As a small business owner having access to capital continues to be a growing concern during these tough economic times. I’m sure you probably prefer small business credit lines because it allows your business to establish a significant amount of cash on demand to make purchases that are too large for credit cards and too small for a loan. However, when it comes to qualifying do you feel like your left in the dark?
Well, don’t worry I’m about to shed some light on the subject that may help you.
First of all, the best time to apply for small business credit lines is during times of growth and cash flow. Banks are more likely to approve a credit line to a business when it doesn’t need the funds compared to one that is financially strapped. I would strongly encourage you to adopt a ‘dig your well before you get thirsty’ philosophy for your business.
If you think you’re business is just making it fine despite the current economic times and you don’t need the credit line think again! The reality is that your business will at one point require an influx of cash in order to cover unforeseen operating expenses, development, expansion, legal fees, inventory or a range of other items that a business may require in order to grow.
So when you apply for an unsecured line of business credit and your business is coming from a position of financial strength such as having a strong bank rating, business credit scores, good cash flow and so on the risk is greatly reduced and your chances for getting approved are much greater compared to applying from a position of weakness.
Secondly, it’s much easier for you to get approved for a $50k small business credit line compared to a $100k credit line simply because of the documentation and amount of financials required on larger lines of credit. Most banks only require a low 5 bank rating, a favorable small business credit reports, and personal credit scores of 680 or greater to approve a $50k line of credit.
If you are applying for a credit line greater than $50k than you end up having to also provide two years of personal and business tax returns, profit & loss statements and financial statements. So you can see the difference in documentation is substantial when it comes to the amount of credit that you are applying for.
Here are my ‘Five Factors to Qualify for Small Business Credit Lines’
- The first factor is your bank balance rating. This rating is your average minimum balance maintained in your account over a three (3) month period. A $10,000 balance will rate as “Low 5″, $5,000 rates as “Mid 4″, $999 rates as “High 3″, and so on. You need to maintain a minimum “Low 5” bank rating ($10,000) for at least 3 months. Unfortunately, without at least a “low 5″ rating, most banks will assume your business has little ability to repay.
- The second factor is the bank rating cycle which is three (3) months. You’ll want to have at least a low 5 for the three months prior to applying for a line of credit or larger loan.
- The third factor has to do with how you manage the account. NSF (bounced) checks destroy bank ratings. From this point forward, NSF checks are something you can’t let happen. I would suggest that you add overdraft protection to your account as soon as possible.
- The fourth factor is your business credit reports – Dun & Bradstreet Business Credit Report, Equifax Business Credit Report and Experian Business Credit Report should reflect a solid business credit history and scores.
- The fifth and final factor is having a personal credit score of 680 or greater.
These five factors can greatly improve your chances for getting approved for small business credit lines. The important thing to remember is that banks are in the business to lend money and they make money from the interest they charge. So when they do lend or extend a line of credit to a business there is an amount of risk involved which they want to limit as much as possible.