![]() ![]() The better the ratio, the likelier it is that you’ll get approved with favorable terms. Ideally, your debt service coverage ratio will be above 1.25, which means that your operating income is 125% of your current liabilities. Here, lenders divide your net operating income for the year by your current liabilities (due within the next 12 months). One important financial ratio that may be considered is the debt service coverage ratio. Lenders may also evaluate financial ratios such as: You may be required to provide business financial statements such as your balance sheet and/or profit and loss statement. But they’re far from the only considerations. Your personal and business credit scores are important elements lenders to consider during the underwriting process. ![]() 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. 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. If your business doesn’t yet have a credit history or it’s a new business, the lender will rely mostly on your personal credit scores. In addition to running a personal credit check, lenders may look at your business credit scores and reports. ![]() In addition, there are more than 138 places to get your credit scores for free, including some that provide FICO scores. Register with Nav to check your VantageScore credit score for free. ![]() 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.īorrowers generally need good credit scores, which means having a FICO credit score of 680 or higher. 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. To ensure that you can make good on that personal guarantee, lenders will typically run a personal credit check. 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. 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. Personal Credit Scoreīecause it’s your business that’s borrowing money, you may wonder why your personal credit score is considered at all. While actual business line of credit requirements can vary by lender, as with term loans, here are some of the factors they may consider. If your business is considered too risky as a borrower, then you might have a hard time qualifying for a line of credit.Īlso, 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 interest rates will be. While your goal is to get the funding you need, the lender’s is to get repaid and to make money from the loan. When you apply for a business line of credit, lenders will look at a number of different factors. General Business Line of Credit Requirements Usually, you can get a lower interest rate with a secured line of credit.Īn unsecured line of credit is the opposite: no collateral is required. What that does is assure your lender that, if you should fail to be able to pay back what you borrowed, the lender can seize your asset to cover what you owe. There are two types of lines of credit: secured and unsecured business lines of credit.Ī secured line of credit requires you to put up an asset against the line. That means you could have your line of credit for years, whereas a loan closes once you’ve paid back the lump sum. You might take out $50,000 for office renovations now and start paying that back, then borrow $10,000 in a few months when business is slow.Īs soon as you have paid back any or all of that line, it’s available to borrow again. Let’s say you’re approved to borrow up to $100,000. You are approved for a certain amount of money you can borrow, though many business owners prefer to take only some of that amount at a time. Check Now How a Business Line of Credit WorksĪs I mentioned, a line of credit has some key differences from a business loan, primarily in how you access the money you borrow. Create a Nav account, connect your business data and see what business lines of credit are available for your business. ![]()
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