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Traditional Vs Non-Traditional Business Lines of Credit

In a Traditional Bank Line of Credit, most big banks will approve a credit limit for roughly 10% of the gross yearly that the business can expect to borrow on their maximum amount of credit limit.
Traditional Lines of Credit
Traditional Lines of Credit are more restrictive in their underwriting guidelines, meaning they want to see a more in-depth analysis of the borrower's financial profile in order to qualify that business for a line of credit from their bank.

For a business seeking capital under $100,000, most bigger banks and lenders follow these underwriting guidelines to approve a Traditional Line of Credit application:

  • 2 years personal and business tax returns
    • At least 1 year showing profit
  • 6 months of Bank Statements
  • Profit and Loss Statements
  • Balance Sheets
  • Personal Financial Statement
  • Personal FICO Credit Scores
  • Debt to Income Ratio

The same Traditional Line of Credit underwriting guidelines can be applied for amounts higher than $100,000 including a minimum percentage amount of cash reserves to have available from borrower's own bank account.

In a Traditional Bank Line of Credit, most big banks will approve a credit limit for roughly 10% of the gross yearly that the business can expect to borrow on their maximum amount of credit limit.

One downfall of a Traditional Line of Credit is that it is subject to an annual review. Banks can revoke or reduce the credit line at any time, and in fact, a survey by the Small Business Association revealed that 29 percent of small business owners reported having their lines of credit reduced, with one in 10 having its line of credit called in by the bank.

[1] The reduction and bank closure rate is even higher for small business loans according to another study from 2009-2012. [2] This threat adds a higher risk for a small business to take out such a loan since it would force the business to responsible for paying the balance due right away.

Non-Traditional Line of Credit
Banks can issue a Non-Traditional Lines of Credit in the form of a credit card that the business may use to make purchases and other transactions. Non-Traditional bank lending techniques have allowed for less restrictions in place to approve a business application. A Non-Traditional Line of Credit can become approved through meeting the following criteria:

  • Personal FICO Credit Scores ranging from Okay to Excellent.
  • Utilization Percentage and Available Credit Balances. Creditors care about how much you credit you utilize and what available credit space you have on your credit report.
  • Debt to Income Ratio. Creditors care about how much your monthly bills are in relation to how much income you make monthly.
  • Years in Business.
  • Projected Revenue and Income.

In a Non-Traditional Business Line of Credit, each bank has its own standards for approving credit limits based on the borrowers profile and what that creditor values heavily in considering an amount in approving an application's credit limit.

This table gives a short summary to the Underwriting Guidelines for How to Get Approved for Business Lines of Credit:
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