How To Obtain A Line Of Credit

Hello, and welcome to this module, how to obtain a line of credit, because this can be used as cash. Their requirements are a lot more stringent to get approved for these. So here’s what we’re going to cover. Number one, I’m going to break down. What is the requirements for a business line of credit? Your personal credit score is absolutely going to take into account for one of these period point blank in this discussion, the annual revenue you want to be at, the time in business, the collateral that they’ll typically want to see or use, or have access to the current debt schedule for line of credit. And then the basic personal and business information they’ll need. So business lines of credit. So out of all the business loans and other funding solutions in the market a line of credit can be one of the most flexible options because essentially it’s acting as like a credit card and a term loan at the same time.

So with the business line of credit, you can receive a credit line with a specified amount, 50,000, 75,000, 100,000, 500,000. And you can draw the funds in any amount, up to your limit whenever you need them, and you need to pay them in. You only need to pay back the funds that you draw on once you accrue interest on those funds as well. So essentially you don’t have to pay the full amount off in full, like you would with a credit card and the interest rates going to be way more, way more competitive than credit cards. And then you might want to consider a line of credit. If you’re looking for financing of a business, whether to support your cashflow purchase inventory, upgrade equipment, and essentially just use it as working capital. I’d rather have access to it and not need it than need it, not have access to it.

So you really want to be trying to get a line of credit when you don’t need it. So that way you can keep it in your keeper, really, really good sufficient cashflow and really good cash flow management. So if you’re following the profit first model that are broke down, then you will be perfectly fine. So what’s your personal credit score, this is going to matter, because again, they’re giving you access to essentially a blank check to use. As you see fit that you can transfer into your business checking account. So lenders are going to want to do a personal credit score, and they’re going to expect that you have good personal credit, especially if your business is long or hasn’t put up enough business or credit history, you’re gonna have to personally guarantee. And almost always, you have to personally guarantee, even if you have stellar corporate credit.

So, by involving your personal credit history, lenders want to make sure that you have some skin in the game motivated to make sure you pay off the business line. Even if the lender doesn’t have a line of credit score minimum, they’ll more than likely check your credit score before funding your application and your credit score. If it’s less than 700, you’ll want to ensure that you basically have gotten your business credit up to a high level, and you just got your personal credit right.So it’s important to mention that some lenders may check your business credit. They are going to check your business credit score. And they’re going to use your personal credit score as the most influential eligibility because how you treat one of your life is how you’re gonna treat all the other areas of your life.

So annual revenue, this is important. So if you’re applying for a line of credit or any other alternative lender, you’ll likely need a minimum annual revenue, anywhere between 25,000 to 100,000 for bank lines. And on other hand, you may be actually show even more annual revenue if you need to qualify. So overall, a business line of credit is going to use for a variety of financial documents, information and revenue, as well as your cash flow to determine how much you can qualify for a line of credit. So the way they’re going to look at this and the requirements are going to request more than likely it’s going to be your bank statements, balance sheets. They’re going to say your profit and loss statements, any additional financial documents that’s supporting whatever they need. And they’ll let you know what that is, business and personal tax returns.

And then the time of business is also going to be important. So as a general rule of thumb, you’ll want to be in business for at least six months. I would say ideally a year and in order to get the best rates, you’ll want to have everything in order, all those books, everything looking good. So if you’re looking for Atlanta credits to start our business, some lenders may work with you if you have like stellar credit, like I’m talking like an 800 credit score on the personal side and because you’ve already demonstrated that you can be trusted with money and you already have good lines, but typically, they’ll also want you to include some collateral if you’re a brand new business. So, you may need to provide traditional collateral. So things like physical assets, real estate, accounts, receivable, inventory, and also a personal guarantee with your personal credit.

So essentially you’re agreeing to pay back as an individual, the funds in full should the business, not be able to, right? And then you also, you’re gonna find that some lenders are going to secure the lines by placing a UCC lien. They’re absolutely going to place a UCC line on your business. And it’s basically a formal statement in which the business lays claim on your business assets to repay the debt in case you can’t pay. Right? So this is going to be something you have to understand. If they don’t do physical assets, they will put a UCC lien on your business. And if you have bad personal credit, you probably would have to offer more collateral. And they’re probably not even going to, if you have bad personal credit, nine times out of 10, they’re not going to approve you, right?

Unless you have some serious serious equipment or assets or something happened in order to justify the line of credit. Right. But on the other hand, if you have excellent credit, and business financials, you may not need to put up or secure any collateral, right. But chances are, they are going to do that UCC filing. Absolutely. Even with those SBA loans, they put they put UCC filings out there on your business assets for loans over a hundred, over 25,000. Okay. And the current debt schedule. So essentially what this means is if you have significant or a lot of existing debt with frequent payments, a lender may decide that you can’t afford the line of credit, and it’s too risky to lend to you as you may not be able to pay the funds back as a borrower. So essentially this is DTI.

So ideally, if you have existing debt, you’ll want to show that you manage this payment schedule and you can afford it based off your cashflow. And if you don’t have existing debt on the other hand, this is going to be good because, Hey, look, this person’s not over leveraged. They’re really just looking at this as working capital. So again, you want to go and look at a line of credit or access in a line of credit when you don’t need it. So the information they’re going to want to see, is these things, so they’ll want to know your personal contact information for all the business owners, if you have more than the business owners, more than likely you’re the only business owner you’ll need to have a form of ID like a passport or a state ID, your EIN number, a voided business check, your business entity type, business license, or permits if applicable, and then any other legal documentation agreements, like either your bylaws or your operating agreement, that kind of stuff.

And then also they’ll want you to be, again, my recommendation is when you’re in business over $180,000 in annual revenue, a 630+ credit score, I would say a 700 to be on the safe side, driver’s license or passport. They’re also going to have a voided business check, a bank statements is more than likely going to be required, balance sheet. They’re also going to want to know a profit and loss statement or see that, that’s prepared by a bookkeeper, your credit scores both business and personal, business tax returns and your personal tax returns. So typically if you have a C corporation, if you have a corporation, you’re going to have your individual 1040, and then you’re going to have either an 1120 for a traditional corporation or 1120 S for an S corporation.

And that 1120 S can be for S corporations or LLCs being taxed as an S corporation. But they’re going to want to see those tax returns, right? So essentially before you start trying to apply for a line of credit, you want to make sure you’ve got all your ducks in a row. Bookkeeping is huge, and a good bookkeeper will be able to prepare your balance sheets, your profit and loss statements, all that good stuff. And then a good CPA or accountant or a tax professional will have your business tax returns and your personal tax return. So all of this stuff matters. Cashflow, books, all of this stuff really, really matters when you’re getting these lines of credit in those SBA loans. But more so with the lines of credit, because there’s essentially a blank check and they’re going to know all this information because they’re essentially giving you access to money that you use willy-nilly, right. So I don’t recommend you use it willy nilly because you understand money, but that’s how lines of credit work. And these are the requirements.