6-min read Jun 15, 2023

Insider techniques: How to qualify for a business line of credit — even if you’ve been denied before

Insider techniques: <strong> How to qualify for a business line of credit — even if you’ve been denied before </strong>

You’re expanding. You’re profitable. But if you’re a growing startup or a small business, you’ll have a tough time getting approved for a business line of credit. Why?

Many of my clients are denied a business line of credit or are approved for a ridiculously small amount. And it’s often not because their business isn’t thriving — in fact, the opposite.

So why is it more difficult to qualify for a business line of credit when you’re a small business?

And what can you do to meet the requirements for a business line of credit and increase your odds of approval?

Inside, we’ll talk about:

  • 3 main reasons most small businesses have a hard time qualifying for a line of credit
    • Risk, growth, and success — how banks measure success
    • Banks look at the past, not the future
    • The Fed: Red tape & regulations
  • Choosing your bank (or banker)
  • How to significantly increase your chance of approval (tips your bank doesn’t tell you)
    • Unskippable financial documents
    • Important additional documents
    • Bonus extras that impress bankers

Why is qualifying for a business line of credit so hard?

Before we jump into how to meet bank requirements for a line of credit, it’s helpful to understand how your bank and banker view your application, and what makes them less likely to approve you.

  1. An attitude of caution
    As a young, small, or growing business, you have an entrepreneurial mindset to risk — without taking well-considered leaps, you can’t grow.Banks, though, have the opposite approach. As financial institutions, they vigilantly minimize their risk. If they spot any potential issues or instability, or any projections that aren’t backed by past performance, they will quickly withdraw and stay cautious.
  2. Banks look at the past. Not the future.
    Unlike investors who focus on your potential growth and on your broader vision of the future, banks are rear-view mirrors. Their main focus is on how you’ve performed in the past. Mostly, they’ll disregard your business plans, ambitions, and goals if your business history doesn’t fit what they’re looking for.As a small business with limited track record, this means your business won’t be valued at its true worth.So even if you are approved for an unsecured business line of credit, the amount will be much smaller than what your business can actually afford.
  3. Banks are bound by constantly-increasing regulations
    Due to regulatory constraints, bankers are forced to focus on many variables that don’t show a true picture of your business’s actual worth. This got worse during Covid, and worse again with the run on Silicon Valley Bank and other bank failures.What that means is that banks are often extremely restricted by the credit terms they can offer, particularly for an unsecured line of credit.

What’s needed for a business line of credit?

It’s not the bank, it’s the banker

Most people think that for a business line of credit, it’s the bank that matters. But that’s a mistake. It’s the banker who matters far more.

Why? Because ultimately, banks will try to bail out of the relationship when there’s a problem. You need that person inside the bank who will go to bat for you.

But if you cultivate a relationship with your banker, you have them in your corner. Advocating for you. Trusting you. Giving you a chance.

Read more about how to develop a great banker relationship here →

In fact, this is one of the most powerful long-term steps you can take — not just so you qualify for an unsecured business line of credit today, but so you continue to do so in the future.

How to meet bank requirements so you qualify for a business line of credit

Does that mean that as a young startup or growing small business, you’re doomed? Unless you offer your home as collateral, you can’t get approved for a business credit line?

Not at all. But you do have to make sure to put your best foot forward. How?

By preparing a thorough, impressive docket before you head for the bank.

Here’s what it should include:

First: The unskippable essentials:

Financial documents you MUST prepare before applying

Before a bank even considers your application for a business line of credit, they’ll request and review these documents. Don’t have these? Your application is likely to be denied off the bat.

  • Prepare 2-3 years’ worth of balance sheets and income statements that are very well-drawn and ideally, accountant-reviewed
  • Capital Statement (also known as Cash Flow Statement) that shows the inflows and outflows of your business. It gives a clear picture of how money is generated and used over a year or more.

Keep in mind, being transparent and honest from the beginning is essential even if not all the numbers are impressive. Mistakes or attempts at concealment backfire badly.

Second: Extremely impressive non-financial documents

Documents showing the who, how and what’s next in your business

When (and only when) you have the essentials squared away, you can prepare your non-financial documents.

Bankers like to see documents that show your business plan and structure — they prove that you have an intentional, thought-out set of systems and processes in place.

Some examples:

  • How work happens: A formal manual describing your procedures

For example: a standard operating procedure (SOPs), showing how your company handles inventory turnaround, billing or collections.

  • Who’s who: An organization chart showing roles and responsibilities

Highlight the responsibilities in your company and who is fulfilling them. Provide a brief background or bio for those in leadership (CEO, COO etc.)

  • What’s your growth plan: 12-month projections

Show that you have a goal. These are usually taken with a pinch of salt since they’re often overly rosy. But as your lender, banks want to see that your company thinks about how much they’ll need, when they need it, and where that money will go.

Third: Nice to haves

Documents that add credibility, polish, and professionalism

Finally, here are some bonuses that present you as a professional, thriving business, and create a great impression on the lender.

  • Present your Key Performance indicators (KPI)

Show that you’re tracking important variables and are on top of your business.

KPIs will vary based on your business model, but typically include revenue per customer, billing cycles, lead times, cost per customer acquisition, progress measures, or other IDs and measures driving the company.

  • Cover letter

This letter needs to be dry and stark. Present where the company is, mistakes that were made, and how the company is going forward. As a reference, read Berkshire Hathaway’s annual shareholder letter — it’s the perfect model of how boring yours should be.

Additional tip: Steer clear of any deceptive or fluffy marketing jargon or terminology in all your documents — especially your cover letter. It’s a huge turn-off for banks.

Instead, let your numbers, processes and facts do the talking for you.

Morris Reichman


Morris Reichman is the founder and CEO of Payro Finance. Former Vice President at Infinity Capital Funding an alternative finance company, Morris possesses a versatile background in the finance industry. Having spent 7+ years working across global macro operations and start up corporate finance Morris's expertise is in business accounting, risk management and investment analysis. Morris founded Payro Finance to support business owners and ensure their business continuity.

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