A business line of credit can be a powerful tool for entrepreneurs looking to build or expand their businesses. For borrowers who need regular access to funds, a business line of credit can allow flexibility similar to a credit card. Once borrowed money is repaid, the borrower can reaccess the full line of credit if needed.
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Organizing your documentation before you start applying can help the application process move swiftly.
Documents about yourself
Lenders know that small business owners’ business and personal finances are often intertwined. In addition to double-checking your identity, they want a look at your personal financial health.
Be prepared to submit documents along with your line of credit application that substantiate:
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Your name, address, and date of birth (a government-issued photo ID can do the trick)
Your resume: This can build lender confidence in your credentials and thus your creditworthiness
Personal bank statements
Personal tax returns
While the lender can pull your personal credit report, you may wish to do so as well — it’ll help you assess whether you meet creditworthiness requirements.
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Documents about your business
Lenders will want to see thorough documentation outlining your business before agreeing to issue a line of credit. Though not all lenders will require all of these documents, be prepared to provide the following:
Your business plan
Your legal business name and organizing documents, including your Employer ID Number (EIN)
Time in business: Many online lenders set a minimum of six months, while traditional lenders often require at least two years
Business financials, such as banking records, profit and loss reports and tax returns
Business liabilities: Information about any other lines of credit or existing loans held by the business
Context about your industry and how you are positioned to profit
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Other documents
These documents are only relevant to secured loans.
Collateral information: Documents related to any assets that belong to the company. These assets may include equipment, technology, vehicles, real estate and bank accounts. You may need to include an appraisal to prove the asset’s worth.
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UCC lien filing, if applicable: This refers to the paperwork filed under the Uniform Commercial Code formalizing the lender’s right to your collateral in the event of non-payment. The lender should generate this as a part of your loan’s closing documents, so you are not responsible for creating it. Be sure to retain a copy, though, and apply for a lien release once the line of credit has been closed.
The bottom line
Choosing a business line of credit that suits your unique needs can help you to expand responsibly. Depending on your lender and how much you are asking to borrow, you may be asked to provide additional documentation. Online lenders tend to ask for less documentation than banks and credit unions.
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Keeping copies of these documents handy — both physically and digitally — can make the application process easier.
