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Uber seeks $1B line of credit; is it part of grand IPO plan?

The car-hailing service is reportedly looking to boost its relations with banks in anticipation of an IPO and doesn't need the cash for day-to-day operations.

Uber is looking to raise a credit line that could get it closer to an IPO. Uber

Car-hailing service Uber is taking a step toward an initial public offering, a new report claims.

Uber has been meeting with banks to raise a $1 billion line of credit, the Wall Street Journal reported Friday, citing people who claim to have knowledge of its plans. The credit wouldn't be necessary for the ongoing operation of Uber's business but is critical for the company to form strong ties with banks that could eventually underwrite an IPO, the Journal said.

Uber, which connects riders and drivers via a smartphone app, operates in hundreds of cities around the world. The company generated revenue of $400 million in 2014, the Journal reported. Uber competes with traditional taxi services, as well as other startups with rail-hailing apps such as Lyft. The influx of funding that comes with an IPO could help give Uber an edge in the battle to attract customers.

The San Francisco-based company's reported desire to raise $1 billion through a line of credit follows an earlier report this month claiming that the car-hailing service was looking to raise $1.5 billion to $2 billion in venture capital funding. If successful, the round would value Uber at $50 billion or more. That valuation would be higher than the world's current most valuable startup, Xiaomi, which raised $1.1 billion in December on a $45 billion valuation. The only other Silicon Valley startup that fetched a $50 billion valuation before its IPO was Facebook.

Acquiring a line of credit is one of the early steps companies often take to prepare for an IPO. In 2012, Facebook secured a $2.5 billion credit line. Twitter and Dropbox followed with $1 billion and $500 million credit lines, respectively. Facebook and Twitter went public relatively soon after acquiring the lines of credit.

The idea behind acquiring a credit line is to get major institutional banks invested in a company's future. The would-be public companies ink deals with major banks and form relationships with key players at those institutions. When it comes time to hit the road and find investment banks that will back an IPO, the startups often call the banks that backed the credit line.

Banks, meanwhile, are willing to take a chance on a promising startup that has designs on going public and will often offer favorable interest rates to sweeten the deal in order to be first in line for an eventual IPO.

Still, the banks may need to wait some time before Uber would actually offer its shares on the market. According to the Journal's sources, the earliest date the company would go public is 2016.

Despite rapid growth since its founding in 2009, Uber has weak spots, including challenges to the legal standing of its use of private drivers. On Friday, another blow came -- this time in France. The country's top administrative court ruled that unlicensed taxi operators cannot drive around looking for riders, according to Reuters, and that apps cannot show potential riders where nearby drivers are located.

Meanwhile, Uber may be working on another project. The Pittsburgh Business Times reported on Thursday that Uber was testing a self-driving car around Pittsburgh. The company didn't try too hard to hide its plans: the words "Uber Advanced Technologies Center" appeared on the side of the vehicle.

The test follows the launch of its Advanced Technologies Center in February. The company said at the time that the program would focus not only on driverless vehicles, but also on mapping technology and enhanced vehicle safety. Carnegie Mellon University is a partner in that effort.

Uber declined to comment.

Update, 8:20 a.m. PT: The court decision in France was added. Update 11:39 a.m. PT: To add Uber's declined comment.

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