Entrepreneurs know they need to be able to meet their customers’ needs as soon as they appear, but that can be tough if you don’t already have a reserve of capital to spend. This is why business lines of credit are popular—they are a financing tool where small businesses can access credit as expenses arise. Lines of credit are unsecured forms of financing like credit cards, but they often have higher credit limits and lower interest rates. Lines of credit also usually have higher interest rates than some small business loans, but they typically have requirements that are easier to meet. Before you apply for any funding, though, you should understand the requirements. Of course, remember that financiers are investing in people—they use these requirements to assess whether you are worth the investment. List of Business Line of Credit Requirements Personal credit score Business credit score Time in business Revenue Industry Business financials Personal Credit Score A lender wants to know your personal credit score because it will want to know how you spend your money. After all, if your line of credit application is approved, you’ll be spending their money. Financiers will want to: see that you respect money and the work people do to earn it by paying your bills on time and not making anybody chase you for money. know you have no financial skeletons in your closet that might require their money more than your business does. believe you’re the kind of person who does everything in your power to honor the agreements and commitments you make. If you pay your bills on time and meet your monthly obligations, this part of the requirement checklist is more of a formality than anything else. However, you should always be paying attention to your personal credit score. You are in the best position for approval if your credit score is above 700. However, if your business financials are strong, many lenders will look at applications with scores above 640. You can even get approval with a score as low as 560, although the repayment terms may be more expensive. If your credit score is below 700, you might want to look at a business credit card instead, because you can usually find many options for entrepreneurs with poor credit. Business Credit Score Your business credit score is less important to financiers than your personal credit score, but it will still be reviewed. Your business might not even have a credit score yet, and you just want to ensure it isn’t widely disparate from your personal credit score. Business credit scores are ranked differently by different credit bureaus, but you generally want to have one in the “Fair” to “Good” range to be approved for a business line of credit. If your business credit score is suboptimal, a credit card might be a better option, because credit card companies often don’t pull business credit scores. Time in Business How long your business has been open will be critical to your line of credit application. Financiers want to see that you can run a successful operation over time. Some lenders will offer lines of credit to businesses that have only been open for 6 months, although many will want your business to have been open for at least a year or 2. If your business is extremely new, then a credit card might be a better option because how long your business has been open may not even be asked about in your application. Revenue Your company’s revenue is key for your business line of credit application because it reveals how you can repay the potential lender. The minimum annual revenue lenders will consider is $50,000, although more is always better, like $100,000. If your credit score is high and your financial fundamentals are strong, though, you have a good shot at approval with receipts under $100,000. If your business is young or your revenue doesn’t meet the threshold, a business credit card would be an easier to access option. Industry Lenders view some industries, like restaurants or seasonal retail, as more inherently risky than others. Fortunately, if you can show strong growth, your industry can become less of a sticking point, especially for online line of credit financiers. A credit card could be a good choice if you work in a riskier industry. Remember, though, that some bills, like rent, cannot usually be paid with a credit card. Business Financials Line of credit financiers will look closely at your business financials as expressed in your business plan, balance sheet, and cash flow report. You want to display that your business is growing and that your application is based on data. Generally, a financier will want to see that you would use a line of credit to expand instead of digging yourself out of a hole. While you should always be focused on your financials, business credit cards don’t always consider them as closely as line of credit lenders. FAQs Is it difficult to get a business line of credit? The requirements for a business line of credit are usually easier to meet than a small business loan, but more stringent than a credit card. Can you get a business line of credit without revenue? You have to show that your business has earned annual revenue, at least $50,000, to apply for most business lines of credit. Does a business line of credit require collateral? Business lines of credit are usually unsecured, meaning lenders will not expect you to put up collateral. Disclaimer: The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. Any content provided by our authors are of their opinion and are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything. The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.