What Documents Do You Need to Get a Business Line of Credit?
All lenders have slightly different requirements, but most business credit line lenders will want to see plenty of evidence that your company can make regular payments.
While a business line of credit doesn’t have to be repaid in the same way a loan does, lenders don’t make financial decisions hastily. Every year, thousands of small businesses default on loans or file for bankruptcy, leaving lenders to pick up the pieces. With most lenders, you can expect to present information that includes:
- A driver’s license or other proof of identity
- A voided business account check
- Bank statements
- Financial statements, like a balance sheet and profit and loss statement
- Credit score information
- Personal and business tax returns
- A business plan or prospectus
This may seem like a lot of information, but this collection of documents can paint a strong picture of your personal financial health as well as the current and future performance of your business.
In general, the three things that mean the most in evaluating creditworthiness are your personal credit history, the duration of your business and its cash flow.
Personal Credit History: You may be thinking, “I’m not my business! Why does the bank want to know about my personal credit?” and that’s a fair question. However, the way you maintain your finances as an individual can say a lot about how you’ll run a company. If you have a lot of debt, fail to make payments on time and filed for bankruptcy in the past, it may not bode well for the financial health of your company.
Business Duration: Everything may look like sunshine and roses in the first few months of a company’s operations, but a few strong months at the start doesn’t necessarily mean there’ll be smooth waters ahead. To ensure your company’s operations can continue to support repayment of a line of credit, many lenders want to see a solid business history.
Some are willing to work with as little as six months, while others want to see a year or more. Regardless, you’ll need to demonstrate that your business has been up and running for a while and your income is stable or growing.
Cash Flow: Cash flow and revenue are not the same thing. It’s very possible to bring in hundreds of thousands of dollars per month with nothing to show for it. That’s why cash flow — the amount coming in as well as the amount going out — is very important to lenders. Cash flow proves that a business is making enough money to pay off debt.
Operating cash flow is the cash your business earns from day to day operations, like selling goods to customers. This is the most important classification of cash flow, and the one lenders will care about the most.