Business Line of Credit Qualification Requirements

One of the most important things to do as you run your small business is to acquire a line of credit. This is your safety net for when things go wrong, your source of capital when your cashflow can’t cover an expense, and your method of building trust with your lender when you consistently repay it on time. However, getting lines of credit isn’t as simple as, say, applying for a starter credit card. To qualify for one, you need evidence that your business will be able to repay the loans. This article covers some common business line of credit qualifications.

1. Length of time the business has been operational. You can’t get a line of credit if you’ve only been running a week: lenders will only consider you if your business has been open for two years. 

2. Collateral. This makes sense as a business line of credit qualification because it guarantees your lender some form of repayment. Any of your assets can function as collateral–real estate, equipment, inventory, etc.

3. Profitability. Lenders will look at your business’s revenue and expenses to determine how profitable you are. If you don’t have a steady stream of income, you’ll very probably be disqualified.

4. Your financial ratios. This business line of credit qualification is actually several in one: the lender will look at the various ratios that determine your financial health, like debt vs. equity, debt service coverage ratio, fixed charge coverage ratio, etc.

5. Covenants. The term is a little old-fashioned, but essentially a covenant is a set of rules your company must abide by in order to keep the line of credit. This may be keeping your debts low, maintaining net worth, pay off the line of credit every so often, or whatever other terms the lender wants.

6. Corporate guarantees. If your company is a franchise/subsidiary of a larger “parent” company, the parent may have to guarantee repayment.

Beyond the business line of credit qualifications themselves, some lenders will also evaluate you as the business owner. This may entail a background check, credit report inquiry, and other factors.

Interested in learning more about your options for business financing? Contact Summit Capital Financing at 908-644-5427 to learn about our business line of credit qualifications and the offers available to you.


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