Business lines of credit offer flexible access to capital on an as-needed basis. It’s a popular tool for businesses in all industries, but it’s important that every entrepreneur understands everything that comes with getting a line of credit, including the credit check process.
A “credit check” is the process where lenders inquire into your credit history to determine eligibility for their service. There are two prongs to this process: soft and hard credit inquiries.
Soft inquiries won’t damage your credit score, whereas a hard credit inquiry will temporarily lower your score. Continue reading for more information about soft pull business lines of credit, including what they are, how they work, and everything you need to know about qualifications.
How Does a Soft Pull Business Line of Credit Work?
Business lines of credit function as an ongoing loan, providing the borrower with a pool of capital to draw from whenever needed. Repayment is handled much like a credit card, and borrowers can access the same funds again after they’ve repaid them.
Applying for a line of credit is similar to applying for any other type of financing. Here’s what the application looks like at a high level:
- Find a Lender – First, you must find one or more lenders offering lines of credit. You can find them online or through referrals from colleagues.
- Complete an Application – Once you’ve found a group of lenders that may work for your business, you’ll fill out a formal application with each institution.
- Review Offered Terms – If approved, you’ll review the offered terms and forecast how each contract will play out in your day-to-day.
- Finalize a Contract – If the terms make sense, you’ll finalize your contract and receive your funds.
The difference between a soft pull business line of credit and a hard inquiry line of credit lies in the credit evaluation process. A soft pull business line of credit will have no impact on your credit score, while any financing involving a hard credit inquiry will temporarily damage your credit.
In many cases, lenders will use soft credit pulls until the funding date, when they’ll perform a hard inquiry to check for any last-minute inconsistencies. At TRAM Funding, our network of lenders all perform soft credit pulls, regardless of the stage of the process. If you will receive a hard inquiry for any reason, we’ll make sure you’re aware of it beforehand.
Benefits of Soft Pull Credit Lines for Businesses
Flexible access to capital, with no damage to your credit score, is something attractive to businesses in all industries. Here are some of the most notable benefits of a soft pull credit line for businesses:
- Flexible Access to Capital – Lines of credit offer immediate liquidity for any business expense.
- Minimal Impact on Credit Score – Soft inquiries won’t harm your credit score, which protects your credit for future opportunities.
- Faster Application Process – Without the need for a formal credit inquiry, the process moves along much faster.
- Improved Forecasting and Planning – Soft credit pulls allow you to familiarize yourself with the options available to your business without a negative impact. This can help you plan for future opportunities with greater efficiency.
- Reduced Inquiry Footprint – Many hard inquiries in a short amount of time can raise concerns with lenders and damage your credit score. Soft pulls carry no digital footprint, which makes it easier to shop around for the best offer.
- Greater Privacy – Soft inquiries return less data than hard credit pulls. For sensitive businesses, this is a major plus.
Business lines of credit are a powerful tool for any business. If you’re looking to explore the options available to you – without damaging your credit score – complete our digital application to unlock your offers.
Soft Pull Business Line of Credit: Eligibility Criteria
Your ability to get a business line of credit depends on your ability to meet the qualifications of the lender you’re working with. Although the specifics will vary, each lender bases their decision on 3 major criteria.
- Time in Business – Less established businesses are seen as riskier investments than their more established counterparts. Most lenders want to see at least 1+ year of experience, but some work with startups and early-stage companies.
- Annual Revenue – Your revenue is one of the most important factors in determining whether or not your business can repay the borrowed amount, so expect lenders to inquire into your profitability heavily. Keep in mind that your revenue plays a significant role in determining your funding amount.
- Credit Score – Your credit score is a snapshot of your credit history, encompassing your behavior with credit over a period of time. Lenders use this information to weigh a borrower’s risk of default. Higher scores are seen as more trustworthy, while lower scores come with a stigma of risk.
Navigating the various qualifications of different lenders can become overwhelming and confusing. At TRAM Funding, all you need is 1+ year in business and $500,000+ in annual revenue to unlock our diverse lender platform.
Tips for a Successful Credit Line Application
The success of your application primarily depends on your ability to meet/exceed minimum qualifications, but there are a few tips and tricks to improve your odds and streamline the process.
- Understand Your Credit Profile – Often, businesses enter the application process with false assumptions about their credit score. This can delay the process and lead to future friction, so it’s best to familiarize yourself with this information before applying.
- Gather Financial Documents – Coming prepared with the proper documentation can accelerate the process significantly. It’s a good idea to review the website of the lender you’re working with or contact them directly to learn more about which documents you’ll need.
- Bring a Business Plan – Showing your lender that you’re organized and have a plan will go a long way during the negotiation process. If you don’t have a formal business plan, create one prior to applying.
- Protect Your Cash Flow – The phrase “banks only lend an umbrella when the sun is shining” refers to how business lenders are more likely to offer access to capital if you’re cash flow positive. Negative days or down months aren’t impossible to get around, but if you’re looking for the fastest, most efficient process, try to apply when your business is profitable.
- Proactively Improve Your Credit – If you’re a few points away from a minimum qualification or just want the best chance of receiving competitive terms, it’s worthwhile to strengthen your credit score before applying. Lower your credit utilization, avoid hard credit inquiries, and limit the number of credit accounts you open leading up to your application.
- Build a Relationship with a Lender – Business is built on relationships. By forming a relationship with a lender, you gain a funding ally that can help you take advantage of opportunities as you grow. The relationship also streamlines the process, as they already know about your business.
One of the best ways to improve the success of your line of credit application is to apply with multiple lenders at once. This way, you have options to choose from when it’s time to make a decision instead of restarting the process.
Comparing Soft Pull and Hard Pull Credit Options
Let’s explore the pros and cons of both financing options.
|Type of Financing
|Soft Pull Business Line of Credit
|Hard Inquiry Line of Credit
What’s Best for My Business?
It’s not always easy to understand which option is best for your unique circumstances. Here are a few scenarios to showcase the strengths of each option.
- A construction company is exploring its line of credit options before starting a major contract. They’re unsure of which lender will have the right product for them, so they seek out soft pull business lines of credit to protect their credit score as they shop around.
- An accounting firm spent the last 6 months strengthening its credit to qualify for the best credit terms. Looking to prepare for their busy season, they decide they need a line of credit after their previous term loan left them with little flexibility. They already have a relationship with a lender, so they opt for a hard pull line of credit to provide their relationship with as much information as possible.
- A manufacturing business struggled with its cash flow during a slow season and damaged its credit in the process. After regaining their footing, they encounter an opportunity to establish a new distribution channel, projecting a 2x boost to their monthly revenue. They start to search for soft pull lines of credit because they don’t want to damage their credit score further while shopping around.
Still unsure which option is right for your business? Reach out to the expert Business Finance Advisors at TRAM Funding for more information on your unique situation.
How to Choose the Right Lender for Your Business
The “right” lender for your business will depend on a variety of factors. Here are a few criteria to keep in mind as you shop around.
- Qualifications – Eligibility criteria can differ from lender to lender. Exceeding minimum requirements offers a higher chance of qualifying for the best terms.
- Lender Type – Banks and credit unions carry restrictive eligibility criteria and lower interest rates, while non-bank lenders are much more accessible, faster, and offer higher interest rates.
- Offered Products – Some lenders only offer specific products, while others offer a wide array. Those that specialize in specific products may have unique insight that others do not.
- Reputation – Customer reviews showcase the experience you’re likely to receive when working with an organization. By checking into a lender’s reputation beforehand, you protect yourself from working with a shady organization.
- Scale – Finding out your relationship can no longer support your growth introduces a ton of stress to your growth plan. You should work with an organization you can qualify with, of course, but you should also consider how your financing relationship can scale with you as you grow as well.
At TRAM Funding, we maintain a diverse lender platform to ensure our clients are able to find the right lender as fast and efficiently as possible. With one application, you unlock multiple financing options that you compare alongside expert guidance from your dedicated Business Finance Advisor.
Why TRAM Funding?
Finding the right financing in a sea of lenders can take weeks or even months. Business owners needed a faster, more efficient option to explore the options available to them, so TRAM Funding was created.
Our diverse lender platform simplifies business financing. You tell us how much you need, then we leverage our longstanding relationships to bring back competitive offers that align with your business. If something can be improved, your dedicated Business Finance Advisor will advocate on behalf of your business to finely tune your contract to best fit your opportunity.
Without any hard credit inquiries, exploring soft pull line of credit options has no impact on your credit score. Complete our easy application to start the process with our award-winning team.
For the best results, it’s best to have a 650+ FICO score when applying for a business line of credit. Banks and credit unions may need to see 700+, while non-bank lenders can have options for those with challenged credit.
Funding times vary based on a number of factors, including:
- The lender you’re working with
- Whether you’re offering collateral
- Your credit limit
- The term negotiation process
On average, it takes 5-7 days to establish a line of credit. Banks and credit unions carry the longest wait times, while non-bank lenders can finalize your contract in hours/days.