.
Generally, the first qualifications you’ll have to meet will pertain to your credit score, annual revenue, and time in business.
These criteria, among others, will not only determine if you qualify for a business line of credit, but also the maximum amount of funding, introductory duration of the credit line, and length of repayment terms.
A credit score of 500 will qualify for business lines of credit, but you’ll have more options available to you—as well as better terms and lower interest rates—if your credit score is 600 or higher. For the most desirable business lines of credit, like those from a bank or the SBA, you’ll want to have excellent credit, ideally 660 or higher.
Even if a lender doesn’t have a credit score minimum, they’ll more than likely check your credit before funding your application. Therefore, if you have less-than-ideal credit, you’ll want to ensure that you’re highly qualified to meet other business line of credit requirements.
Moreover, it’s important to mention that although some lenders may check your business credit score, most will use your personal credit score as a more influential eligibility criterion.
If you’re applying for a business line of credit from an alternative lender, you’ll likely need a minimum annual revenue of anywhere from $25,000 to $100,000. For bank lines of credit, on the other hand, you may be asked to show even more annual revenue in order to qualify.
Overall, a business line of credit may ask for a variety of financial documents to evaluate your annual revenue, as well as your cash flow. Both of these factors will help a lender evaluate your ability to pay back the credit you’re applying for.
To fulfill this business line of credit requirement, you may be asked to provide:
As a general rule of thumb, you’ll find it easier to qualify for a business line of credit if you have at least six months in business. If you’re looking for products with the best rates and terms, you’ll want to have at least one year in business—ideally two years.
If you’re looking for a startup business line of credit, you may find lenders who will work with you, but you’ll likely need to have high qualifications in other categories, like credit history, and be willing to offer collateral to secure your credit line.
Essentially, collateral is used to secure a line of credit (or any business loan) for the lender in case you can’t pay back what you’ve borrowed. In this case, if you were unable to pay, the lender would be able to claim your collateral and use it to recoup some of their losses.
In some cases, you may need to supply traditional collateral, like physical assets or real estate; whereas, in others, you may be asked to sign a personal guarantee. With a personal guarantee, you’re agreeing, as an individual, to pay back the funds you’ve borrowed in the event that your business cannot do so.
You may find that some lenders secure their lines of credit by placing a UCC lien on your business. A UCC lien is a formal statement in which the lender lays claim to your business assets to repay your debt in the case that you can’t pay.
If you have bad personal credit, you may be required to offer more collateral in order to qualify and secure a business line of credit. On the other hand, if you have excellent credit and business financials, you may not need to put up as much to secure your credit line.
Use our guide to learn more about secured business lines of credit.
When you apply for a business line of credit, most lenders will want to see your existing debt schedule, if you currently have a business loan or other form of financing.
To explain, if you have significant existing debt with frequent payments, a lender may decide that you can’t actually afford a line of credit and that it’s too risky to lend to you, as you may not be able to pay back the funds you borrow.
Ideally, if you have existing debt, you’ll want to be able to show a managed payment schedule that you can afford. If you don’t have existing debt, on the other hand, this should also be a good sign for a lender.
Finally, one of the simplest business line of credit requirements that you’ll be asked to provide on your application will be basic personal and business information.
You’ll likely need to provide the following:
Generally, in comparison with traditional term loans and SBA loans, you won’t need to provide the same extent of documentation to qualify for a business line of credit.
In fact, many online lenders have created automated systems that allow you to connect your business accounts—bank account, merchant account, accounting software, etc.—and these lenders evaluate your qualifications this way.
Ultimately, some of the business line of credit requirements you’ll need to meet will depend on the lender.
Based on Fundera’s experience, however, most customers who were approved for business lines of credit had:
Now that you have a better sense of the business line of credit requirements, you have all the information you need to determine if you can qualify.
When it comes down to it, your credit score, annual revenue, and time in business will be three of the most important factors. In addition, lenders will want to evaluate your current debt schedule, possible collateral, as well as general information about your business, its owners, and finances.
Ultimately, although there will be some variation based on the lender, you’ll generally find that the business line of credit requirements are much more straightforward in comparison to other types of business loans.
That said, consult our guide for more tips on how to get a business line of credit.