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How to Apply for a Business Line of Credit

By on September 29, 2021 5 min read
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How to Apply for a Business Line of Credit

According to the Federal Reserve Bank, 54% of US small-owned businesses applied for a business loan or line of credit in 2018. Hundreds of people are turning to a business line of credit to fund and grow their small businesses. 

If you’re still a little unsure about business lines of credit and how to apply for them, we’re here to tell you what you need to know. 

In this post, we’re going to dive into lines of credit, their benefits, and how to apply for a business line of credit. 

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Benefits of a Business Line of Credit

A business line of credit is an invaluable tool for your small business in its early stages. It can make all the difference in helping you keep your business afloat when less favorable times come around. 

A business line of credit can help you with:

  • Delay in client payments 
  • Seasonal changes in income 
  • Financing large campaigns 
  • Purchasing equipment at a reduced cost 

In all the above situations, a business line of credit can help your business while giving you time to make up any deficits. 

Revolving vs. Non-Revolving Line of Credit 

You can break down lines of credit in revolving and non-revolving lines of credit:

Revolving Line of Credit 

Most people will have some form of a revolving line of credit at some point in their lives. A revolving line of credit is when a bank or merchant gives a certain amount of available credit to a person or company. The credit limit given depends on their existing credit score, income, and credit history. The borrower will repay the debt at regular intervals and is rewarded with more credit when the debt is repaid. 

With a revolving line of credit for businesses, a lump sum of cash is given upfront. Before issuing this revolving credit line, the lender will look at your company’s balance statement, income statement, and credit history. 

To visualize a revolving line of credit, let’s say example company, Pailor Flower Co, has a revolving line of credit with their lender of $300,000. If Pailor Flower Co borrows $120,000, they have $180,000 left before maxing out their credit limit. However, Pailor Flower Co decides to pay back $40,000. Now they have $220,000 more to borrow. 

Non-Revolving Line of Credit 

Although a non-revolving line of credit is similar to a revolving line of credit, the main difference lies in what happens to the funds when they are repaid. Unlike its credit counterpart, a non-revolving line of credit can’t be reused again after it’s paid off. Once you pay down the amount on the line of credit, it’s closed and can’t be used again. 

If you want access to another non-revolving line of credit, you’ll need to apply again. As a result, these lines of credit will have lower interest rates. You will also see higher initial amounts of credit compared to revolving lines of credit. 

How to Apply for a Business Line of Credit

The goal for any business applying for a line of credit is to secure funding. To get approved for a business line of credit, you’ll need to go through a detailed application process. You’ll need the following pieces of info:

Personal Credit Score

Although you’re applying for a business line of credit, lenders are still interested in your personal credit score and history. To check your credit score, they’ll perform a background check. Lender qualifications are different, but a score of 650-680 is ideal to get funding, although some funders may want higher scores. 

Business Credit Score

Along with the personal credit score, lenders will also check your business credit score — if it’s established enough to have one. If not, they’ll look at your personal credit score. 

Business Revenue Information 

Lenders will require you to show your revenue information, including bank statements, financial statements, and tax returns. They’ll use this information to determine whether you’re in a financial position to repay your loan. 

Qualifying for a Business Line of Credit

To qualify for a business line of credit, lenders are generally looking to see if your business has:

  • Steady Income: A business with a consistent flow of income shows lenders that they can count on you to repay your credit line. Lenders will examine all financial statements to look for growth of income over time. Keep in mind that the annual income requirements differ with each lender, so check to make sure you meet their requirements before applying.
  • Strong Credit History: Not only will lenders look at your current credit score, but they’ll take a peek at your credit history as well. If your business is in its early stages and doesn’t have an established business credit history, they’ll look at your personal credit history to see your payment habits. 
  • Business Reputation: How long has your business existed? While it’s difficult for new businesses to get funding, it’s not impossible. Lenders are more likely to award funding if you’ve been in business for a year or more, but you can still get financing if not. 
 

Improve Your Chances for Qualifying

If you’re a new company still getting your feet wet in the business world, you might feel that applying for a business line of credit is beyond you. However, this isn’t the case. While it might take some time, you can improve your chances through a few different methods:

  1. Collateral: Putting up some form of collateral lessens the risk for lenders looking to give you a business line of credit. This collateral is also known as a secured line of credit. While some people think collateral has to be a significant asset such as a house or boat, this isn’t always the case. This can be anything from inventory to an alternative source of cash like the value of your accounts receivable. 

  2. Build up Business/Personal Credit: Improve your chances by building up your business credit and personal credit scores. Make responsible business purchases and repay them on time to show lenders that you can use lines of credit responsibly. If your lender does a personal credit check, work hard to improve your credit score.
     

Other Financing Options

So what other options do you have for securing funding for your business? Consider these four financing options available to entrepreneurs:

Equipment Financing 

Equipment financing is an excellent option for owners planning to invest in expensive equipment for their business. Instead of purchasing the equipment outright, lenders rent equipment to you. You pay for it in monthly installments until the payments are finished, and you own the equipment. This form of financing can help a new business build business credit and access equipment that would otherwise have been out of their budget. 

Grants 

Grants are money offered to your business from the state, federal, local, or county governments. Since you aren’t required to pay this money back, many businesses in their early stages benefit from grants. If you have little initial cash available, it can help you get your business off the ground.

Crowdfunding

Crowdfunding is a form of financing that’s become incredibly popular in recent years due to social media. Business owners will use social media platforms to reach various people looking to invest in an idea. While these crowdfunders don’t expect a return on their investment, you’re expected to give them some form of compensation to show your gratitude. While crowdfunding can help you make a lot of money initially and allows you to test the market, it may not always be sustainable. 

Small Business Loans 

A business loan is a lump sum of cash given to small business owners by banks or online lenders. Your business will have a fixed period to pay back the lender. They can either be short repayment terms (18 months to 3 years) or medium to long (up to 10 years).

However, due to the lengthy application and waiting period, this may not be the best choice for a small business that needs funding fast. In addition, these loans typically require companies to be in business for at least a year before applying. 

Get Business Funding Today with Fundid  

Fundid understands how important it is to secure funding for your business. Women-owned businesses are flourishing in the United States, and Fundid wants to help you reach your full potential. Built by women entrepreneurs, for women entrepreneurs, Fundid is here to help you get the capital you need to make your business a success. 

Need funding to grow your business? Fundid is re-imagining how businesses get the funding they need to grow. Explore your options through Fundid Capital

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About Fundid

Fundid is driven by a mission to empower business owners on their growth journeys by simplifying business finance & access to capital. 

We spend our time thinking about what the world would look like if the 80% of businesses that have under 10 employees had access to the capital they needed to grow and thrive. We're solving this with our Business Capital, Business-Building Card, and Resources that include our business Grant Match Program.

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