Lines of credit, or LOCs, can help any business establish and build credit. They can also help improve cash flow management. But, in order to establish a business line of credit, you need to get approved, just as you would for any other financing options. In order to get approved for a business line of credit, business owners must meet the requirements for most lenders. Find out the requirements for a business line of credit approval below to secure your business’s future financial performance.
Length Of Operation
In order to qualify for a business line of credit, there are minimum time in operation requirements that businesses are required to meet. For most business LOCs, you need to have been in operation for at least six months. Unfortunately, if you do not meet that minimum requirement you will find it harder to establish a line of credit with most companies. However, there are some informal lines of credit that may be available to you if you know the right people and have good professional relationships. In general though, a minimum of six months in business is the standard requirement to get accepted for a business line of. Make sure you meet this requirement before you start envisioning all the ways a new line of business credit will help you better manage cash flow.
Business Bank Account
If you want to apply for a line of credit for business, you need to have a business bank account. It is a crucial detail that many business owners forget, especially if they have only been in operation a few short months. Without it, you will not be able to provide the specific financial information that the lenders require to approve your line of credit application. As long as you have a type of bank account that is solely dedicated to managing business finances, you have met at least one of the requirements for a business line of credit approval. Then, you will be well on your way to more effective cash flow management.
Minimum Credit Score
There is, of course, a minimum credit score that a business must have in order to qualify for a line of credit. If you want to apply for a business line of credit and get approved, you need to have a business credit score of at least 500. Thus, you will want to check credit reports before applying. This may not seem all that difficult. However, it can be a quite laborious task to establish credit for a new business. Establishing business credit takes a bit more effort than establishing personal credit. Make sure you have established business credit history by applying for an EIN with the IRS. This will help you to meet the minimum credit score requirements of a 500 credit score for most business line of credit providers. That way, you can build credit and available funding that will further benefit your business.
All lines of credit will require you to prove your business’s annual revenue. The minimum amount of annual revenue requirements differs from lender to lender. If you have only been in business a few short months, and you just barely meet the six months in operation requirement, you should still be able to produce revenue figures for the time in operation to date when requested. When your business is making enough money to pay back a business line of credit amount, then you are likely to be approved. Otherwise, you will need to improve business revenue before applying for a business line of credit.
Some commercial lenders will require you to provide collateral to get approved for business lines of credit. Typically, this is only a requirement for bigger lines of business credit. If you just make the cut off for the other requirements, then you may need to expect to provide collateral to get approved with some lenders. As long as you keep making your payments, you will not have to worry about actually losing your assets offered as collateral. Still, this is one of the requirements you may be required to meet if you want to get approved for larger lines of business credit.
Getting approved for a line of business credit can help any business owner better manage cash flow and build business credit history to improve their credit report, even when they have limited funds. But, there are some minimum requirements to get approved for a line of credit. Keep these requirements detailed above in mind when you are considering your business’s financial options. As long as you meet these business line of credit approval requirements, you can be sure to benefit from the financial flexibility and security that lines of credit offer businesses like yours.