What to expect for your business line of credit annual review


By ,
Ask a Lender
December 27, 2017


Business-man-and-woman-reviewing-financial-documents

Key Points

Documentation for business lines of credit

  • Tax records
  • Bank account information
  • Inventory statements
  • Year-to-date financial documents

Business lines of credit can be versatile tools for businesses. Opening a revolving credit line means you’ll always have credit available for your business when you need it. Traditional revolving credit lines typically allow businesses to write checks against the credit line as well.

Most lenders offering business lines of credit require an annual review to keep the account open. If you’re new to world of business lines of credit, you may have never experienced an annual review before. Here’s what you should expect.

Why an annual review?

Annual reviews on business credit lines are designed to ensure the business still meets the requirements for maintaining a credit line. For example, if you take out a business line of credit, and your business’s revenue subsequently plummets, the bank could close the credit line because you no longer have the revenue needed to assure the bank you can pay back your debt.

Although banks can close a credit line at any time, the annual review gives it an opportunity to evaluate the business’s finances to ensure it meets the bank’s requirements and can stay open. Although it may seem cumbersome to have to go through a yearly review, the process is designed to not only protect the bank from undue risk, but also to protect the business. If the business no longer has the finances necessary to pay back a business line of credit, continuing to use one can do the business more harm than good in the long run.

What does the bank review?

Each year, the bank evaluates your finances to make sure you still meet the requirements for the line of credit. Therefore, the bank will be looking at much of the same documentation it reviewed when you first applied for the line of credit.

Documentation your lender may want to look at includes tax records, bank account information, inventory statements, and other year-to-date financial documents.

Fees

One aspect of the annual review process that may sting a bit is the fee. Many banks charge a fee for the annual review process.

The exact amount varies by bank, so be sure to inquire when you first get your credit line. You’ll have to determine whether the convenience of having the line of credit at the ready is worth the annual expense.

What if I don’t want an annual review?

Unfortunately, if you want a traditional, unsecured credit line, you’re going to get stuck with an annual review process. If you’d rather forgo the review, you’ll have to look to alternatives. If you have collateral to offer the bank, you may also consider applying for a secured, traditional business line of credit. A credit line may be secured with inventory, equipment or invoices.

Another alternative is a business credit card. Similar to a traditional credit line, a business credit card offers a revolving line of credit that can be reused as the balance is paid down, as long as the account remains open. Unlike a traditional credit line, a business credit card does not require an annual review, and it can be substantially easier to qualify for one. The interest rate on a credit card may be higher, however.


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