Line of Credit works with many different Lenders, we have the ability to approve Lines of Credit even if the owners does not show profitability.
A common misconception is that your business must show profitability to receive a line of credit. Although banks tend to only approve credit lines for businesses that are profitable, there are in fact banks that do issue revolving credit lines to businesses that are showing losses.
Why do banks want to approve lines of credit for a business with profits?
When a bank analyses a credit application, they consider the risk of the applicant and the likelihood of repayment. Each bank has different credit requirements and risk tolerance. For example, one bank may weigh their risk analysis more heavily on an owner's FICO score, while another bank may take business industry or time in business as more important.
Why are we able to get approvals with a business showing losses?
Even though most banks require a business to show profitability, a handful of banks allow for losses. Generally, the losses on the last tax return can not be greater than $100,000. This allows for businesses to still get approved for a line of credit, even if there were reported losses.
What to know about the losses a business reports on a tax return.
Losses that are shown on a tax return does not necessarily mean that the business is not profitable. A business tax return is not the best financial report to understand profitability, it is a report that shows the business’ tax liability. For example, depreciation which allows for the lowering of value of hard assets owned by the business is shown on a tax return. Depreciation is not a bill (expense) that a business pays cash for. So, some banks can understand that this depreciation and potential ‘losses’ on a return do not mean the business will be unable to pay their potential new debt obligations.
Why would losses not mean an auto decline for a business line of credit?
When looking for credit, I urge business owners to apply with us. LineofCreditDepot.com works with many different banks, so even though your bank may have declined your business for credit, we can look at other options. Losses do not mean an auto decline for credit, if losses are under $100,000 a business credit line is still doable. If losses exceed $100,000 and a credit line is not possible, we can look at other options like an SBA Term Loan.
Navigating the intricacies of each bank’s unique underwriting criteria is what we specialize in here at LineofCreditDepot.com
