Lines of credit are a popular tool for business needs. Considering how flexible they are, this popularity isn’t surprising. Imagine having the spending freedom of a credit card but with terms that save you money every month and a much larger funding amount. Of course, before you start planning for your next big inventory purchase or marketing goal, learn how to qualify for lines of credit.

The Requirements for Lines of Credit

Your company needs to meet specific requirements to get approved for a line of credit. If you go the route of a traditional lender, such as a bank, you can expect the same requirements as a conventional loan. This means you need at least two years in business, a spotless credit history, strong monthly revenue and excellent cash flow.

Don’t feel bad if you can’t meet those requirements; few small businesses can. You still have options.

Alternative lenders have their own set of qualifying factors. When you choose a line of credit from an alternative financing business, your company can get around the traditional requirements in unique ways.

For example, some lenders base approval on the value of your collateral, not your credit rating. Others look at your personal credit score instead of your business credit score, which means that even startups can qualify.

In case you’re wondering, collateral involves assets that provide backing for a loan or line of credit. They’re essentially a guarantee for the lender that you’re going to make the payments. A line of credit can be based on equipment, real estate, fixed savings accounts or inventory.

Your Available Options

The next step before applying is to decide which kind of line of credit meets your needs and seems comfortable for your circumstances. Different credit lines have different terms and funding amounts. There are short-term and long-term options.

When deciding between secured (collateral-backed) or unsecured, you need to consider whether you’re comfortable using business assets as a guarantee. If you have a good credit rating, you can opt for unsecured lines of credit instead. Of course, secured credit offers more financing, but unsecured options give you greater peace of mind.

Short-term options tend to have higher interest rates, but they’re also more flexible. It’s easier to qualify and easier to spend the funds on the things you prioritize. Long-term credit lines, such as SBA options, save you money on interest but require you to jump through quite a few hoops first.