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:
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.
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:
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.
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.
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.
For example: a standard operating procedure (SOPs), showing how your company handles inventory turnaround, billing or collections.
Highlight the responsibilities in your company and who is fulfilling them. Provide a brief background or bio for those in leadership (CEO, COO etc.)
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.
Finally, here are some bonuses that present you as a professional, thriving business, and create a great impression on the lender.
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.
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 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.