For many small business owners in the US, a credit score under 650 is like a door that is closed tightly, especially when traditional banks require almost perfect credit just to even look at an application. But the lending environment of today is changing, and it is becoming more vital than ever to know the line of credit requirements currently. More and more non-bank lenders are removing the obstacles to obtaining working capital by concentrating on what really matters: the performance of your business rather than your credit score. Thus, the shift has made it possible for entrepreneurs with less-than-perfect credit to get access to flexible funding. We outline the line of credit requirements that owners with low FICO scores have to meet and describe how revenue-based underwriting can be the way to get the financing that you need to run and grow your business in this guide.
Why Low FICO Scores Won’t Affect You
Conventionally, banks are major users of credit scoring in their loan assessment processes, deeming companies with a credit score below 650 unreliable. However, fintechs are aware that issues of late payments, emergencies, and even a pandemic shutdown of a company are not reflective of a company’s true creditworthiness. Instead, they examine your real-time business performance, including cash flow, sales continuity, and your repayment capabilities. This model of evaluating businesses has made it feasible for small businesses to secure funds, which otherwise would not have been considered by banks. These other types of lenders provide credit lines that are replenished as you pay, which means you always have access to funds without having to reapply for a loan when additional funds are needed.
How Non-Bank Lenders Evaluate You: Revenue Instead of FICO Scores
The line of credit requirements accessed by non-bank lenders are different from traditional banking institutions. Instead of using FICO, they look at:
- Monthly Revenue: Non-bank loan providers typically look for a minimum revenue of $8,000-$15,000 every month. Unlike traditional loan sources, which assess your past blunders, their priority remains your potential for yielding constant revenues. So, as long as your accounts are consistent, you will easily qualify.
- Time in Business: While banks require businesses that are between two to five years in operation, alternative lenders require just six months to a year. This means that new businesses are able to access a revolving credit facility even when their business is still in the growth stage.
- Bank Activity: The value of your business checking account, including average balances, NSF transactions, and how you pay expenses, will also be reviewed by creditors. A steady flow of revenue will count for much more than a small credit report score.
- Industry Type: There are industries that are relatively low-risk in terms of revenue predictability. High-risk industries can also qualify if the business has a consistent cash flow.
These factors provide a basis for line of credit requirements for those with low FICO, as it ensures that your credit history does not affect your success as a business.
Why a Revenue-Based Line of Credit Is so Great?
The flexibility afforded by a line of credit far exceeds that of a traditional loan. After approval, as a borrower, you can only take what you need and repay it in accordance with your own cash flow cycle. After you repay what you borrowed, that portion of your credit will become available again. If you have short-term needs, unexpected opportunities, or have some time to wait for your customers to pay, a line of credit is perfect for you. A revenue-based line of credit allows a business owner the opportunity to get a line of credit even though their credit profile is less than perfect. Lenders today generally design their line of credit requirements to help small business owners address the day-to-day issues they face, rather than to penalize them for past financial problems.
Common Requirements You Should Prepare For
Here are the usual line of credit requirements when your FICO credit score is below 650:
- Minimum 6-12 months in business
- Revenue of $8,000 to $15,000 per month
- Business checking account with stable deposits
- Activities of physical processes in the USA
- Valid EIN and business structure type (LLC, Corporation, or sole proprietorship)
- Requirements for documentation are minimal.
- Bank records for three to six months are sufficient for processing.
- There are no requirements for tax returns or financial statements.
This means that decisions are reached in a matter of hours, and funds are available on the same day.
Conclusion
If you’ve been turned down by banks due to your low credit, there are other lenders that are waiting to help you. They will consider you based on your revenue, not your credit score. A person with a credit score of below 650 can apply for a line of credit loan. Small business owners with knowledge of current line of credit requirements are able to get the funds needed for running their business (payroll, inventory, and development) from a bank or a lender. Let your low credit status not hinder you from running your business when revenue-based lending options are available for you, if you want to continue moving.
