So you're thinking about a Business Line of Credit...

When we first speak to a new credit line applicant, their first initial, logical question is usually, ‘What are the minimum requirements?’ It’s a general question, with a more complicated answer, but let’s break down the requirements for 2 different types of business credit lines. Here, at Line of Credit Depot we work with many different lenders and all of them have different requirements.

These lines of credit can be grouped into 2 tiers: Traditional Bank Commercial Credit Line & Special Bank Commercial Credit Line.

 Tier #1: Traditional Bank Commercial Credit Line

Rates on these Credit Lines range from .75 points to 1.5 points above the WSJ Prime Rate. The credit availability is generally for a term of 2 years, where the principal would need to be paid down to a zero balance or a certain percentage. Monthly payments are made to cover interest and at a minimum, a small portion of the principal.

Business owners that are approved for Tier #1 have the following things in common and meet or exceed these minimum requirements.

Tier #1 Requirements

-FICO #8 personal credit score of over 700

The best way to find this score is to create an account with Experian and search for the FICO #8 credit score. This is the score most used by banks to determine eligibility.

-Time in Business over 2-3 years‍

Businesses that are very new have a significantly high chance of going out of business. Statistics show this, and banks won’t take the risk of a default on a business that is too young. There needs to be evidence that the business is generating revenues on 2 years of business tax returns. Also, the most recent tax return must show profitability.

-Profitability

The most recent business tax return must show profitability. This shows the banks that the business can support debt payments if a line of credit was issued. Certain banks allow ‘add backs’, which means they would remove certain tax deductions from the tax return. These deductions are more related to the tax liability of the business during a particular time and don’t necessarily show the health of the business. For example, depreciation is used as a tax reduction, but it isn’t realized in an income statement, unless it’s a hard expense. Some ‘add backs’ are Owner Compensation, Depreciation, and Interest Expenses. Removing these deductions or adding them back to the Profit/Loss figure will sometimes bring a business that was not profitable to profitable.

 Tier #2: Special Bank Commercial Credit Line

Business owners that don’t meet the qualifications of Tier #1 credit programs can still get a business line of credit in the Tier #2 grouping. Business lines of credit in this category are issued from private lenders and not chartered banks…although these lenders usually access and use traditional bank money. This is the reason why rates are higher, and terms are shorter in the Tier #2 group. Rates can range from 7% to 17% and terms can range from 6-18 month draw terms. We aren’t talking about an MCA here, but a true revolving line, where money can be drawn down from the line and interest is only charged on the principal being used, not frontloaded like an MCA. The payment structure is either weekly or daily, depending on credit worthiness.

Tier #2 Requirements

-Owner Credit Sore of 600+ FICO

Since the Tier #2 lines are issued by a private fund, they are able to charge slightly higher interest rates and payback models.

-1 Year Time in Business

The best approvals on the Tier #2 program.

-Average monthly revenue: >$20,000

This line of credit covers micro-businesses and sole-proprietors, where traditional banks would not.

I urge all business owners to apply with us and not do their own underwriting. Business owners are usually surprised at how our approvals are generally higher than what they originally requested.

To apply for a business line of credit please, Start Now!

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