Knowing that about 40% of small businesses crumble because of a lack of capital is scary. It is not just capital—but other necessary funds for the smooth running of the businesses.
Another worry is how your business can access a line of credit without meeting some requirements. Such requirements include revenue, collateral, etc.
What to do? Is there a hack for these issues? Can you get a business line of credit with no revenue? Sure you can. How? To get a business line of credit with no revenue:
- Understand What a Business Line of Credit Is
- Understand Why You Need Revenue
- Have an Established Business
- Prepare Your Business Documents
- Have Your Collateral Ready
- Compare Lenders
Let’s kick-off!
1. Understand What a Business Line of Credit Is
A business line of credit is your best bet when accessing extra funds for your business to pay back later. Usually, a normal loan involves borrowing a lump sum and gradually paying it back with interest. A business line of credit affords you the same lump sum on more flexible terms.
Let’s analyze this. Which would you prefer between:
A – Getting a loan of $100,000 to pay back with an interest of 20%. That is, paying $12,000 monthly, with collateral. Or
B – Getting a business line of credit of $100,000, withdrawing $50,000 to pay back with 5% interest, after which you can withdraw the same $50,000 again.
Option B is a far juicier offer to resist. Business loans make you constantly aware that you are in debt. And the longer it takes to pay back, the bigger the money to pay back.
A business line of credit makes enough funds available at your disposal. You can take some cash, pay it back with an affordable interest, and take cash again.
2. Understand Why You Need Revenue
You may ask what revenue’s got to do with a business line of credit. Well, as juicy as a credit line is, there are some requirements you’d have to meet before getting one.
Revenue is one of these requirements, and a few other things we’ll discuss soon.
Your revenue is your income returns. Most credit line companies would require you to have a certain amount of profit/returns before you can access their business line of credit.
You may also need proof of these returns to show your business’s active and healthy. Other requirements could be:
- Collateral
- Financial reports
- Length of time
- A guarantor
- Relevant industrial ratios
3. Have an Established Business
You already know that proof of revenue is one of the requirements for getting a business line of credit. But there is also a way around it. One proven hack to get a business line of credit with no revenue is to have an established business.
What does that mean, you may ask? Here are the characteristics of an established business:
Business Registration
Beyond opening a coffee shop and naming it ‘Fred Brews’ or set up a salon down the street with a catchy name, register your business with your state and give it a legal backup.
After registering your business, proceed to get your EIN (Employer Identification Number) to show authenticity. Your EIN is like a license and will help you secure loans and grants. You can get your EIN at irs.gov.
Registering your business means that the business now has official recognition by the state and has a name and a contact address. Include a real address and other contact details like emails and websites.
Business account
One mistake most business owners make is not to separate their business accounts from their accounts.
Opening a business account is easy and even easier with your EIN. After you open your business account, you can easily fund it from your account.
When those credit line companies see all these, you don’t need to prove further that you have a certain amount of income returns or revenue.
4. Prepare Your Business Documents
Before applying for a business line of credit with no revenue, prepare your business documents. Your business documents play a critical role when applying for a business line of credit with no revenue.
The lender can assess the worth and feasibility of the business to know if it’s worth the risk. Lenders will likely ask for some or all of these documents:
- Personal and business tax returns
- Employee Identification Number (EIN)
- Business licenses and permits
- Accounts payable and accounts receivables
- Bank statements
- Balance sheet
- Payroll records
- Disclosure of other debt
- Copy of your commercial lease
- Legal contracts and agreements
- Ownership and affiliations
- Business insurance plans
- Incorporation documents
- Business plan
- Proof of collateral
- Your driver’s license
However, it’s best to be accurate. So, get a list of the documents your lender requires from the lender’s website or contact the customer representative before applying.
5. Have Your Collateral Ready
To increase your success odds, pledge business or personal collateral. Collateral is anything of value—real estate, business asset, equipment, personal asset, etc.—you pledge to guarantee repayment on the line of credit.
In some cases, regardless of your length of business history, the right lender can approve your business line of credit, with or without collateral. But it’s best to stay on top of situations. So, be ready to pledge assets if the lender asks for them. Don’t keep your hopes up, though. Collateral alone doesn’t guarantee approval, as the lender reviews many other factors before approval.
>>>GET SMARTER: How To Get a Startup Business Line of Credit With Fair Credit
6. Compare Lenders
To get a business line of credit with no revenue, compare lenders. When you research, you’ll discover that not all lending companies require revenue before giving business lines of credit. Look out for these companies and work with them.
Also, look out for companies with average amounts of credit lines, say $50,000 and apply. Going for large amounts may be unnecessary for a start.
Conclusion
There you have it! Getting a business line of credit with no revenue isn’t a big deal now. understand what a business line of credit is, understand why you need revenue, have an established business and prepare your business documents. In addition, have your collateral ready and compare lenders.
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