Requirements To Apply for a Business Line of Credit
Business lines of credit help businesses get extra money from the bank without taking out more money than they might need. Instead, the bank or another lending institution will pre-approve a business owner for a certain amount of money. The business owner can then take out the money in increments up to the total amount. Similar to using a credit card with a limit. Once the limit is reached, no more money can be taken out. The best part is that business owners only need to pay back the money they take out. Plus interest. Not the total money they were approved for.
Good Credit Score
The required credit score for taking out lines of credit will vary between lending institutions. However, the average credit score required is around 550. Of course, the higher the credit score, the more likely a business owner will be to be approved for a line of credit. Higher credit scores can also lead to being approved for higher credit amounts when taking out the money. Also, lower interest rates when paying it back.
Solid Business History
Lending institutions are not likely to approve credit for businesses that are just starting. On average, businesses should be in operation for at least six months before business owners apply for a line of credit. The longer a business has been in operation, the more likely the business owner will be to become approved for a line of credit. It is also important to have detailed financial records for the time the business was in operation.
Lending institutions will often require six months to one year of business financial records. These records should show a general uptrend in business finances. The healthier the business finance records are, the better terms for the line of credit a business owner will be approved for.
Lending institutions do not want to loan money to a business owner who cannot turn a profit. Different lending institutions will require different minimum yearly profit amounts to approve a line of credit. This amount may be as low as $5,000 but maybe much higher if the business has a low credit score.
Once a business owner has all of the above things sorted out, applying for lines of credit should be a breeze. Make sure to talk to your accountant before taking on any kind of loan.