1st Hand Experiences: Dealing With a Bank for a Line of Credit
I believe I can share my personal experiences about what banks will look for to approve your business for a line of credit or a business loan.
Over the past 25 years, I have built seven successful companies. While building these businesses, I’ve had numerous experiences dealing with banks to get a business line of credit.
This is important to have in place for emergencies, uneven cash flow or business opportunities. I have firsthand experience in how difficult it can be to get a line or a bank loan but also, how valuable it is for the business owner.
What you should know is, I NOW have an excellent personal credit score (800), I have assets to back up my line of credit, and I always had very good positive cash flow in my business. However, year after year, I am amazed at how challenging it is to work with banks.
If your credit score is below 700, be prepared to get rejected by a bank
The fact is that most small business owners are often financing their businesses themselves, typically through existing cash flow. Due to this, a business owner’s credit often suffers.
Banks will require collateral
Most business owners don’t have sizable assets such as real estate, stocks, or equity in your home. Banks must have collateral for a line. They will consider your accounts receivable as collateral but they will discount it greatly. If you don’t have other personal or business assets, then prepare for rejection from a bank.
Banks will take months to give you an answer
Getting a line of credit takes months of paperwork, tons of time and you must reapply each year. To make matters worse, the bank makes you sweat it out at renewal time. It often shocks me to have to submit TONS of required paperwork only to find out months later that I receive approval from one bank but another turns me down.
Banks don’t care about your business plan
Banks want to make sure you are going to pay them back. They want to show to their regulators that the loan or line of credit meets the bank’s regulatory ratios. So, forget the advice about showing your passion for your business, because the bank does not care.
However, all this experience has had an incredible upside. In 2011, I started Financing Solutions (www.fscreditline.com), which competes against banks in providing lines of credit up to $150,000 to small businesses and we have been growing in leaps and bounds ever since.
Using our personal experiences dealing with banks, we have been able to build an alternative financing company that approves direct lines of credit to small businesses by being faster, cheaper and more flexible. We look at all the things that we know makes a good business but that banks overlook.
The irony is, after all the headaches that banks put me through, they developed a competitor. One that they can’t compete with. Unlike a bank officer or underwriter, we understand what running a small business is really like. And that there are very good small business who will be good clients for us.
We have helped hundreds of small businesses become or stay successful. This is due to the owner’s ability to have access to capital. Nowadays, that is the difference between success and failure. Or, at least reducing some sleepless nights for the business owner.
All leading me to finally say thank you to all the headaches that traditional banks put me through over the years.
Stephen Halasnik is a Managing Partner at Financing Solutions.
Click here if you would like to apply for a line of credit for your business.