Credit: MoMo Productions/Getty Images: Illustration by Issiah Davis/Bankrate
Key takeaways
- A business line of credit typically allows you to reuse the credit line, similar to a business credit card.
- Each lender sets its own documentation requirements.
- In addition to business documents, lenders may request documentation to confirm your personal financial health.
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High inflation will continue to impact operations for many small businesses over the next few years, causing businesses to stretch dollars and seek funding. According to the 2023 Small Business Credit Survey, 52 percent of employer-based businesses faced challenges with paying operating expenses in the past year. Forty percent of those received business loans in order to weather financial challenges
.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 business credit card. Once borrowed money is repaid, the borrower can reaccess the full line of credit if needed.
Organizing your credit documents before applying for a business line of credit can help the application process move swiftly. Learn what documents you need to apply for a business line of credit and discover the best business lines of credit that can cover your business’s needs.
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 these business line of credit documents along with your application that substantiate the following:
- Your name, address, and date of birth (a government-issued photo ID can do the trick)
- 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.
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 business checking account records, profit and loss reports and tax returns
- Business credit score
- 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
Other documents
These business line of credit documents are only relevant to secured lines of credit.
- Collateral information: Documents related to any assets that belong to the company. Assets that can be used as collateral for business loans may include equipment, technology, vehicles, real estate and bank accounts. You may need to include an appraisal to prove the asset’s worth.
- 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.
Documents needed for SBA business lines of credit
SBA CAPLines are revolving or non-revolving lines of credit available to businesses looking to cover short-term expenses. There are several types:
| Seasonal CAPLine | Used for seasonal changes in inventory, accounts receivables or labor costs. |
| Contract CAPLine | Covers the cost of direct labor and material for assignable contracts. |
| Builders CAPLine | Finances construction or renovation costs for small builders. Uses the construction or renovation project as collateral. |
| Working CAPLine | Asset-based revolving credit line used for short-term business needs, which is often extending credit to other small businesses. For this line of credit, repayment is made by converting short-term assets into cash. |
When applying for an SBA loan, you’ll submit several business line of credit documents along with your application:
- SBA Form 1919 (borrower’s personal information)
- SBA Form 413 (borrower’s personal finance statement)
- Income statement and balance sheets or tax returns from the past three fiscal years
- Business debt schedule, unless applying for a Small Loan
- Projected financial statements
- List of affiliates and subsidiaries
- Document providing company details, including history, challenges and reason for funding request
- tAppraisals and purchase agreements (only if purchasing an existing business)
Bankrate insight
According to the SBA weekly lending report, as of August 20, 2024, most SBA CAPLines have loan amounts between $350,000 to $500,000 (12.8 percent) and $500,000 and $2 million (59.4 percent).
The bottom line
Choosing a business line of credit that suits your unique needs can help you to expand responsibly. What you need to apply for a business line of credit may depend on your lender and how much you are asking to borrow. In some cases, you may be asked to provide additional documentation. Online lenders tend to ask for less documentation than banks and credit unions.
Keeping copies of these business line of credit documents handy — both physically and digitally — can make the application process easier.
Frequently asked questions
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Yes, as part of the business loan application process, lenders may request tax returns to assess the financial health of the business.
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To open a line of credit, you will need to provide personal and business financial statements such as bank statements, tax returns, balance sheets and financial projections. You may also need to prove your business formation and provide a funding request or business plan. Lenders will also look at your business’s time in business, credit history and annual revenue when approving the credit line.
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Traditional lenders tend to have strict requirements for business lines of credit, including credit scores of 670 or higher, annual revenue of $150,000 or higher and at least two years in business. While this route might be easier for more established businesses, if you are a startup or younger business with limited business credit and lower annual revenue, you may have better luck with an online lender. These lenders tend to have more relaxed eligibility requirements.
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