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Business credit is an invaluable tool for small businesses to leverage when they’re looking to scale.
Let’s take a closer look at how to get a business line of credit so you can get started.
Decide on How Much Money You Need
The first step in getting a business line of credit is determining how much funding you need.
Of course, there are several factors that are going to determine how much is available to you.
What are these factors?
- Secured vs. unsecured credit. Secured and unsecured business credit lines depend solely on risk. If you have lower personal credit and are a greater risk to lenders, secured credit may be more accessible. You supply the lender with an asset that they can take should you default on your debt. Unsecured credit requires a higher personal credit score. However, you may receive a higher limit and won’t be required to supply an asset.
- Your choice of lender. We don’t need to expand too much on this one. Different lenders will have different amounts they lend out and different terms for those lines of credit. Make sure that you carefully research each prospective lender before securing a line of credit.
- Your choice of a business credit line. There are multiple types of business credit lines out there. From credit vendors offering loans and even credit cards, there’s a lot to consider. How much funding would each offer? Which is a viable option for your business at this point in time?
Make sure to weigh all of the above when you consider how much funding your business needs.
Compare the Different Lenders
Taking the time to compare the different lenders across the various credit types is crucial.
For example, if you’re in the market for a business loan, you might choose a local bank in your area like Chase. If you’re looking for a credit card, you might choose a company like Tillful.
Regardless of the credit line type you choose, there are some questions you need to ask yourself.
- What is the maximum credit limit? Does this suit my needs? Is this something that I can request a raise in later so I can access more funding when I need it?
- Is your desired line of credit 12 months? 6 months? Net 90? Knowing when your payments are due is critical to financial planning. Seek repayment terms that best suit your business’s needs.
- What are the benefits associated with using that lender? What are the drawbacks? Are you getting the best terms possible by choosing that lender over another one?
- Are you going to be eligible for a line of credit? You need to compare lenders who can actually serve your business. If you’re not eligible, you can easily cross certain lenders off of the list.
The more research you do, the better off you’ll be when you approach a lender to get a business line of credit.
Learn the Business Line of Credit Requirements
All lenders will have different expectations for your business.
That being said, there are some common requirements that lenders will share.
Making sure that you know these upfront can make the process of getting your desired product simpler.
Here are some of the things that today’s lenders find most important.
- Good personal credit scores. If you’re looking to get a business line of credit for the first time, your personal score matters. Generally, lenders are looking for scores of 600 and up. However, those trending towards 700 or above are going to be ideal for these purposes.
- Good business credit scores. Of course, you can leverage your business credit scores if you have them. Higher business credit scores are going to secure better options as well. Some lenders want to see good business credit scores, and others require business credit at all.
- Operating for several years. Most lenders will require you to have operated your business for at least two years. This ensures that you’re a more stable customer to work with. You may be able to find lenders who require only one year, but two years is a solid milestone to hit.
- Low existing debt. No lender wants to take on someone with extensive debt, especially those who have defaulted. Make sure to keep your existing debt to a minimum so you’re more appealing as a borrower.
- Solid annual revenue. Lenders not only want to know that you’re responsible but capable of paying back debt. Businesses that have consistent annual revenue are going to fare better. Lenders traditionally have minimum revenue requirements. Make sure you know what they are before applying.
Prepare the Right Documents
Just like applying for any other financial product, the lender needs to know more about your business.
You need to gather all the right documents to hand over to your lender when you apply.
A brief list of the documents often required includes:
- Business licenses & articles of incorporation
- Your business plan
- Personal tax returns and bank statements
- Business tax returns and bank statements
This can be a new process for many. If there’s any confusion or you’re worried about missing something, contact your prospective lender. They will clarify exactly what documents you need so you can get prepared ahead of time.
Complete the Application
The good news? All the hard work is finally over.
The only thing left to do is apply.
The application for most lenders generally takes a couple of minutes. You’ll have to have the most obvious information like your name, SSN, and business tax ID. You’ll also need your DBA, your loan amount and purpose, and your annual revenue.
As with documentation, reach out to your lender if anything is unclear.
What To Do If You Don’t Qualify
Not all businesses are going to qualify for the lines of credit they want. This happens from time to time.
However, that doesn’t mean that you’re completely barred from accessing the funding your business requires.
Consider a Short-Term Line of Credit
Short-term line of credit is often more accessible to those who don’t meet the requirements above.
Take, for example, a short-term loan. Short-term loans have a much more rapid repayment timetable. Many short-term loans need to be paid back within six months to a year.
You also benefit from fewer interest payments and faster access to funding.
Consider Other Types of Business Financing
When there’s a will, there’s a way.
This is a saying that certainly applies to businesses that need funding.
If you can’t go the traditional route, consider what other opportunities are open to you. For example, could you crowdfund the money that you require? Look into alternatives that could support you along the way.
You may also find vendors or other business credit cards specifically for startup companies.
Get a Business Credit Builder Loan
A business credit builder loan can be an excellent way to boost your business credit score or establish history.
A business credit builder loan works differently than average loans. Instead of you accessing funds right away, the funds are stored in a savings account. Every payment you make is then reported to the credit bureaus, thus building credit history.
Once you’ve paid the loan off, you can access your funds.
This ensures you get the funding you need in a brief period of time. It might not be the most desirable route, but it can certainly help you finance your business in the meantime.
Learning how to get a business line of credit will look different for everyone.
Some business owners have stellar credit scores, low debt, and have been in operation for a while. This makes it easier for them to qualify for business lines of credit. Others will have to work towards this. In the meantime, they have to seek out alternative sources of funding.
Dylan Buckley is a freelance finance writer and editor with 7 years of professional experience. Specializing in personal finance, cryptocurrency investments, and Fintech, Dylan is deeply passionate about creating content that helps readers make informed, confident financial decisions. He studied finance in college and maintains a credit score over 780.