How Does a Startup Get Business Lines of Credit?

Is it possible to get lines of credit if your business is a startup? Technically, yes. However, you should be prepared to jump through quite a few hoops. Fortunately, with a few helpful tips, the process can be somewhat easier. There are also several alternative financing options you can check out. Remember — business credit is a valuable tool, so it’s worth the effort to find out if your startup qualifies.

Why Is It Difficult for Startups To Qualify for Business Lines of Credit?

Business credit may not seem to line a loan, but it really is. This financial tool means giving your company access to a certain amount of capital to use on-demand. To minimize their risk, most lenders have quite a few requirements for companies.

Of course, healthy businesses are able to reach these requirements without too much trouble. They likely have a solid credit score from making regular purchases, a healthy cash flow, good profits, and a reasonable business bank account. All of these factors make lenders more comfortable extending credit.

With enough time, your startup can also build this kind of excellent financial history. At the moment, however, your business still needs to prove its credit and cash flow management abilities. Many lenders request at least two years in business before qualifying for a line of credit.

Are There Any Options for Getting a Business Line of Credit for a Startup?

Entrepreneurs may have a few ways to qualify for business credit, even if their new company doesn’t meet all the requirements yet. First, you may consider secured credit. This type of financing uses a valuable asset as collateral for the line of credit. A construction company may be able to use a piece of machinery in this way. Of course, this means assuming some risk, but depending on the type of assets available, it may be a way to turn something you’re not using anyway into potential capital for business growth.

Owners may be able to qualify for a line of credit using their personal credit score. If you have excellent credit or significant personal assets, it’s easier for you to get approved. Of course, you need to be careful with your accounting to separate your business and personal finances correctly for tax purposes.

What Alternative Financing Options Exist?

It may be possible to get financing for a startup without worrying about lines of credit at all. One great option for small businesses is the SBA 7(a) loan program. Another possibility if you need to purchase equipment for your business is to get an equipment lease. Leases are easy to qualify for, and they make it easy to upgrade your equipment.

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