How to Apply for A Business Line of Credit
Cash is the lifeblood of any business. It can also be said that access to credit comes in at nearly the same importance. When a business doesn’t have access to cash or credit, it can quickly spiral into bankruptcy.
Philip Campbell, a CPA and author of Never Run Out of Cash, had this to say about the importance of cash flow, “Despite the fact that cash is the lifeblood of a business – the fuel that keeps the engine running – most business owners don’t truly have a handle on their cash flow.”
Let’s compare these two different types of business line of credit, so that you can determine which one might be right for your business.
Secured Business Line of Credit
Secured lines require some type of collateral. For a young business, this might not be an option. But keep in mind, you also don’t necessarily need to have a building, large equipment or real estate to take advantage of a secured line of credit.
When applying, many banks will provide a line of credit if you have a savings or CD account. Then, the amount of credit is determined by the amount of savings of CD that you have. Applying for this type of line is fairly simple, and your business could receive a decision in as fast as 10 days after applying.
Before applying, you should gather business information such as:
- Tax identification number or social security number.
- Gross annual revenue or sales.
- Business owner information including annual household income.
Depending on the bank you’re applying with, they may ask for other documents. In addition, to qualify, some banks will have a minimum time-in-business requirement, and a minimum amount of annual revenues that you must generate. Another factor that varies is how you can apply. Some banks require that you apply in person, while others allow you to apply online or via phone.
Unsecured Business Line of Credit
An unsecured business line of credit (LOC) provides a few more financing options. Unlike a secured line of credit, unsecured lines can be more difficult to qualify for. The reason behind this is because approval is based on the business’ credit worthiness.
In other words, just as you have personal credit, a business has business credit.
Marc Kirshbaum, president of Experian’s Business Information Solutions group, had this to say about business credit, “Just as your personal credit has a big impact on your financial health, your business credit can help you get competitive business loan rates and terms from potential suppliers.”
Unsecured lines of credit include the following options:
- Traditional bank lines of credit
- Nontraditional bank lines of credit
- Credit cards
Unsecured LOC applications will require more information than what is needed for a secured LOC. This can include:
- FICO score
- Credit report
- Access to bank account
- Ability to show financial (usually a minimum of 2 years)
Like secured business lines of credit, there is some variation in qualifications regarding time-in-business and the method in which you can apply.
Turning now to credit cards as a line of credit, they are certainly popular with small businesses. A 2015 Small Business Credit Survey found that 80 percent of businesses that applied for a credit card said they were approved. Businesses with more employees and higher revenue had the highest approval rates.
In addition to basic business information, credit card applications will usually ask for the following information:
- Number of employees
- Annual revenue
- Tax identification number
- Years in business
You will also need to supply your personal information, including social security number and date of birth. Remember, most unsecured LOCs will want to check your personal FICO score and credit. All business credit card applications can be completed online.
Business lines of credit can be a great source of funding for business growth. They remain open to use as needed and in most cases, don’t require reapplying. We hope after reading this post, you’ll be able to determine whether any of these options would be beneficial for your business.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.