How to get a business line of credit for my small business?

How to get a business line of credit for my small business?

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If you are a business owner, odds are that you have, or will, face that moment when you will struggle to pay bills and salaries to employees. Lack of operating capital can result from a slow-paying client, bad debt, seasonal pike upward or a downturn. Nonetheless, when you’re out of capital, you’re out of business. Because as the old adage goes, in business, cash is king!

There are many types of capital available to businesses. One of the most flexible is a line of credit. This type of financing serves to balance out your cash-flow: you draw on it when needed so that your operations run smoothly without interruption. 

Among various business owners who applied for financing, a business line of credit is the third most popular type of financing option according to a report by the Federal Reserve. 

How to apply for a business line of credit?

If you’re asking yourself how to get a small business line of credit, here are some things to consider:

     1. Is your business qualified? 

The first thing you should do before applying is to make sure you meet the requirements in terms of (a) how long you’ve been in business, (b) credit score, (c) annual revenue, (d) outstanding debt, and (e) general business history. 

Banks offer lines of credit, but they also have a set of requirements:  

Lender

Banks

Online Lenders

Credit Unions

Credit Score

680+

500+

N/A

Years in Business

Two years

Six months

Three years

Annual Revenue

$250,000

$50,000

$100,000

 As shown above, traditional banks require a high bar to qualify; credit unions and online lenders can be more flexible. Talk with a lending specialist to find out what type and amount of credit you may qualify for. 

     2. Types of business credit lines available.

Before talking to a lending specialist, you should know what the types of credit are:

  • Home equity line of credit
  • Asset-backed line of credit
  • Revolving line of credit
  • Business credit card

All these types of business credit lines have benefits, depending on the nature of your business, the profit margins, the cashflows, and other factors.  

     3. Looking for lenders

Once you have understood how to get a line of credit for my business, it is time to decide who to get it with. The options are endless. There are banks, online direct lenders, online credit brokers, credit card issuers, and the SBA (Small Business Association) has many programs including CAPLines

     4. Complete the application

The most essential part of applying for a credit line is that you’ve selected a credit application with requirements you can meet.  

Most lenders and/or lending specialists that find appropriate lenders for you, all have online applications. To be prepared when you begin filling out the application, there are several documents and information you should have available, including:

  • EIN (Employer Identification Number)
  • Personal ID — like a driver’s license
  • Bank statements for the past three months
  • Common information about the business
  • A balance sheet with assets & liabilities
  • P&L statement with revenue and expenses
  • Both personal and business tax returns (if needed)

Final thoughts

If you want your business to flourish, then having a  financial safety net is a good idea. Remember that lending institutions typically lend to businesses that don’t need it, so the time to apply is when your business is doing well. If your business hits a downturn, you then have in place a quick-fix solution. But though a credit line can rescue your business in tough times, the best use of credit lines is to finance growth. Therefore, it is never too soon to begin thinking about how to get a line of credit for new businesses to be better positioned to have the cash for the unexpected, whether that be growth or rescue.