What is a Business Line of Credit?
A business line of credit is a flexible financing option that gives your business access to a pool of funds you can draw from as needed. Unlike a term loan where you receive a lump sum, a line of credit allows you to borrow only what you need, repay it, and borrow again - similar to a credit card but typically with better rates.
Line of Credit vs. Term Loan
Business Line of Credit
- + Draw funds as needed
- + Pay interest only on what you use
- + Reusable after repayment
- + Ideal for working capital
Term Loan
- + Receive full amount upfront
- + Fixed monthly payments
- + One-time borrowing
- + Ideal for large purchases
Required Documents for a Business Line of Credit
Banks evaluate your creditworthiness based on your financial documents. Here's what you'll need - and which documents you can create with BankReadyDocs:
Create These Documents with BankReadyDocs
Complete Document Checklist
Financial Documents
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Personal Financial Statement
From each owner with 20%+ stake
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Balance Sheet
Current year and prior year
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Income Statement (P&L)
2 years plus year-to-date
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Debt Schedule
All existing business debts
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Business Tax Returns
Last 2 years
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Personal Tax Returns
Last 2 years (for owners)
Business Documents
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Bank Statements
Last 3-6 months
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Business License
Current and valid
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Articles of Incorporation
Or Organization (for LLCs)
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Accounts Receivable Aging
For asset-based lines
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Accounts Payable Aging
Current aging report
What Banks Look For in Line of Credit Applications
Cash Flow
Your Income Statement shows whether your business generates enough cash to service the credit line.
Working Capital
Your Balance Sheet reveals your current ratio - can you cover short-term obligations?
Personal Guarantee
Your Personal Financial Statement shows personal assets available to guarantee the line.
Existing Debt
Your Debt Schedule shows current obligations and capacity for additional credit.
Common Uses for a Business Line of Credit
Inventory
Purchase inventory for seasonal demand
Payroll
Cover payroll during slow periods
Bridge Cash Flow
Cover gaps between receivables and payables
Emergency Fund
Have funds ready for unexpected needs
Marketing
Fund marketing campaigns
Opportunities
Seize unexpected business opportunities
Tips for Getting Approved
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Show Consistent Revenue
Your Income Statement should show stable or growing revenue over time.
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Maintain Healthy Ratios
Your Balance Sheet should show a current ratio above 1.2 and reasonable debt-to-equity.
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Personal Net Worth Matters
Your Personal Financial Statement shows lenders you have "skin in the game."
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Apply Before You Need It
It's easier to get approved when you don't desperately need the money. Apply proactively.