A business line of credit is a type of financing that provides small business owners with a set credit limit. It works like a business credit card where borrowers can keep withdrawing and repaying the line of credit as often as they need up to their credit limit.
This is why it’s called a revolving credit line. It gives businesses access to cash when they need it, and they’re only charged interest for what they withdraw. That’s why most small business owners choose to open credit lines for future use. It’s also an excellent option for borrowers looking for flexible repayment terms.
Lines of credit are popular among all types of businesses. The application process is pretty much the same for most lenders and it typically includes credit checks.
Keep reading for more information on what small business lenders seek in their applicants. This article will also discuss how credit checks can affect your application and credit score.
Can You Get a Business Line of Credit Without a Credit Check?
If you’re wondering if you can get a business line of credit without a credit check, the answer is: It’s possible, but not likely. But what does no credit check mean, exactly? It means you get approved for a loan without giving the lender your credit score.
While there are no credit check business loans — where a lender provides financing with no credit check — it doesn’t happen very often. A credit score is the one factor that most loan providers check before taking the risk of lending a traditional business loan.
If you’re looking at available business financing options, you might be able to qualify without a hard credit inquiry. But online lenders will most likely check your credit before you receive any money in your bank account.
If you’re worried about your credit score, know that lenders also consider other factors (like time in business and monthly revenue) as part of their criteria. There are loan products available if you have poor credit, such as bad credit business loans, or if you don’t have a long credit history to show yet.
Why Do Lenders Perform Credit Checks?
Lenders perform credit checks to assess a borrower’s creditworthiness. The easiest way to do that is to look at your personal credit score. Your credit score is based on a few factors related to your financial history.
This is why you should regularly check your credit report with at least two of the three credit bureaus — Experian, Equifax, and TransUnion. When lenders check your credit, they look at the information on your report and may also pull your FICO score.
Your FICO score is a three-digit number based on your credit report information. It measures how long you’ve had credit, how much credit you have, how much of your available credit is being used, and if you’ve paid on time.
All of this information helps lenders calculate their risk in lending to you. This is why credit checks are part of the eligibility requirements whether you’re applying for a mortgage or business funding. Your credit score not only affects your loan approval but also determines the interest rates you can get. A good credit score gets you better interest rates and terms.
Needless to say, poor credit may result in higher interest rates and the lender may ask for a personal guarantee. A personal guarantee means you promise to pay for the debt from your personal assets if your business can’t afford to do so.
Note that businesses also have credit scores ranging from 1 to 100. If you haven’t done so yet, check your business credit score with Experian, Equifax, or Dun & Bradstreet. If it’s low or nonexistent, taking out a short-term loan or a business line of credit and using the funds responsibly is a great way to establish your company’s credit rating.
Hard Credit Inquiries vs. Soft Credit Inquiries
When financial institutions and alternative lenders check your credit during the loan application process, it’s considered a hard credit inquiry or hard credit check. Doing so typically lowers your score by a few points, which is why you have to authorize lenders to do a hard credit pull.
Every hard inquiry is noted and stays on your record for about two years. A credit report with several hard inquiries in a short period could signal to lenders that you’re racking up a lot of debt. Lenders could deny the loan you’re trying to secure because they might classify you as a high-risk borrower.
This is why it’s wise to spread out your loan applications. To have a better chance of loan approval, you should monitor your credit report so you know what’s going on with your credit. It’s also advisable to work with professionals like Clarify Capital — we can help you choose the best loan options based on your business needs.
Coincidentally, checking your own report is an example of a soft credit inquiry or soft credit check. Soft inquiries don’t affect your credit score. Other examples of a soft inquiry include:
- An employer checks your credit as part of a background check
- Credit card companies look at your credit without permission for qualifying offers
- Insurance companies check your credit for certain promotions
In short: If you permitted the credit check, it will show up on your report as a hard inquiry. If you didn’t, it’s noted as a soft inquiry.
Can I Get a Business Line of Credit With Bad or No Credit?
Yes, there are funding options available for borrowers with bad or no credit. Credit checks are part of the process, whether you’re applying for a business or personal loan, because lenders want a way to assess your creditworthiness.
This doesn’t mean that you can’t secure one with bad credit. Lenders also consider other aspects of your business, like your annual revenue, cash flow, and how long you’ve been in operation.
If you’re looking for small business loans but are unsure about your credit, contact us and speak to a Clarify advisor. We work with more than 75 lenders with different requirements, rates, and payment terms. It’s our mission to help business owners like you secure the funding you need to achieve your business goals.
Can I Get a Business Line of Credit to Start a Business?
It can be difficult to get a business line of credit to start a company. This is because a new business won’t have the established financial history that most lenders desire. You can apply for no-credit-check loans, but they are few and far between.
This is also why most startups look for investors instead of applying for small business loans. If you want to go that route, you might look at crowdfunding. There are grants and SBA loans from the U.S. Small Business Administration for which you can apply, as well. There’s also the option of borrowing capital from friends or family.
Discuss Business Lines of Credit Opportunities With Clarify Capital Now
A line of credit is one of the best funding options available to businesses because it’s flexible. You only need to pay back what you borrow up to your pre-determined loan amount. You can withdraw, repay, and borrow as often as your business needs. A line of credit also provides access to cash now and whenever you need it in the future.
Apply online or contact us today to discuss qualifying for a business line of credit with a Clarify advisor!