Small business line of credit requirements - mersano/Article GitHub Wiki

If you own a small business and difficult getting a business loan from a bank or money from a finance company then here is something that will work out for you: A business line of credit. Getting a line of credit is not as easy as compared to taking a loan from a bank. Here you need to meet a certain small business line of credit requirements and its purely based on the credit score you have achieved over a period of time. The biggest advantage of a business line of credit when compared to traditional loans or money borrowing is you have to pay interest only for the amount you use and nothing else.

When we talk about small business or any business for that matter, the lending institutes categorize line of credit into a commercial line of credit and they check for eligibility. The banks also ask for current and past revenue details.

A majority of leading lenders basically check for the amount of time you spent in the business and they go ahead with your application only if you have completed 2 years in same business. Time shows the experience and endurance your business achieved over a period. Even a startup business can get a line of credit if it has solid personal credit score and meet small business line of credit requirements to a minimum level

The amount of line of credit you can get also depends on the collateral or surety you own so that lenders can take over your property or asset if you fail to repay the line of credit. The most acceptable form of collateral is real estate, inventory and machinery.

The percentage of profit your business makes also decides your eligibility for line of credit, indeed it’s one of the important small business line of credit requirements. Lenders only consider if you are in profit so that repayment can be made easily. Sometimes lenders also ask for revenue forecast at least for a period you repay the line of credit.

The real performance of a company can be judged based on its financial ratio and every financier uses his own ratio. Current ratio, debt to equity ratio, debt service ratio and fixed charge ratio are some of the most important ratios what lenders ask for. Current ratio decides your company’s capability to pay obligation if any in short term. Debt to equity explains how much debt your company owes. Debt service ratio explains company revenue model and fixed charge ratio decides company’s debt pay capability after paying all of its expenses

There are certain rules that every company should follow to get its share of line of credit and ignoring them will result in line of credit being terminated. Some must rules to follow are

• Periodical full repayment on line of credit
• Maintaining a minimum liquid cash
• Not to exceed higher line of debt decided at the time of agreement
• Agreeable profits defined earlier

While the above small business line of credit requirements are defined at the business level, there are certain shareholder and owner specific requirements that some lenders ask for it. Some of them are personal credit score, professional experience in the business and personal assets especially if you are a business owner. Some lenders also do background investigation of every major stakeholder involved in the business.