Can Startups Get a Business Line of Credit?

Can Startups Get a Business Line of Credit?

It’s not hard to see why every startup would want a business line of credit. Lines of credit offer you flexible capital to use however you want, whenever you want. It’s like having a credit card, but with better interest rates and a larger spending amount. If you’ve recently opened a new business, is it possible for your company to qualify for a line of credit or it that just a stretch goal?

Yes or No: Can Startups Even Qualify for Lines of Credit?

The straight, direct answer is yes. A startup can get a line of credit. That said, it’s not going to be easy, at least not with a traditional financing program. Even if you have the best business plan ever invented, the fact of the matter is that new companies represent a larger risk for lenders than established businesses.

Many lenders expect to see a minimum time operating of two years in business before extending an unsecured line of credit. This requirement is to show that you know how to manage your business and manage your finances. A business that has been operating successfully for two years — even if it’s a small business with relatively modest cash flow — is a more stable investment.

Ways To Get a Line of Credit As a New Business Owner

The good news is that rules were made to be broken. If you get a lender that has experience with small businesses in general, and especially with startups, it’s easier to qualify for this type of financing. There are several situations where lenders may make an exception for your startup.

First, if you’re an experienced entrepreneur that has successfully run other companies before opening this one, make sure to point it out. Your past business experience can count as proof of your money management skills.

You can also look for a lender that specifically offers lines of credit with startup programs. These generally work using some type of collateral, such as a piece of equipment, inventory from your business, real estate, or another business asset.

Options That Don’t Involve Collateral

If you have excellent personal credit, the lender may give your business a line of credit based on the strength of your personal score. In the case of a partnership, only one of the partners has to qualify in this way for the business to get financing.

Lines of credit have limitations for startups, but they also offer many benefits. The better you manage your finances, the easier it is to qualify and the larger the credit line you can get in the future.