Business Line of Credit Requirements
Whenever you want to obtain a line of credit for developing your business, you may want to know about the business line of credit requirements. Actually, every lender or provider require different requirements.
But, let’s talk about 10 common business line of credit requirements. Here are the requirements for obtaining a business line of credit:
Business Line of Credit Requirements
# Time in Business
Time in business is the main requirement to obtain a line of credit. Actually, many providers lend a line of credit to companies that have been operating for a minimum of 2 years.
Providers of the line of credit usually want to lend a line of credit to trusted and experienced companies. But if you are new in business, you still have a chance to obtain a line of credit as long as you have good personal credit, personality, and collateral.
Line of credit can be obtained if you personally guarantee the loan.
As mentioned before, collateral will be a consideration for lenders or banks to lend a line of credit. Most banks and lending institutions only lend credit to companies that have good collateral for paying back the loan.
Some examples of good collaterals are inventory, financial instruments, real estate, accounts receivable, and machinery. So if your company has good collaterals, don’t be doubt to apply for a line of credits.
# Revenues and Profits
It is another requirement to obtain a line of credit. Your company should have revenues and profits to obtain a line of credits. Why? Every lending institution always considers revenues and profits in order to know whether the borrower can repay the funds or not.
So, the revenues and profitability of your company must justify the size of the line of credit. Finally, you can obtain the line of credit and will be easy to repay funds.
# Financial Ratios
Some lending institutions and banks also consider financial ratios before lending loans to their clients. There are some common questions used by lenders to know about company’s financial ratios.
For example is, “is your company able to pay short-term obligations?” By reviewing the answer to every question, the lender will know whether your company can get a line of credit or not.
Financial ratios also show whether your company has much debt or not. A company that has much debt will be difficult to repay the funds borrowed from lenders.
It is another requirement for obtaining a line of credit. Most lenders that offer a line of credit require a corporate guarantee. A corporate guarantee is needed to guarantee repayment.
If the company has a parent company, the lenders may ask the parent company to guarantee repayment. So, every process of obtaining a line of credit can be done as soon as possible.
Most lending institutions also include covenants as a requirement. But, every lending institution has its own covenants. The covenant may include some terms or policies.
So, try to read it carefully. Make sure everything written on the covenant doesn’t make you feel so difficult in the future. Don’t forget to always remember every point on covenant.
Why? It is because defaulting on a covenant may result in extra fees, even make your line being terminated.
# Professional Experience
Your professional experience will be reviewed by the lender. If you have good professional experience, you have a chance to obtain a line of credit.
Lenders need to review your professional experience to know whether you can operate a business in your industry or not. If your past professional experience is good enough, the lender may want to lend you loans or lines of credit for developing your business.
# Personal Credit
Personal credit is another requirement to obtain a line of credit. Lenders will check your personal credit to know whether you are a responsible person when paying debts or not.
Sometimes, personal credits reflect personal life. People who can manage their personal lives are usually able to manage their business finances. So, be a good person who has good personal credit to make you get a line of credit easier.
# Personal Assets
Some banks or lending institutions require a personal guarantee. So, they may review your assets. Do you have assets to be guaranteed to repay the funds?
Some common assets reviewed by banks or lending institutions are stock securities, cash, real estate, investments, and assets for collateral. In other words, people who have good personal assets will be easier to obtain a line of credits.
# Background Investigation
Banks and lending institutions may also check your background. The background will influence the process of lending a line of credits. So, banks and lending institutions will give loans to people who have a good background.
People with past criminal behavior may be more difficult to get loans than people who don’t have past criminal behavior.
Well, those are 10 requirements for obtaining a line of credits. Whenever you want to obtain a line of credits, you need to prepare various documents like driver’s license, credit score, voided business check, balance sheet, bank statements, business tax returns, personal tax returns, and many more.
Hopefully, some information about 10 business lines of credit requirements above will be useful for you.