Understanding the Requirements for Business Lines of Credit
It’s normal for businesses to borrow money as they grow their operation. While traditional business loans are the most common and most popular option, they’re not the only type of financing you have access to. Business lines of credit give businesses a flexible and affordable way to get money quickly. However, the requirements for those credit lines are distinctly different than the ones you must satisfy for a traditional loan. Here’s what you need to know.
Your Company Must Be at Least Two Years Old
Banks and lenders always prefer to work with businesses that have been open for several years regardless of the type of financing you’re looking for. Business credit lines are no different. Most lenders require that applicants be in business for at least two years. This shows that your company is established and less likely to default on the credit line in the future.
You Must Have a Proven Profit History
Lenders expect businesses to repay the line of credit every time they issue one. This means they’ll look at your profit history to see if you’re a good candidate. If your business consistently makes a profit every month and your total revenue keeps growing, lenders will be willing to issue credit. However, if your profits are low or you’re not consistently improving your company’s revenue each year, you may not qualify for the credit line.
Your Total Debt Levels Should Be Low
Before you can apply and receive a line of credit, you’ll want to make sure your debt levels are as low as possible. Lenders look for businesses that have minimal outstanding debts when considering applications for business credit lines. If you have several outstanding loans that you’re working to repay and only report modest profits, lenders won’t approve your application. However, if you have small amounts of outstanding debt and can prove that you’ll be able to make the minimum required payments on your line of credit, they’ll likely approve your application.
Your Personal Credit Score Should Be High
Lenders almost always look at your personal credit score when evaluating your application for financing. If your score is high, they’ll feel confident that you’ll be able to repay what you borrow. However, if your score is low, they’ll see both you and your company as a risky partner. If you’re worried about your credit score, start paying down your personal loans before you apply for financing.
Business lines of credit are a great alternative to traditional business loans. Just make sure you can satisfy these requirements before you apply. This way, you’ll get the best rates possible.