What is a small business line of credit?
A business line of credit is typically a loan funded to the owner of a small business which continues to revolve and has no expiration. The small business line of credit is actually a type of debt financing, whereby the business owner repays the loan overtime instead of a single payment. Most banks and credit unions provide this sort of loan.
During the application process, the owner of the business is granted a specific amount as a credit limit and the borrower can use only a certain amount and not the entire limit. Lenders make their money through interest charges or fees on the borrowed amount which has been “used only” not the full amount. To make things a little clearer, it’s similar to a credit, however the limits are a lot higher. So a small business line of credit is considered to be one of the more affordable forms of funding businesses can obtain if qualified and approved. The benefits are easy access to funds when needed at a lower cost overall.
Exactly what is required to be eligible for a small business line of credit?
Usually the time to process an application for a small business line of credit is an extended duration. Normally it takes up to a month to receive either an approval or a rejected response. Therefore, it is advisable to be prepared for anything in advance to really assist with reducing the application form time limit.
Get your business documents prepared
- A copy of the certificate with the trade and a copy of your business license
- End of year business statements with the owners signature, showing the previous 2 years
- Deposit and investment statements for any accounts with other Financial Institutions
- A statement from your business bank account from the bank, going back at least 3 months
- Business assets being purchased for the business
- A purchase agreement or bill of sale describing the serial number and price information, etc.
Collect your individual details
- Provide at least 2 types of valid federal government photo identification
- A personal notice of assessment / Tax Return, business activities transactions, available for 2 yrs at least for the company
- Address, Name. and Profession of most management staff which have a vested interest of at least 25% plus within your organization
When you have the paperwork prepared, you’ll be able to get in touch with the bank and apply for a business line of credit. A web based application for the loan is also easily accessible.
So as a business owner, what if you are not qualified to meet these requirements for a small business line of credit?
1. Think about your circumstance
Try to take advantage of the details obtained from the traditional banks and use it in your favor. Understand exactly what the reason behind getting rejected was? Below are a few most likely explanations:
- Loan purpose will not align with the eligibility requirements
- The industry for your business is considered as high-risk
- Your credit score is way too low
- There has been some performance issues recorded with the commercial bureau report
- Statements from a traditional bank which reveal an inadequate amount of earnings to take care of regular monthly repayments, even at highest possible amortization period of time
2. Choose a private lender
Most private lenders are less restrictive on requirements for funding. Just so that you are aware, your credit rating isn’t the sole requirement for approval. Also, considering that you have previously gathered all the details ahead of time for traditional banks, just submit those data files over to the private lenders. Almost all private lenders will not require as much documentation to make financing choices. For instance, Thinking Capital will only require you to provide the following three documents:
- Traditional business bank statements
- Issued ID’s from the Government
- Voided Cheques
Also you do not need to visit a branch to receive a quote. You may apply for business financing online and get an instant estimate.
In order to obtain a business line of credit you routinely need to visit one of the top commercial traditional banks. It is better to go directly to the bank which you are currently banking| through in order to reduce the time to apply. Get your personal and business documentation ready in advance to prevent additional interruptions like heading back and forth.
You can speak with a small business consultant at the branch location to work through the terms of repayment. In the event that you do not satisfy the requirements, examine the real reason for the small business line of credit being rejected. So from this knowledge, apply through one of the private lender to see if they’re prepared to offer financing more than a short-term, set period of time.