The Idea Behind Business revolving line of credit


To get the facility of a line of credit there are certain factors. If your business stands out and is eligible then you get the credit facility. The primary concept of a business revolving line of credit is to solve the cash crunch or liquidity issues. The factors that we talked about are as follows:

  • Your business should be at least six months in age and as per the requirements of the IRS.
  • Your business must have healthy revenue generation at all times.
  • When looking for credit, always show the best profits and revenues that you made.

If you can fulfill these three points, then you can get the credit for your business revolving line of credit. If not, then you have to wait until you meet these three points. All of them in aggregate should be met, not anyone or two.

How to Fund Your Startup and Keep Your Equity -

Credit Worthiness

Have you ever taken a personal loan for a house, car, or property? If yes, then you have heard about the term creditworthiness. What does it mean? It means how effective you were in paying back the money that you borrowed from banks or any financial institute. Mostly you are given a score that defines your creditworthiness. A business revolving line of credit must always have a good credit score in past. If so, then your chances of getting a line of credit increase a lot.

Personal loans taken by the proprietor are not scrutinized at all while taking the line of credit for business. It is because a company is considered separate from the owner. If your business has any pending loans or previous loans, then they will also be scrutinized to check your creditworthiness. Before taking the line of credit you need to make sure that your business makes sufficient profits to match the criteria. Once you are given the line of credit, even if you make a loss then you can cover it with the funds that you just borrowed.

The only important thing is to match the eligibility. What will happen if you have a low credit score but, your business is striving, and you are making enough profits? Will you still get credit? The answer is yes. You will get the credit for your business. It does not matter if your credit score is poor. Your business credit score must be good.

Debt Percentage

If a company is in default or has committed some legal issue in the past, then it can act as a hindrance while obtaining the line of credit. Any legal issue based on the credit will create an impact while obtaining the credit. Moreover, the ownership structure of the business is also taken into consideration while obtaining the credit. The ownership structure is how much debt the company has taken and how much equity it has currently. If the percentage of debt is more, the credit will not be given easily. If the percentage of debt is less then you will get credit easily.