Is It Possible to Get a Business Line of Credit with No Credit Checks?

Serine Alejandro

September 10, 2021
business line of credit with no credit check

 

Key Insights

  • A business line of credit provides small business owners with an option to draw funds from a credit line and use it for urgent expenditures. Unlike with a small business loan, a line of credit won’t require the owner to pay for interest until money is actually withdrawn from the funds.
  • Traditional lenders such as banks and credit unions have strict requirements and only cater to businesses who have a strong financial history. Alternative lenders have looser requirements but they come with higher interest rates.
  • While traditional lenders may be strict about credit checks, a business line of credit with no credit check may be possible with alternative lenders.
  • Lenders require you to provide a collateral or a personal guarantee (sometimes both) because it assures them that they will get their investments back in one way or another should you default.
  • If you’re still considering a business line of credit with no credit check, you may also want to look at other financing options that may not need a credit check.

Small companies need steady sources of funds to keep their businesses alive. Entrepreneurs are confronted every day with issues that require money to resolve.

For many new business owners, the first financing solution that comes to mind is a small business loan. However, the stringent application process makes it difficult for entrepreneurs to get a nod from traditional lenders. Even more so if you have bad credit.

In this article, we will introduce you to a proven alternative to small business financing – a business line of credit – and explain how to get one with no credit checks.

We’ll also uncover the different factors affecting your bad credit history and provide tips for resolving them, as this will come in handy if you wish to apply for a loan from banks or credit unions in the future. Let’s dive right in.

 

What is a Business Line of Credit?

A business line of credit is a source of working capital that provides security for businesses in need of funding for short-term needs. It provides small businesses with the option to draw from their line of credit when they need to use capital without paying for interest until money is actually borrowed.

With a business line of credit, your business will have access to money as needed, within the confines of your pre-approved credit limit. You’ll only pay interest for the funds you use, and since it’s a revolving credit, you’ll immediately have access to those funds again once you repay them.

 

Where Do You Use a Business Line of Credit?

A business line of credit is used to finance short-term needs such as paying business’ debts, financing employee salaries, purchasing materials for inventory, paying current suppliers and consolidating debts.

It can also be used to support day-to-day business operations, for funding unexpected expenses like emergencies, or to bridge financial gaps during slower seasons. This makes a business line of credit attractive to businesses that need extra security due to the lack of steady working capital.

With a business line of credit, you can reuse and repay your credit line as much as you want to and pay interest only on the amount of money you borrowed. The key is to pay back the amount you withdrew with interest to avoid additional charges.

 

Who Offers a Line of Credit?

Business lines of credit are offered by both traditional and alternative lenders, and interest rates will depend on the requirements of the lender and needs of the borrower. Traditional lenders have strict requirements and only cater to businesses who have a strong financial history, while alternative lenders have looser requirements but offer higher interest rates.

 

Types of Business Line of Credit: Secured vs Unsecured

Business lines of credit come in two forms: secured business lines of credit and unsecured business lines of credit. A secured business line of credit requires collateral for the line to be guaranteed. This can be your business’ equipment, inventory, or your property. Some business lines of credit also require a personal guarantee or a lien on your business.

One of the most common versions of a secured line of credit is the home equity line of credit (HELOC). In a HELOC, the money borrowed is against the equity in the home, which is the difference between the home property’s value and the mortgage balance.

An unsecured business line of credit, in contrast, is more ideal for new businesses that don’t have a strong financial history, or new businesses that are still establishing their credit score. This is because an unsecured business line of credit won’t require collateral. However, lenders will look into your financial histories, such as annual revenue and your personal and business credit score, to determine your ability to repay the funds.

In an unsecured line of credit, lenders will assume greater risk because they won’t be able to seize any of the borrower’s property should the borrower fail to make payments. In essence, a credit card is considered an unsecured line of credit because there’s nothing the issuer can seize for payment defaults. This is one of the reasons why credit card interests are ceiling-high.

Here’s something you need to keep in mind: both secured and unsecured lines of credit can have a significant impact on your credit score especially when you fail to pay on time or when you’ve maxed out your borrowing limit. In fact, using more than 30% of your allotted borrower’s limit may already drop your credit score.

 

How to Qualify for a Business Line of Credit

When applying for a business line of credit, the most important documents you need to prepare are the following: six months of bank statements, a completed application form, proof of business experience (typically two to three years), as well as a good personal and business credit history.

Lenders need to do a credit check to gain insight into your business’ financial behavior. Your credit report, which is provided by major credit bureaus in the US, includes your credit score, the debts you owe, and other factors that have contributed to your credit rating.

If you have bad credit, you can apply for a business line of credit with no credit check, but expect higher interest rates. Why? Since credit scores usually determine the interest rates that will be charged to your business, the lender will likely give you higher interest rates because you are considered a high-risk borrower.

While traditional lenders may be strict about credit checks, a business line of credit with no credit check may be possible with alternative lenders. Because alternative lenders are usually more understanding of the difficulties of financing a business, they may look at other factors such as your business’ revenue and growth potential to qualify you for the line of credit.

What is Considered as Bad Credit?

A person’s bad credit usually indicates a credit score between 300 and 649. For small business owners, credit is considered bad if the business credit score (also known as commercial credit score) falls below 50.

 

Can You Still Get a Business Line of Credit with No Credit Checks?

Yes, it’s possible for small business owners to secure a line of credit even if they don’t have favorable business or personal credit. However, lenders will require a personal guarantee or collateral instead.

What is a Personal Guarantee and How Does It Work?

A personal guarantee is your legal promise to repay your loan or line of credit. When you give a personal guarantee, you either assign yourself or a consigner as principals of the company. You or the consigner will pledge personal assets or sign an agreement to repay the debts in case the business fails to keep up with them.

Lenders require you to provide a collateral or a personal guarantee (sometimes both) because it assures them that they will get their investments back in one way or another in case you don’t pay your dues.

Generally, the lender will have to access the credit history of the business owner or the consigner. They will include this information together with their personal information in the credit application.

Some consigners pledge their own personal assets such as checking accounts, mortgage and automobile payments, and agree to repay the line of credit using personal capital. Take note that when you use a personal credit, lenders will run hard credit inquiries (more on this next) on you or the consigner.

 

Hard vs. Soft Credit Checks

If you want a business line of credit with no credit check because you’re afraid of the effect that credit checks have on your credit score, you may want to take note that there are two ways lenders may check your credit.

Hard Credit Check

A hard credit check, also called a hard credit pull or a hard credit inquiry, happens when lenders request for a credit report from any of the country’s major credit bureaus.

Your business credit report includes your payment history, payment profile, records available to the public, and a history of your credit use. Your personal credit report will include your payment history, the amounts you owe, your new credit, and your credit mix.

A hard credit check may lower your score for a few months and stay on your credit report for around two years. You should only apply for new credit when you need it, and avoid having multiple hard credit checks done at the same time because they’re seen as high risk by lenders.

Soft Credit Check

A soft credit check, also called a soft credit pull or a soft credit inquiry, does not affect your credit score.

Soft credit checks provide less information to lenders, and it’s utilized by lenders who only need specific information to determine their lending decision. This information is usually enough for lenders to know how well you manage your credit. A soft credit check does not affect your credit score, but it will appear on your credit report.

 

How to Improve Your Credit Score

If you’ve already applied for a business line of credit without providing your credit details, you might want to take time to improve your credit score. A good credit score will give a higher chance of approval for more funding options, and lenders may also offer you lower interest rates.

Personal credit scores range from 300 to 850, and a good personal credit score as defined by FICO is usually between 670 to 739. Business credit scores range from 1 to 100, and a business credit score of 75 and above is considered good.

Here’s How You Can Improve Your Business Credit Score:

● Pay your bills on time

Pay your business’ bills before their due date to better manage your cash flow and avoid debt.

● Check your credit reports

Check your credit reports regularly so you’re aware of your business credit score. You can use this information to improve your business credit score as needed or investigate and even dispute errors.

● Pay existing debt

Prioritize paying off your existing debt payment to improve your business credit score. This shows you as a dependable and trustworthy borrower and improves your relationships with your stakeholders. For this to impact your credit score, make sure the business credit agency deletes the negative account on your credit report.

● Keep your credit utilization ratio low

The percentage of your available credit that’s used is your credit utilization ratio, and keeping it low will increase your business credit score. Consistently paying your balances and reducing credit card spending are some ways to maintain a low credit utilization ratio.

● Have a credit account with suppliers

Pay your invoices on time or earlier in a consistent manner and establish a credit account with suppliers. These suppliers will then report your consistent payments to business credit reporting agencies which will positively impact your credit score.

● Open and close accounts only when needed

Open new bank accounts only when it’s necessary because new bank accounts can impact your business credit score negatively. Closing old bank accounts also negatively impacts your score.

 

Here are Ways to Improve Your Personal Credit Score:

● Review your credit reports

Get a copy of your credit report from the major credit bureaus in the US, which you can do for free once a year. A review of your credit reports will allow you to identify what you’re doing right as well as what needs to be improved, and help you dispute any discrepancies.

● Avoid late payments

Your payment history has the biggest impact on your personal credit score. Pay your bills on time and prioritize paying your existing debt to improve your personal credit score.

● Avoid multiple new credit applications

Each new credit application will result in a hard credit check, and each hard credit check negatively impacts your credit score (especially if they’re done over a short period of time). Only apply for new credit when absolutely necessary.

● Manage your credit utilization ratio

You can keep your credit utilization ratio low by paying your credit card balances in full. If it’s not possible, ensure that your outstanding balance is 30% or less of your total credit to improve your credit score. Other options are to increase your credit limit (if you have a solid payment history), or paying more than once during a billing cycle.

● Keep your old accounts

Your length of credit history affects your credit score. Having an older average credit age and well-managed accounts looks good to lenders. Avoid closing down unused credit accounts too, because this lowers your credit limit and affects your credit utilization ratio.

 

Other Financing Options with No Credit Check

If you’re still considering a business line of credit with no credit check, you may also want to look into these financing options that don’t always need a credit check:

1. Invoice Factoring

Invoice factoring is a type of invoice financing that helps you gain access to funds at an earlier time by selling your unpaid customer invoices instead of waiting for 30 to 90 days to receive your funds. Some invoice factoring companies may offer you the funds in as quickly as 24 hours, depending on the credentials you provide.

Most small business owners (especially new ones) get invoice factoring because they allow someone else to collect their customer’s payments on their behalf. The invoice factoring company manages their credit control process and sales ledgers.

Your eligibility for invoice factoring depends on your customer’s ability to repay on time, so a hard credit check is not usually necessary.

2. Merchant Cash Advance

If you have a steady volume of credit sales, you can apply for a merchant cash advance. A merchant cash advance offers an advance on future sales to a business. The amount that you’ll pay back to the lender, called a specified percentage, is higher than the advance amount. The difference is called the factor cost, and if you apply for a merchant cash advance with no credit check, expect a higher factor cost.

 

In Conclusion

While a business line of credit with no credit check may be possible, it’s difficult to apply for, costly, and may charge higher interest rates. The best way to become eligible for a business line of credit with a good credit limit and low-interest rates is by improving your personal and business credit score.

Improve your credit score by avoiding late payments, reviewing your credit reports, paying off existing debt, managing your credit utilization ratio, and avoiding opening multiple new credit accounts at the same time. If you start to take control of your finances, you can apply and get approved for a business line of credit to use for your short-term funding needs.

Serine Alejandro
Serine is a graduate of Journalism from one of the most prestigious universities. She has broad experience in public relations and marketing communications for the lifestyle, travel, tech, and banking industries. She is now a co-owner of a growing condiments business, a manager of her family’s pharmacy, and a full-time writer for SMB Compass.

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