A term loan is a decision about money you'll spend now. A line of credit is a promise to lend you money later, whenever you decide to draw it. That difference shapes everything a lender asks for. They aren't just checking whether you can repay today's balance. They're betting on what your business will look like over the next twelve months. Here's what goes on the list, why it's there, and what you can do about each item before you apply.
The short list
Requirements vary by lender, but almost every line-of-credit application comes down to the same handful of items:
- Time in business, usually measured from your first deposits or your formation date.
- Revenue and bank deposits, typically shown with recent business bank statements.
- The owner's personal credit, and for some lenders, business credit reports.
- Existing debt, especially anything that pulls payments from your account daily or weekly.
- Financial statements and tax returns, mostly for bank lines and larger limits.
- Collateral or a lien, plus a personal guarantee in most cases.
Each one answers a specific question the lender has. Knowing the question tells you how to answer it.
Time in business: "Will you still be here?"
A line can stay open for a year or more, so lenders want evidence the business will last. Banks commonly look for around two years of history and at least one or two years of business tax returns. Many online lenders will review a business with roughly six months to a year of consistent deposits, but they usually offer smaller limits at higher cost to make up for the shorter track record.
If you're early, that doesn't mean the answer is no. It means the options are narrower. We walk through what's realistic at that stage in can you get a business loan with only 6 months in business?
Revenue and deposits: "How big a line can you carry?"
Your bank statements are usually the most important document in the file. Lenders commonly ask for the last three to six months, and they read them closely: average monthly deposits, how steady those deposits are, your average daily balance, and how often the account dips below zero.
This is also where the limit comes from. Lenders size a line from cash flow, not from the amount you request. A pattern you'll often see is a limit tied to a fraction of monthly revenue, so a business depositing $60,000 a month might be offered a line well below that figure, not a multiple of it. Overdrafts and returned items are among the fastest ways to shrink an offer or lose it.
Credit: "How have you handled debt before?"
For most small businesses, the owner's personal credit carries real weight, because the owner usually guarantees the line. Lenders look at the score, but also at recent late payments, high revolving balances, collections and tax liens. Bank lines generally expect stronger personal credit than online lines do.
Business credit reports matter more as you grow. Paying vendors on time and keeping trade accounts that report helps build a file a lender can read. The score is only one part of the picture, though. We break down the rest in what lenders actually check.
Existing debt: "Who else gets paid first?"
A new lender needs to know what's already coming out of your account. Equipment loans and a mortgage are normal. What raises concern is stacked short-term financing: one or more merchant cash advances or daily-pay loans pulling from your deposits. Each position reduces the cash available to repay a line, and some agreements restrict additional financing entirely.
If you factor your invoices, the factor usually holds a lien on your receivables, so a line lender can't use them as collateral. Disclose every position up front. Lenders see the debits on your statements anyway, and leaving one off an application damages trust in the rest of it.
Financial statements and tax returns: "Do the numbers agree?"
Banks and larger lines typically ask for business tax returns, a year-to-date profit and loss statement, a balance sheet, and sometimes a schedule of receivables. The lender compares them with your bank statements. Deposits that look nothing like the revenue on your tax return lead to questions. A return showing a large loss after aggressive write-offs can hurt even when the business is healthy.
Banks also commonly measure debt service coverage: whether your cash flow covers all your loan payments with room to spare. Online lenders lean more on bank statements and less on tax returns, which is part of why they can decide faster.
Collateral, liens and personal guarantees: "What if it goes wrong?"
"Unsecured" is one of the most misunderstood words in small business lending. Many lines don't require you to pledge a specific asset, but most still require:
- A personal guarantee, making the owner personally responsible if the business can't repay.
- A UCC-1 filing, a public lien on business assets in general, which future lenders will see.
Larger lines are often secured by receivables or inventory and run on a borrowing base: your available limit moves with the value of the assets behind it. Read the guarantee and lien terms as carefully as the pricing.
Three kinds of lines, compared
| Type | Typically looks for | Trade-offs |
|---|---|---|
| Bank line | Around 2 years in business, tax returns, financial statements, solid personal credit | Usually the lowest cost; slower decision; often annual review and covenants |
| Online lender line | Roughly 6–12 months of steady deposits, recent bank statements | Fast decisions; smaller limits; higher cost; more frequent payments |
| Asset-based line | Receivables or inventory with reliable value | Limit tracks your collateral; regular reporting required |
We're not quoting rates here. They change with the market and your file, and no legitimate lender can promise an approval or a rate before reviewing it. Ask every lender for the total cost of a typical draw in dollars, including draw fees, maintenance fees and any annual renewal fee.
After approval: renewal and staying in good standing
Getting the line is the first step. Bank lines are commonly reviewed every year, and some include a clean-up provision that requires the balance to sit at zero for a stretch each year, to prove the line is funding short-term needs and not permanent losses. A line that's always fully drawn is a warning sign to a lender, and often to you. If the balance never comes down, the problem may need a term loan or a fix in the business, not more revolving credit.
For industry-specific angles, see contractor line of credit vs. credit card, working capital for contractors and working capital for a trucking company.
Common questions
How long do you need to be in business to get a line of credit?
It depends on the lender. Banks commonly look for around two years of history and business tax returns, while many online lenders will review a business with roughly six months to a year of steady deposits. The shorter the history, the smaller the limit and the higher the cost tend to be.
Do I need collateral for a business line of credit?
Not always. Many smaller lines are unsecured in the sense that no specific asset is pledged, but most still require a personal guarantee and a general lien on business assets filed as a UCC-1. Larger lines are often secured by receivables or inventory, with the limit tied to their value.
Does a line of credit application affect my credit score?
A full application usually includes a hard pull of the owner's personal credit, which can lower a score slightly for a time. Some lenders and advisors can pre-qualify you with a soft pull first. Ask which kind of inquiry happens before you authorize it.
Why was I approved for a smaller line than I asked for?
Lenders size a line from your deposits, cash flow and existing payments, not from the amount requested. A common pattern is a limit tied to a fraction of monthly revenue. Paying the line responsibly for six to twelve months is often the fastest way to qualify for an increase.