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Business lines of credit can be excellent tools for startups. But without a history of successful business loans, it can be difficult to find an inexpensive line that suits your business’s needs.
Yes — but it’s not as straightforward as it might seem. There’s no set definition for a startup, but most lenders will only consider you if you have at least six months in business.
This means brand-new businesses and businesses that aren’t up and running likely won’t qualify for a line of credit. But small startups with decent revenue and a good track record for paying creditors may be eligible.
That being said, there are business lines of credit available to startups. Provided your business meets a lender’s requirements, which are usually provided upfront, your startup could be eligible.
The exact requirements vary by lender, but here are a few common criteria we’ve seen:
When you’re ready to apply, start with a list of banks and online lenders that offer business lines of credit — it’s not as common as you’d think. From there, make sure the lender provides the information you need to make a decision on its business line of credit, including the eligibility requirements your startup will need to meet.
Your first choice, before you start looking for lenders, is to decide whether your business needs a revolving or non-revolving line of credit.
As a startup, you likely won’t have an established relationship with a lender. That’s normal — but it does mean you may have to do extra work to find the right fit for your business.
Unfortunately, many lenders require you to have been in business for at least six months, although a minimum time in business of one or even two years isn’t uncommon. Because of this, you’ll want to compare a wide variety of options to narrow down your choices.
Check to see what interest rates, fees and terms each lender offers. You may also find that your lender requires collateral to secure your line. This can be in the form of equipment, business equity, inventory or a personal guarantee. Unsecured business lines of credit are rare, and it’s unlikely that your business will qualify as a startup with limited borrowing history.
Once you’ve found a few lenders that fit your needs, gather the documents and information you’ll need to apply. These typically include bank statements, personal and business tax returns, a well-written business plan and details on how you plan to use your funds. You will also need to provide details about your collateral for a secured line of credit, but the specifics will depend on your lender.
Much like credit cards, the total cost of your business line of credit will depend on how much you spend. But beyond interest rate, your lender may charge a few fees.
Know the total amount your business can afford to pay each month and each year so you don’t overextend your budget.
While not every lender on our table offers business lines of credit, you can compare a few that do against some of the most common alternatives, including traditional term loans.
A business line of credit can be a useful tool for startups because it allows you to tackle early cashflow issues while building a positive credit history.
While business lines of credit have their benefits, there are some drawbacks your business may face.
Because lines of credit can be difficult to qualify for, here are a few alternatives that may be easier to access as a startup:
Startups may find business lines of credit to be a positive way to build credit history while covering minor expenses. But because your business will need to meet strict criteria to qualify with most lenders, consider a wide variety of business loans before you apply.
Our answers to some common questions about business lines of credit for startups.
A line of credit can be used for just about any expense. Inventory, equipment, office supplies and hiring costs are common uses. But provided you review with your lender about how funds can be spent, you likely won’t bump into anything you won’t be able to use your line of credit for.
There are some lenders that work with business owners who have bad credit, but it can be difficult to find funding if you have bad credit and don’t meet other requirements.
Because your startup doesn’t have its own credit score, a lender relies on your personal credit to make a decision. Without good credit, you could struggle to get approved for a line of credit — and get a fair interest rate.
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