This article was reviewed and updated on July 31, 2020
A business line of credit can be a vital source of working capital for small business owners. Instead of providing a lump-sum amount up front like a term loan, you’ll get a revolving line of credit that you can use, pay off and use again over a predetermined period.
If you’re considering this financing option, however, it’s important to know that business credit line requirements can vary from other types of small business loans, though there can be a great deal of overlap (especially for larger credit lines). What’s more, they can also vary from lender to lender. Here are some qualifications that lenders consider:
- Personal credit score
- Business credit score
- Business debt-to-income ratio
- Time in business
- Annual revenue
As you consider your options, here’s everything you need to know about business line of credit requirements.
General business line of credit requirements
When you apply for a business line of credit, lenders will look at a number of different factors. While your goal is to get the funding you need, the lender’s is to get repaid and to make money from the loan. If your business is considered too risky as a borrower, then you might have a hard time qualifying for a line of credit.
Also, lenders often use a risk-based pricing model to determine the interest rate — the more likely the lender views your business as being able and willing to make payments on time, the lower your interest rate will be.
While actual business line of credit requirements can vary by lender, as with term loans, here are some of the factors they may consider.
Personal credit score
Because it’s your business that’s borrowing money, you may be wondering why your personal credit score is considered at all. It’s because business lines of credit often require a personal guarantee — that is, you’ll be personally responsible for paying back the debt if your business can’t. In addition traditional lenders often want to make sure the borrower has “skin in the game” to increase the likelihood that the loan will be repaid.
To ensure that you can make good on that personal guarantee, lenders will typically run a personal credit check. In fact it’s not unusual for lenders to require a personal credit check for any owner of the business with 20% or greater ownership. It’s possible to get a business line of credit with a poor credit score, but your options will be limited, and you may end up with a high interest rate.
Borrowers generally need good credit scores, which means having a FICO credit score of 680 or higher.
Business credit score
In addition to running a personal credit check, lenders may check your business credit score and reports. If your business doesn’t yet have a credit history or it’s rather new, the lender will rely mostly on your personal credit score.
If, however, you have an established business credit history (good or bad), lenders may use it to help determine the risk of lending to your company.
To find out where you stand, you can check your business credit scores with Nav, as well as your credit reports with Dun & Bradstreet, Experian and Equifax.
Your personal and business credit scores are important elements lenders consider during the underwriting process. But they’re far from the only considerations.
You may be required to provide business financial statements such as:
- Balance sheet
- Profit and loss statement
Lenders may also evaluate financial ratios such as:
- Debt to equity
- Current ratio
- Fixed-charge coverage ratio
One important financial ratio that may be considered is the debt service coverage ratio. Here, lenders divide your net operating income for the year by your current liabilities (due within the next 12 months). Ideally, your debt service coverage ratio will be above 1.25, which means that your operating income is 125% of your current liabilities. The better the ratio, the likelier it is that you’ll get approved with favorable terms. It is possible to get approved with a lower ratio, but it may not be the best line of credit option.
Time in business
Small businesses have a high failure rate. According to the U.S. Small Business Administration, roughly one-third of all businesses don’t survive two years, and only half make it to the five-year mark.
With repayment terms that go longer than five years, small business lenders are understandably cautious about lending to brand-new companies without a track record.
Time in business requirements can vary from lender to lender, but most will typically want to see that you’ve successfully run your business for two years or longer. Some lenders may have less strict guidelines, allowing you to apply if your business is at least one year old, but in most cases, you’ll have a hard time finding a low-cost line of credit if your company is less than two years old.
Increasingly lenders are scrutinizing business revenues and even cash flow. Requirements can vary from lender to lender, but you’ll typically need at least $50,000 in annual revenue for many online lenders, and $100,000 (or more) for traditional business lenders.
Having strong revenues over time shows that you’re capable of maintaining the cash flow required to pay back your business line of credit. To demonstrate revenues lenders may require business bank account statements or may even want to link to your bank account to analyze income.
Some industries are riskier than others when it comes to running a business. Restaurants, retail, and real estate in particular are considered riskier industries.
That said, it can help if you have experience in the industry prior to opening the business. For example, a business owner who has successfully run one or more businesses in the industry prior to their current one would show less risk to a prospective lender than someone who’s new to the industry.
If you run a business in a high-risk industry, it doesn’t mean you’ll automatically be denied, even if you don’t have previous experience. However, some lenders may choose to pass on the opportunity, giving you fewer options.
Tip: Check your NAICS code on your business credit report to make sure it is accurate. Incorrect ones may prevent you from getting loan offers, or getting approved.
Credit card line of credit
Business owners often think of credit cards as a convenient way to pay for purchases, or a tool to improve cash flow, but don’t often think of them as lines of credit— though that’s exactly what they are.
As a line of credit, a business credit card often carries a higher interest rate than one from traditional lenders (such as banks or credit unions) but lower than one from some online lenders. In addition, as long as your credit card has a grace period you can pay the balance in full each month to avoid interest charges. This means your business credit card can be used as a short-term interest-free small business line of credit.
Most small business credit card issuers base their decision on the applicant’s personal credit score and income from all sources, making this a possible source of credit for both new and established businesses.
Business line of credit requirements for different lenders
As previously mentioned, each lender has the right to choose its own criteria for determining whether you qualify for their business line of credit. Here are some examples of major lenders who make small business loans (including small business lines of credit) and what to expect from their requirements.
Note: In light of the COVID-19 economic crisis, some lenders have paused small business lending or have tightened borrower requirements to qualify. Check with these lenders for the most up to date information.
Business line of credit from Chase
The national lender offers business lines of credit from $10,000 to $500,000 with five-year renewable repayment terms. The lender doesn’t provide exact information about what’s required to get approved. However, it does disclose that it considers your banking relationship, credit history and collateral.
This suggests that having an existing business checking account or similar relationship with Chase will help your chances of getting approved. Also, like other national business lenders, Chase may be looking for a strong credit history instead of offering business lines of credit to business lenders with lower credit scores.
It’s also worth noting that if you need a line of credit for less than $10,000, Chase suggests you apply for a Chase Business credit card.
Because the lender considers collateral in its underwriting process, you may have a hard time getting an unsecured line of credit. If you’re looking for that, consider other options.
Finally, note that Chase only offers business lines of credit in the following states: AZ, CA, CO, CT, DE, FL, GA, ID, IL, IN, KY, LA, MA, MD, MI, NJ, NV, NY, OH, OK, OR, PA, TX, UT, VA, WA, WI, WV
Business line of credit from Wells Fargo
With a Wells Fargo business line of credit, you can apply for a credit limit between $5,000 and $100,000 for an unsecured line of credit, or a secured line of credit. The Wells Fargo Prime Line of Credit offers a line of credit between $100,000 and $500,000.
There’s a one-year draw period for the lines of credit, after which the loan amount will be amortized over five years as a term loan if it isn’t renewed.
Wells Fargo requires business owners to have at least two years in business to qualify, but the lender doesn’t specify any other requirements.
If you don’t qualify for an unsecured line of credit, you may be able to get a secured line of credit by using a Wells Fargo savings or certificate of deposit account as collateral.
Bank of America business line of credit
To qualify for this bank’s unsecured business line of credit, which has a credit limit that goes from $10,000 to $100,000, you need to meet three hard eligibility requirements:
- Two or more years in business under the current ownership
- $100,000 in annual revenue or more
Like the other options available, the Bank of America business line of credit offers annually renewable terms. Also, note that if you’re a Bank of America Preferred Rewards for Business member, you can qualify for interest rate discounts.
Bank of America also offers a secured business line of credit that starts at $25,000 and requires $250,000 in annual revenue.
Capital One business line of credit
With Capital One, there’s not a lot of information the lender discloses publicly. Credit lines start at $10,000, for instance, but there’s no maximum listed on the bank’s website. Also, the repayment terms can vary based on your situation.
This lender doesn’t offer any information about what it takes to get approved for one of its lines of credit, other than to say that normal credit standards apply. However, it is noteworthy that you don’t have to provide financial statements if your line is $50,000 or less.
Line of credit from Kabbage
The Kabbage line of credit limit goes up to $250,000, which you can repay over six, 12 or 18 months for short-term working capital. While the lender considers several factors, there are some minimum eligibility requirements that you need to meet to get approved.
That includes at least one year in business and $50,000 in annual revenue or $4,200 per month over the last three months. The lender checks the owner’s personal credit score but no specific minimum credit score requirement is disclosed.
OnDeck business line of credit
With OnDeck, lines of credit range from $6,000 to $100,000, with weekly payments of up to twelve months, making it worth considering for short-term working capital needs. To qualify for a loan with this online lender, you need at least one year in business, a FICO credit score of 600 or higher, $100,000 in annual revenue and a business bank account.
That said, OnDeck’s typical customers have three or more years in business, a FICO score of 650 or above, and $300,000 or more in annual revenue. Keep these figures in mind along with the minimums as you consider your chances of getting approved with favorable terms.
Fundbox line of credit reviews
A Fundbox small business line of credit can go as high as $100,000, which you can repay over 12 or 24 weeks. To qualify for a loan with the online lender, you must:
- Have at least two months of activity in a supported accounting software or three months of transactions in a business bank account.
- Have a personal credit score of at least 500.
- Generally borrowers should be in business for at least 2-3 months.
- Ideally borrowers should have at least $50,000 in annual revenues, but Fundbox offers some flexibility there.
SBA business line of credit rates
There are several SBA loan programs that offer lines of credit. With the SBA CAPLine, you may qualify for up to $5 million in revolving credit, with a repayment term of up to 10 years. This program offers four different lines of credit programs (Seasonal CAPline, Contract CAPline, Builders CAPline and Working CAPline.)
SBA Express Loans and Export Express loans offer lines of credit of up to 7 years while and SBA Export Express programs offer lines of credit of up to 12 months.
These loans are not made by the SBA. Instead you must apply through a participating lender approved to make SBA loans. SBA loans are available to small businesses with good credit and that meet SBA size standards, among other requirements.
The bottom line
Business line of credit requirements can vary depending on where you look, but so can the terms of the financing option. If you’re a small business owner looking for a line of credit with relaxed credit standards, you may end up paying for it in the form of higher interest and fees.
As you consider business line of credit requirements, take some time to shop around and compare rates, terms and requirements from several lenders before you settle on one. Also, consider business loan options as an alternative, depending on your needs.