Why It’s So Hard To Get A BMO Harris Bank Business Line of Credit
Looking for a small business line of credit for your company? Typically, small business owners turn to the big banks to get, for example, a BMO Harris Business Line of Credit.
Before jumping in, knowing what a bank looks for in the approval process can save a borrower a lot of time and headaches. After building seven companies in 25+ years and dealing with many banks, I have learned how to increase your chances of getting approved. Here is what I have learned and some other financing alternatives to consider.
What Will the BMO Harris Business Line of Credit Process Be Like?
A small business line of credit is important for a small business to have since it’s a predetermined amount of money your company has access to that you can draw upon when needed.
It’s important to know that although the BMO Harris personal line of credit is no longer offered, and BMO Harris factoring options don’t exist, businesses can still apply for a line of credit from BMO Harris. The first step in the process of getting a BMO Harris Small Business Line of Credit begins with a lengthy application. The BMO Harris loan application asks numerous questions related to both your business and personal assets. It will likely take you a week or two to complete the application. While you may think the BMO Harris business loan process is tedious, the more information you provide, the better your chances are that you’ll be approved.
Next, after you submit your application, the bank will ask for more extensive backup documentation. For example, the lender wants to see your business and personal tax returns, business accounting reports, business agreements, and personal financial documentation. Usually, bank loan officers do not comment on approvability before a loan application and documentation have been submitted.
The initial application approval process takes at least 30-60 days, and even then, the bank may come back with additional requests. It will then take another 30-60 days to get the line of credit in place. The whole process takes 3-6 months just to secure a line of credit.
The business line of credit will be renewed annually—provided you submit updated documentation showing your business hasn’t changed. But don’t count on the renewal process being easy. The process and bank lending criteria may change based on the economy and your business status.
Collateral, Business/Personal Credit Score, and Personal Guarantees
Local and large banks that provide business loans, like BMO Harris small business loans, look at three main criteria during the approval process.
All banks require business and personal collateral to back up your business line of credit. This is called a secured line of credit.
Collateral is assets that can be resold so the bank can recoup any unpaid debt if the business defaults on the loan. Owned equipment, inventory, a portion of your accounts receivable are all examples of collateral. Examples of personal assets include stocks, bonds, cash, equity in your home, etc.
BMO Harris and other banks may approve a secured business line of credit if you have collateral to back up the line.
Some banks might provide a small unsecured line of credit, but you must have an excellent credit score and a strong proven cash history with the bank.
Business/Personal Credit Score
All banks run business and personal credit reports to determine if you and your business meet their minimum requirements and if there are any significant issues.
The bank pulls a business credit report from companies like Dun and Bradstreet, which shows outstanding business debt, time to pay invoices, any court cases you were involved in, and any other unfavorable issues.
Most banks require a personal credit score of 700 or better unless you have significant collateral to back up the business line of credit. Banks will not consider credit scores of 650 or lower for a business line of credit or business loan. Most also require a business credit score of at least 75 (out of 100).
Banks will more than likely pull your credit report from Transunion, Experian, and/or Equifax. If you are unsure about your personal credit score, you can get a free credit report from Credit Karma.
Unless your business has more than $10 million in annual sales, the bank requires you to make a personal guarantee (PG) on the credit line. In addition, if you have cosigner(s) on your home loan, they are also required to personally guarantee the credit line.
Other Areas BMO Harris Will Be Looking At
Many other areas of your business and personal assets will be looked at before you get approved for a BMO Harris credit line.
Uniform Commercial Code (UCC)
During the lending process, banks will pull a UCC on your company. The Uniform Commercial Code (UCC) “is a comprehensive set of laws governing all commercial transactions in the United States. It is not a federal law, but a uniformly adopted state law.”
The banks examine the UCCs looking for any liens against your assets. Many companies might have a UCC filed on your business without you realizing it. In addition, the bank wants to be in the first position, which means any past companies/banks/lenders’ UCC’s will have to be cleaned up. Even though many of these UCC’s will likely be old and no longer valid, this takes time to sort through.
Why Financing Solutions Business Line of Credit Might Be a Better Alternative
Financing Solutions provides unsecured business lines of credit up to $100,000 to small businesses.
The government does not fund Financing Solutions—we are a direct financing company. As such, we have much less stringent approval standards than banks. Financing Solutions was founded on the premise that there are many good small businesses that should be able to get a line of credit and pay it back.
Below are some highlights that will allow you to compare Financing Solutions to a commercial bank.
Highlights of a Financing Solutions Business Line of Credit:
- Requires no collateral or personal guarantees
- It costs nothing to get the line in place and nothing when it’s not in use
- It can be paid off at any time—making it inexpensive
- There’s a no-obligation 2-minute online application
- Your credit line can be set up in 48-72 hours
- Online secure customer portal
- We are A+ and 5-star rated by the BBB
- You can talk to people who understand small businesses
- The line of credit is a great cash backup plan for emergencies
Most banks charge an application fee and a yearly maintenance fee for their lines of credit. Since Financing Solutions does not charge these fees, it may mean that a BMO Harris Business Line of Credit will cost you more overall than a Financing Solutions’ credit line depending on how much you intend to borrow from your line.
Having a Financing Solutions line of credit will not impact you applying for BMO Harris business loans, so it may be a good idea to get the Financing Solutions’ line of credit in place while you apply elsewhere.
Reviewed or Audited Financials
BMO Harris may require you to provide reviewed or audited financials from an accountant. This is in addition to the business’s regular tax preparation. These financials are more detailed and costly to prepare. If they’re not required at first, the bank may require more extensive financials during your yearly review.
BMO Harris SBA Loans
Many businesses believe a Small Business Administration (SBA) Loan may be a good option for them. The SBA works with lenders like BMO Harris to provide loans (like BMO Harris commercial loans) to small businesses. The SBA agency doesn’t lend money directly to small business owners. Instead, it sets guidelines for loans made by partnering lenders, community development organizations, and micro-lending institutions. As a result, the SBA reduces the risk for lenders and makes it easier for them to access capital. That makes it easier for small businesses to get loans.
And while the SBA may end up being a good option, in the long run, the process takes more time. Plus, there are many restrictions and limitations (sometimes called covenants) to an SBA-guaranteed loan.
Applying for a BMO Harris business credit line isn’t easy, and it takes a lot of time. Many business owners mistakenly believe their companies can very easily qualify for a business loan or line of credit—until they go through the process.
Finally, if you think you will use your line of credit often, then it is likely worth going through the process with an established bank like BMO Harris. However, if the line of credit is something you plan to use more as a cash backup plan, then Financing Solutions is a great alternative.