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Small Business Line of Credit FAQs

People often have many questions about small business lines of credit. Check out the answers to five frequently asked questions about small business lines of credit.

1) How and Where Can I Get a Business Line of Credit?

small business line of credit

Before applying for a small business line of credit with a local or commercial bank, gather the following documentation so you’re prepared. The below is what a traditional bank will call for even before they will tell you if you are approved. It will be a long and challenging process to be approved for a business line of credit. Note: Financing Solutions will provide you with a quote after filling out a simple, no-obligation application before you have to submit any documents. Once you sign the offer letter we only require a recent business tax return, 4 months of recent bank statements, a driver’s license, and a voided company check.:

  • Recent business tax returns
  • Recent personal tax returns
  • Bank account information and bank statements
  • Financial statements (balance sheet, income statement)
  • Federal Tax Identification Number or Employer Identification Number (EIN)
  • Social Security Number
  • Business entity type (sole proprietorship, partnership, corporation, limited liability company)
  • Past loan documentation
  • Extensive application with a listing of all personal and company assets

What lenders require for a small business line of credit varies. In addition to the above, most small business owners should check their business and personal credit scores from one of the three major credit bureaus (Dun & Bradstreet, Experian, and Equifax). Credit scores are derived from several factors, including credit limits, payment history, and debt levels. Lenders use credit scores to help determine the health of the borrower’s business finances.

Therefore, it’s crucial to request the credit reports, so you see your scores before the lenders do—especially since credit bureaus often make mistakes. Fortunately, each credit bureau has a procedure for disputing errors and making corrections. Be sure to fix your credit report before applying for small business lines or loans. Consumers can receive personal credit reports for free from the credit bureaus once every 12 months. You’ll need to pay a small fee to retrieve the information for business credit reports.

Many lenders have minimum credit scores they’ll accept. High credit scores receive better interest rates, although you might find better rates by offering a personal guarantee.

Once you’re approved for a small business line of credit, you’ll have access to the entire lump sum of the credit line to borrow from when you need it for a variety of working capital uses.

Where to get a small business line of credit? You can usually find a small business line of credit from the same lenders that offer small business loans. Just like when you apply for a business loan, starting at banks and credit unions is a good idea, so you can compare rates and terms. However, for small business owners, securing a business line of credit from a traditional bank can be difficult as qualifications typically require at least two years in business and a considerable minimal annual revenue.

It may be easier to get approved by a credit union, but you’ll need to join the credit union and pay the membership fee. A significant drawback of credit unions is the lack of ease of use. Most credit unions have fewer branches and ATMs, making withdrawing funds a hassle. Many credit unions also don’t have strong mobile, and online banking capabilities like online lenders and banks often do.

Alternative online lenders also offer small business lines of credit, typically have fewer qualification restrictions, and lines of credit generally are approved quicker.

2) How Does a Small Business Line of Credit Work?

A small business line of credit is regarded as a short-term loan, and therefore the amount of the funds tends to be smaller and the payback terms quicker. Like a business credit card, a small business line of credit is a “revolving” credit line that allows the borrower to draw money when needed and pay it back over time. In addition, the borrower is preapproved for a specific credit limit and only pays interest and/or fees on the amount drawn. Then once the money is paid back, there is nothing to pay until the next draw.

Before filling out the small business line of credit application, make sure your small business meets the lenders’ qualifications requirements, such as a minimum credit score, a minimum monthly or annual revenue, and if you need a minimum number of years in business. Once you apply, you could receive approval within 24 hours. Then the loan is set aside in a separate account, ready to be accessed whenever you need it. The withdrawn portion of the loan then accumulates interest (plus any fees). Once the withdrawn amount is repaid, the entire loan is available again to borrow from without having to reapply.

3) When Should I Get a Small Business Line of Credit?

Whether they’re just starting out or on a fast-growth track, small business owners often find themselves needing access to short-term funding. A small business line of credit can help with operational expenses such as utilities and office supplies, payroll deadlines, or when opportunity knocks, such as purchasing new equipment or leasing bigger office space.

Cash flow is what keeps a small business running, so if you know your business has seasonal cash fluctuations or you are waiting for a big invoice to get paid, a small business line of credit could be the emergency backup plan you need.

4) How Can I Increase my Business Line of Credit?

You may find that the small business line of credit you’ve received is not enough for your working capital purposes. In that case, you may need to ask for an increase in the credit line.

A small business line of credit can typically be increased by:

  • Asking the lender for an increase
  • When annual revenue has increased
  • Showing responsible credit behavior by making payments on time
  • Being a long-time customer

Clearly, the requirements depend on the lender. It’s essential to establish a relationship with your lender. And it’s important to keep precise records on how you’ve used your small business credit line to grow your company. Having the correct documentation ready to show how well you manage your business’s finances goes a long way in proving you are a trustworthy candidate for a credit line increase.

5) How Much Line of Credit Should I Have for my Business?

A business line of credit can be a lifeline for your small business, giving you access to money if you face a cash flow shortage or unforeseen business expenses arise. Unlike a long-term business loan, a small business line of credit should never be used to fund a business loss or a major purchase like property or expensive machinery. A small business line of credit is perfect for drawing on when you know the funds can be replaced within a year at most—usually within a few months.

To calculate how much funding you need for your small business line of credit, start by talking to your accountant and review your business’s cash flow forecast for the next 12 months at a minimum. Make sure your financial statements show the money gaps that occur during the year to show the lender you’re on top of your financial needs. A monthly balance sheet should show your revenue and expenses and precisely when you’ll likely need extra funding.

Never ask for more than you need, as lenders will see this as an irresponsible request and hurt your chances for approval.

Apply at Financing Solutions Today!

Financing Solutions is an alternative lender offering an easy application process (it takes less than two minutes to fill out) and requires no collateral or documentation for a written offer letter. Other alternative lenders have a much longer application process and can be more expensive.

The founders of Financing Solutions have started and grown several companies together; therefore, they understand how important it is to keep costs low. That’s why we don’t charge you to set up the credit line and don’t charge maintenance fees. We don’t ask for personal guarantees, and applicants can receive a no-obligation offer letter the same day. We make approval decisions based on our decades of experience working with small businesses. Find out today why we have five-star ratings from the Better Business Bureau and Google. Highlights of our small business line of credit include:

  • There are no costs to set it up or keep it in place
  • The easy 2-minute application online application
  • If approved, you’ll receive a same-day, no-obligation offer letter
  • The fastest setup, 48-72 hours
  • Once you have the line of credit, the funds are wired to your bank in minutes
  • You can use your line of credit whenever needed
  • Inexpensive when used (low fees)
  • There are no restrictions in place or collateral required
  • No personal guarantee is required, either
  • Financing Solutions is a leading provider of lines of credit
  • We are a reputable company with an A+ & 5-star rating
  • You can pay off the line whenever you are ready
  • The credit line is easy to renew and renews yearly
  • You have a secured account portal access 24 x 7

A small business line of credit is a good funding resource available whenever your company needs it, without the heavy burden of term loan requirements. If you want to see if your small business would be approved and for how much, please fill out the no-obligation, 2-minute line of credit application here.

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