My Experiences With Getting A Business Line Of Credit
WHY I NEEDED A BUSINESS LINE OF CREDIT TO BEGIN WITH
One of the businesses I started was a healthcare staffing company and it was a business that was going to need a business line of credit. Unlike many small businesses, this business was growing so fast that our payroll could not be paid through normal cash flow. Our margins were good, our cost were reasonable but the growth of the company exceeded growth of 25% YOY with a 135% average growth period each year for 5 years. In other words, each year we doubled in size. Luckily, I had started other businesses and I was prepared for that growth plus I had good tangible assets to leverage in order to get financing.
I USED RECEIVABLE FACTORING IN THE PAST
This healthcare staffing business had actually been my 3rd start up and the businesses prior to it had done really well. Those businesses allowed me to buy a 10,000 sf commercial building which I then rented out as well as ran my business out of the top floor. In the beginning, I started out in my apartment and used a Factor to help get my business started knowing that the key to a Factor is that you want to get off the Factor as quickly as I could. As a result, in 9 months I went from one Factor to another cheaper Factor and then in 16 months, was able to have current cash flow pay for my business. I ran that business without a business line of credit or a Factor for 8 years and it was a very profitable business. However, the healthcare staffing business was on a different level and I had the assets to be able to approach a bank.
WHAT WAS THE PROCESS FROM THE BANK
I contacted mostly local banks and they gave me an application to fill out. My wife, who was my bookkeeper who has her master in accounting filled out the detailed form for me and it literally took about 15 hours of dedicated time. I reviewed the application and made sure we had included everything I could think of. I also made sure it was accurate because the last thing I wanted was the bank not trusting me. We handed in the application after 1 week and it was obvious to me that what the bank was most concerned with was did we have enough personal and business assets to back up the business line of credit loan should I default. It became apparent to me early on that we would get the $500,000 loan because I had the assets to back it up and that any bank really just doesn’t want to take any risks. If I didn’t have the equity in my office building and my accounts receivable and if my business wasn’t at least 3 years old, then the bank wouldn’t have considered it. The fact that we were on the Inc 500 fastest growing list, the fact that I had a 10 year entrepreneurial success record, the fact that I had graduated from entrepreneurial college programs, and the fact that I had excellent personal credit wasn’t as important to them as having assets to pledge to the bank.
IF I NEEDED A QUICK BUSINESS LOAN THEN FORGET IT
The initial process to get the $500,000 line took about 8 weeks. However, at one point, my team did so well selling that they outstripped my business line of credit with the bank and I needed to increase my line another $250,000. I was going to need that increase done in 2 weeks or I was going to not make payroll. When I approached the bank they told me they probably could do something but it would take 4-6 weeks for an answer. I was in trouble. The worst thing for a staffing company is to miss payroll. It is a death sentence to the company and I ended up having to borrow the money from one of our suppliers which I paid back in 4 weeks when I got the line increased.
WHAT THIS LESSON TAUGHT ME ABOUT FINANCING
It is ironic that I now run an alternative financing company that helps companies when they need a fast business financing. My first hand experience on how hard it is to get a business line of credit and how long it takes to get a Factor has really helped me in my business now. When a company business owner calls Financing Solutions for a quick business loan so they can make payroll, I complete empathize with the owner. It was as if the 20 years I spent building companies put me through the lessons that would help me, help other companies, when they were going through the same experiences I had gone through.