Completing The Application
About This Lesson
In this lesson, we’re going to cover the following:
- Steps in getting a business line of credit
- How to get approved for a business line of credit
Resources
Full Video Transcript
Hello, and welcome to this module, Completing the Application for your Line of Credit. So here’s what we’re going to cover. Basically the steps in getting a line of credit, how to get approved for a business line of credit. So when we look at the steps, the very first thing we want to do is know the qualifications and this is going to vary by lender, but they’re generally gonna include a mix of the following criteria, credit score. So they’re going to want generally to have a 680 and above credit score. I don’t recommend you do one with lower credit score, at least $120,000 on an annual basis in revenue. And then, time in business, at least a year, sometimes it’s gonna require two years depending upon the lender and the line of credit relationship that you’re looking to form. Okay? And then collateral.
So typically this could be physical real estate equipment, or any other high-valued assets, including accounts receivable. And this would mean that you have a really good accounting system that justify your accounts receivable. So you also want to compare for types of lines of credit. So in the previous module is breaking down different ones online lenders. You also want to take a look at the, the traditional lenders with your banking, who you’re banking with. So there’s three ways you can break down the types of lenders when the various types of lines of credit. So number one is whether it’s secured or unsecured, meaning are you going to put up the cash or not the length of the term? So how soon you have to pay it back. And then also you want to look at the pros and cons of each type, and the line and the terms and the amount you’re able to qualify for, for your particular business.
So you also want to look at banks, like your traditional bank versus a credit corp, credit union versus Fintech. When I say Fintech, those are those online lenders like Lendio, Bluevine, etc. Secure versus unsecured. So am I using my cash or is it unsecured? Unsecured is way more attractive, but a little bit harder and more stringent qualifications. Short-term versus long-term. Is this a short term strategy? Do I need to have this money in the next 90 days? Do I just need money for the next six months? Or do I want to just have access to this for the long term?36 months and you know, or a little bit longer? So when we’re looking at those options, these are the things we want to look at and prepare your paperwork. Secondly, you want to apply for this when you don’t need it, because they’re going to want to see your personal information.
So your social security number, business information, entity type, tax ID number, industry. And the industry is so important. So I provided a restricted industries list before you want to make sure that if you’ve, if you’ve been following this and doing everything in order, you’re probably in the business consulting industry, which with your particular entity. You want to have strong, personal and business credit scores. And then you want to have your financial information to include your bank statements, bank balance sheets, profit, and loss statements, and any other documents. So again, if you’re following those requirements that are recommended and tracking your cashflow, follow the proper form first model and having a bookkeeper, then that shouldn’t be an issue. Your tax returns, both personal and business. So typically you’re going to have a 1040 and more than likely an 1120 as if you’re filing a corporation or 1120, if you’re filing as a C corporation or an S corporation, or if you’re an LLC filing as an S corporation.
So you’re going to have 1040, 1120 S, 1040, 1120. Okay? so all of that’s going to be important and then any debts. So if you have any debt for the business, what’s the debt payment schedule and how’s your DTI, your efficient, or are you efficient with the, are you efficient enough to produce cash flow to cover your debt obligations. And then any type of legal documents that they may have. So if you have an operating agreement or bylaws or anything like that. How that, how that actually works with your particular business. So you want to know what the terms, fees and rates are going to be. And if you have to pay this back weekly, daily. And does the payment, is the money gonna automatically be deducted from your checking account? Some of these lines of credit work with work that way, and I would recommend avoiding those.
So fees, do they change when you draw new funds from your evolving line? You know, payment processing fees, you know? What are the windows and how long does it stand? You know, what’s the, what’s the timeframe? Payment processing fees may be charged to deliver your funds instantly instead of one or two business days, right? What are the late fees? They may be charged when you miss a payment. Termination fee. So this may be charged if you in the line of credit before the designated time. So, and then pre-payment fees. This may be charged if you pay off the borrowed line of credit before the term is over. If you get one of those factor types in the lines of credit, which I would avoid. And then when you apply for a business line of credit for most banks and credit unions, you’ll need to have, you either need to do this in person or visit, visit a physical application unless you’re doing one of those online lenders.
So what you’ll want to know is checked for the following details for the business. So you’ll want to know the amounts of the full line of credit that you’re trying to apply for the terms. So the length of the time over which you have to pay back the line of credit alone, the payment schedule, how often you’ll be required to make payments rates, basically the interest rate you’ll be paying. And then do you, if you’re going to get this line of credit, have this efficient amount of capital to pay that back off, should you get that money up front, any fees, um, any additional interest rates. So all those things are going to be taken into account. So when you’re looking at to getting approved, all of this stuff is going to basically may, may come down to how you manage your cashflow, right? Again, this is why I broke down the profit first model.
So you want to basically follow and make sure you’re using this line of credit in my opinion, to grow the business, right. I wouldn’t really go into debt to take care of, you know, traditional expenses. But, and you do not want apply for this when you need it. And you want to obviously have good business and personal credit. So you’ve already done everything to have a strong business credit score. If your credit personal credit score, isn’t where it needs to be. Go take a look at the 700 Credit Score Academy. It will show you step by step, how to get your personal credit, where it needs to be. And you want to do your research upfront. You don’t want to just go in blindly and waste an inquiry. Okay? So you want to, you want to be a detective when it comes to getting this line of credit and doing the application, do your due diligence, make sure your personal credit is good.
Make sure your business credit is good. You have that 80 Paydex score, strong small business FICO score. You have an Experian Intelliscore. Your personal credit scores look good. Your balance sheets are good. Your profit and loss statements are good. Your books are good. Everything is good. So you’re going in there when you don’t need it, you’re financially independent and you don’t need the money. And what I’ve found when you go with that approach, that’s typically when you get access to the funds. All right? So these are the requirements that you want to consider before completing the application. And again, do your research find the best one and then move forward with that, with all the information on the front end first and before you even apply, when you’re speaking with someone, asks all these questions. So that way you can know what to be, you know, how to position your credit and your application in order to get approved.