What I Have Learned When Trying to Get a Bank Line of Credit for my Business
In business, sometimes it can help to learn about the experiences of others so you can avoid making the same missteps and be better able to choose the right path. Therefore, I thought I would share with you what I have learned when trying to get a bank line of credit for my business.
They say that if you can’t be a good example, then you can still be a horrible warning. The education I received may be a little of both.
My Personal Difficulties in Trying to Get a Bank Line of Credit
Over the last 15 years I have dealt with several banks to get a business line of credit for three companies that I owned. I can tell you that it was usually not a pleasant experience.
I have a credit score of 780, an office building with collateral, a 15 year relationship with the bank, and a successful business. With all this, even I have had lots of problems getting the line of credit I needed for my company.
The length of time it took to work through the process was also a disappointment for me. Getting a line of credit typically takes 6 to 12 weeks to get in place. For most small business owners seeking a business loan or line of credit, time is of the essence. Having to wait months for emergency business funding could force you to go out of business.
I also learned that a bank line of credit must be renewed every year. To make matters worse, just because you already have a bank line of credit in place does not mean you are grandfathered in the next year. The process to renew felt a little like applying all over again.
Renewing your business line is a yearly project that takes time. This whole ordeal turned into a major annual project that stole valuable time from other areas of my business. Nevertheless, I believe that a line of credit is still the cheapest alternative when compared to other forms of quick business financing that you can get from a bank.
The Advantages and Disadvantages of a Bank Line of Credit for Your Business
Without a healthy supply of cash, it is practically impossible for your business to grow and improve. You could try borrowing money from friends and family or look for sympathetic investors. One of the least expensive tools to help you is a bank line of credit.
Perhaps the biggest advantage this is the flexibility. Instead of getting one huge lump sum of money that you will have to figure out how to repay, you’re allowed to withdraw funds as you need them.
It can also help you (re)build your credit history. Since you are repaying less, you may find it easier to keep up with the payment schedule, thereby improving your credit score.
Of course, there are also drawbacks. For example, many small business owners do not fully consider the price of a bank line of credit. When you have a line of credit in place it costs a lot more than just the bank application fees and interest. Banks will require you to have fee from your accountant, appraiser, renewals, and other expenses that can serve to chip away at your cash flow.
Also, it is important to remember that a bank line of credit is still debt. If you’ve been having problems repaying other forms of debt, such as bank loans and business cash advances, a bank line of credit could lead you deeper into debt. There is also the possibility that, if your business does fail, you could still be liable for these payments.
Alternatives to a Bank Line of Credit
Thankfully, you do have other options when it comes to quick business funding. Numerous alternative lenders have more agreeable terms and faster processes in place.
Your best choice is a cash advance company, like Financing Solutions (www.fundmypayroll.com). They offer a straightforward, easy process for getting the cash you need.
With Financing Solutions, you simply sell some or all of your accounts receivables and receive fast cash based on a percentage of their value. The money can be used for any business purpose, such as making payroll, paying business taxes, or creating a working capital fund.
They offer flexible payment options which allow you to pay the money back in a few weeks or months, not years and there is no penalty for early repayment. Best of all, there is no long term commitment. You apply for funding when you need it and pay it back when your cash flow is stronger.
Unlike other lenders that make you wade through many levels of personnel and thick layers of bureaucracy, at Financing Solutions, you deal directly with the owners. As two serial entrepreneurs, they understand the problems and unforeseen events that can happen in the life of a small business.
With this in mind, they have more favorable terms than banks. They listen to your story, consider your business plan and look at your business as a whole when making a decision about your application. Also, they do not require personal guarantees, which can affect your credit score.
In fact, more than 90 percent of the businesses that apply are approved. Certainly, you still need to show proof that you will be able to repay the funding. As long as you have been in business for at least two years and have more than 350,000 dollars in sales, you can qualify. It takes only 15 minutes to apply and you can get up to 100,000 dollars in funding in less than 48 hours.
The Real Deal about Banks
Many people believe that they understand everything there is to know about the inner workings of banks. However, what goes on in the back rooms and boardrooms is not typically revealed to the average customer.
Banks look at numbers regarding your business that most business owners have trouble understanding. Factors such as debt to income or sales ratio is probably not something you think about every day.
Sometimes it seems as if bank executives talk one language and business owners talk another. For example, bank officers at larger banks are trying to help you navigate their approval process by giving you information about it and access to online tools that may help you. However, all you see is endless questions and the mounds of documents you have to provide, much of which can be redundant.
In addition, bank officers are not at all concerned about the character of the small business owner sitting on the other side of the desk. The time and energy you have spent building your business and the hardships you had to overcome to get where you are today mean nothing to him. It is not enough that you are trustworthy and have worked hard to improve your credit.
Banks are only worried about their regulators so they have to make sure all numbers and ratios add up to covering the cost of your quick business loan. The bank will not receive government backing on your loan or others if they cannot demonstrate that all the numbers add up regarding ratios or that your collateral information is sound.
Also, they are terrified by the thought of someone defaulting on a small business loan, with good reason. For every one dollar in default they lose 10 dollars of funding from the government. A default on just one 50,000 dollar loan adds up to big bucks in losses for a bank.
Without government funding a bank couldn’t offer competitive interest rates. Although the rates they charge can be expensive, they would be even more so if they did not receive help from the government.
While the government does not look at each loan with a microscope, banks get audited by the feds and will group your loan into other loans. What they look for are abnormalities and this is where the bank can run into trouble.
Large banks have more ratios to use when deciding whether to approve or reject your loan application. Most importantly, big banks will not give you an opportunity to explain any discrepancies or negative information in your paperwork.
Since they are so large and work with many of the big businesses, this gives them the luxury to simply reject your application outright. As a result, it is nearly impossible for a small business to qualify for a fast business loan from a big bank.
Smaller banks may be able to give you more personal customer service, but they don’t always have all the loan products a small business owner may need. Also, they might not have the financial capacity to grant the same volume of loans as larger banks.
What Can Small Business Owners Learn from Bigger Businesses
You already know that being a small business owner is terrific. Sure, there can be difficulties with clients who don’t pay on time and stress over making payroll, but I would say that the benefits far outweigh the disadvantages.
Still, I don’t know any small business owners who frown upon growth and obtaining more success. As you chart your own path to greatness, there are some things you may be able to learn from the bigger guys.
For example, large companies typically operate using a long term strategic plan. They develop clear, specific goals for the future as well as a method for achieving them. You can, too.
Also, you should continuously seek ways to thrill your customers. Don’t stop at just offering a friendly atmosphere and satisfactory customer service. To differentiate yourself from the competition, you have to provide an AMAZING experience that will entice them to recommend your business.
Studies have shown that consumers are more likely to make a purchase decision based on good reviews from someone they know. All things being equal, a customer will choose to do business with the company that makes him feel special. Many are even willing to pay more for that feeling. Just look at industries such as hospitality and entertainment as proof.
Another factor that big businesses have learned is the importance of having enough working capital. Without this, you face the danger of running out of cash when you may need it most, due to issues such as an accounts receivable gap or a slow sales period.
It’s a known fact that approximately half of small businesses don’t make it to their fifth anniversary, and the biggest cause for this failure is that they run out of cash. Big businesses understand this so they always have enough cash to cover expenses and emergencies.
The best way for you to get fast business financing is through a spot factoring company, like Financing Solutions. They have the experience and quick process you need to make your business the best it can be.