If you’ve ever wondered how to qualify for a substantial business line of credit to elevate your business, look no further. In this video by 7 Figures Funding, Leo Kanell outlines the key factors for qualifying for the highly sought-after unicorn funding product, the Business Line of Credit. Kanell discusses the benefits of a line of credit compared to a loan, such as flexibility and potential limit increases over time. Additionally, he covers the qualifying factors, including good personal credit, a significant amount of time in business, monthly sales, and industry type. So, if you’re eager to learn how to easily qualify for a business line of credit in 2023, join Kanell as he dives into the details and unveils the secrets to securing this funding opportunity.
Table of Contents
Qualifying Factors for a Business Line of Credit
Good Personal Credit
When it comes to qualifying for a business line of credit, one of the most important factors is having good personal credit. Lenders often look at your personal credit score to gauge your level of financial responsibility. A minimum credit score of around 650 is typically required, although a score of 680 or higher is often preferred. By maintaining good personal credit, you demonstrate to lenders that you are likely to handle your business credit and payments responsibly as well.
Time in Business
Another key qualifying factor for a business line of credit is the amount of time your business has been operating. Lenders generally prefer to work with businesses that have been in operation for at least two to three years. This shows that your business has successfully navigated the challenges of the initial startup phase and is more likely to have stable revenue streams. While there are some lenders who may consider businesses with less time in operation, a longer track record of success increases your chances of qualifying.
Monthly Sales
Lenders also carefully evaluate your business’s monthly sales when determining eligibility for a business line of credit. This assessment looks at the average deposits made into your business bank account over a specific period, usually the past three months. It is important to note that only actual sales from customers and clients are considered, not personal funds injected into the business. If your average monthly deposits are substantial, such as around $100,000, you may qualify for a business line of credit in that same amount. Lenders see higher sales as an indicator of a healthy and profitable business, making you a more attractive candidate for credit.
Industry Type
The industry in which your business operates also plays a role in determining whether you qualify for a business line of credit. Lenders often categorize industries into varying levels of risk. Some industries, such as adult-themed businesses, real estate investing, insurance, and brokerage, are considered higher risk and may find it more challenging to secure a business line of credit. On the other hand, industries like restaurants, e-commerce businesses, education, and brick and mortar businesses are viewed as less risky. If your business operates in a preferred industry, you have a higher likelihood of qualifying for a business line of credit.
Benefits of a Business Line of Credit
Flexibility in Financing
One of the major benefits of a business line of credit is the flexibility it offers in financing your business needs. Unlike a traditional loan where funds are deposited into your bank account in a lump sum, with a line of credit, you have the freedom to draw funds as you need them. This flexibility allows you to manage cash flow effectively and address short-term financial needs such as inventory purchases, equipment upgrades, or unforeseen expenses. You only pay interest on the amount you use, and once you repay the borrowed funds, they become available again, similar to a revolving credit account.
Potential for Increased Credit Limit
Another advantage of a business line of credit is the potential for your credit limit to increase over time. As you maintain a positive repayment history and demonstrate responsible credit usage, lenders may periodically review and increase your credit limit. This means that the longer you have a business line of credit and the more you utilize and repay it, the greater your borrowing capacity becomes. This increased credit limit can provide your business with additional financial flexibility and allow you to take on larger projects or expansion opportunities when needed.
Restricted Industries for Business Line of Credit
Adult-Themed Businesses
Businesses operating in the adult entertainment industry often face challenges in securing a business line of credit. Due to the nature of these businesses and the perceived higher level of risk involved, lenders may be hesitant to extend credit.
Real Estate Investing
While real estate investing can be a lucrative business venture, it is generally considered a higher-risk industry for lenders. Therefore, obtaining a business line of credit based solely on real estate investing activities can be challenging.
Insurance
The insurance industry, with its complex nature and potential for large claims and losses, is often seen as high-risk by lenders. This label can make it difficult for insurance businesses to qualify for a business line of credit.
Brokers
Businesses operating as brokers, such as stockbrokers or insurance brokers, may find it more challenging to obtain a business line of credit. The intermediary nature of their business and the potential market volatility may lead to increased scrutiny from lenders.
Preferred Industries for Business Line of Credit
Restaurants
Restaurants are often viewed as a favorable industry for a business line of credit. The foodservice industry is well-established and has a proven track record of success. Lenders are more likely to extend credit to restaurants due to the stability and consistent revenue streams typically associated with this industry.
E-commerce Businesses
In recent years, the rise of e-commerce has created a wealth of opportunities for businesses operating in this sector. As online retail continues to thrive, e-commerce businesses are seen as a preferred industry for a business line of credit. The ability to reach a broad customer base and generate consistent sales can make e-commerce ventures attractive to lenders.
Education
The education industry, including schools, training centers, and tutoring services, is often considered a low-risk industry by lenders. The demand for education services remains relatively stable, making businesses in this sector more likely to qualify for a business line of credit.
Brick and Mortar Businesses
Brick and mortar businesses, such as retail stores, traditional service providers, and local establishments, are also looked upon favorably by lenders. These businesses have a physical presence and often serve the local community, making them less susceptible to certain economic fluctuations.
Taking Care of Your Credit, Time in Business, and Sales
To increase your chances of qualifying for a business line of credit, it is crucial to take care of your personal credit, establish a solid track record of time in business, and maintain consistent monthly sales. This entails managing your personal finances responsibly, ensuring your business operates successfully for an extended period, and generating steady revenue streams. By prioritizing these factors, you demonstrate to lenders that you are a reliable and creditworthy candidate for a business line of credit.
Conclusion
Qualifying for a business line of credit requires meeting specific eligibility criteria set by lenders. Factors such as good personal credit, time in business, monthly sales, and industry type all play a significant role in determining your qualification. By understanding these qualifying factors and taking steps to fulfill them, you can increase your chances of securing a business line of credit to support and grow your business. Remember to prioritize financial responsibility, build a solid business track record, and focus on industries that lenders view as less risky. With the right preparations and a strategic approach, you can position yourself for success in obtaining a business line of credit in 2023 and beyond.
