Small Business Line of Credit
You need every advantage you can get when it comes to securing a small business line of credit these days. Everything from your business plan to your briefcase will be scrutinized, and all of it will become part of the banks’ decision-making process.
Apply for an unsecured small business line of credit. If you can’t get it, and have to put up assets as collateral, don’t use your house as collateral if you can avoid it; put up your business assets instead. First of all, with all the upside down residential mortgages and foreclosures, the bank might not be anxious to accept it. Secondly, it’s a tough business environment and you can’t afford to risk your home.
Apply for government economic development programs first. If your application is accepted, you can use that money to bolster your application for a small business line of credit with the bank by improving your debt to income ratio. And even if you’re denied the government money, it won’t put a ding in your credit score.
Include even small angel investments in your financials. Your mom put in $5,000? Include it.
Include any new contracts in your application.
Ask for what you need. It’s easier to get a $500,000 small business line of credit than it is to get an initial $250,000 and go back for more money later. Having to go back hat in hand will give the impression that you don’t know what you’re doing or haven’t managed the first $250,000 well.
Make sure your business plan gives a very detailed description of your business’ products or services; roughly 40% of applications for small business lines of credit were denied because the bank didn’t understand the business, according to a survey by American Banker.
If your business has a limited track record, make sure your business plan fully reflects the owners’, board members’ and management team’s experience, skills and education.
Other things you can do to increase the chance you’ll acquire a small business line of credit are more subjective:
Dress like a banker, even if you’re an artist. You’re applying for a business loan, so you need to look like a businessperson.
If the loan officer will be meeting with you at your location, make sure the site is immaculate inside and out. Tell all staffers to clear off their workstations, dress up a little and stay busy. A significant portion of your budget is going for their salaries; if it looks like you’re overpaying your people, why would a banker think you could manage a small business line of credit
Small business loans
Small business loans for a bigger life
At some point in life, many people feel like they have to start working for themselves. For some, it’s the constant exhaustion of working full time and raising a family. Maybe it’s a necessary return to the job market after divorce or the death of a spouse. Or, maybe it’s simply the years-long regret of never pursuing their dreams.
Unfortunately, changes that seem imperative frequently seem impossible, too. That’s when it’s time to investigate small business loans. Small business loans can put you in control of your life, make the impossible possible, and make dreams reality.
Many people are discouraged or are afraid to start their own businesses because they don’t have enough money saved to launch their new endeavors, or they assume they won’t qualify for small business loans because they’re too young, too old. Admittedly, small business loans can be hard to obtain, but there are resources available beyond the community bank.
Small business loans are perfect for starting an in-home, sole proprietor business as a tax preparer or graphic designer – the sort of businesses that require less than $5,000 to begin. Creative types can set up a studio or workshop to realize their dreams of making and marketing their own jewelry or pottery with only a modest investment.
Small business loans can take someone who loves travel, outdoor life, hunting and fishing, and get them out of their frustrating routine of soul-deadening work. There are franchises available for only $6,500 that allow them to arrange trips for other likeminded adventurers, and visiting the locations and lodges themselves is part of the job.
Setting up energy auditing businesses—one of the many “green” jobs that are in high demand—is easy with small business loans of roughly $35,000.
If you’re thinking on a larger scale, small business loans of $500,000 to $10 million will let you buy a franchise restaurant, hotel, hardware store or walk-in medical facility.
Life is short, but there’s still time to take control of yours.
Business line of credit
Question: I’m not sure if I need a business line of credit, a small business loan or a mortgage. I’ve bootstrapped my business for two years. I recently hired another employee and would like to hire two more, but I don’t have room in my current rented space. I’ve set aside enough money to buy and renovate a bigger building, but it’s hard to make payroll when I am waiting for payment. Should I take out a mortgage for another office? Should I take out a business loan or a business line of credit?
Answer:I recommend paying cash for the new space, and taking out a business line of credit.
A business line of credit a good way to cover smaller short-term expenses, like new electronics, furnishing and supplies—the sort of things you will need for a new space with more employees. A business line of credit will tide you over through the ebb and flow of A/P and A/R, and help you make payroll while you are waiting for payment. Payroll is one of the most common uses for a business line of credit.
If you can afford to move your business to a new level without going in debt, do it. Use the cash you have to invest in a new space because it is not a good idea to take on the increased overhead of a mortgage at the same time you are increasing personnel expenses.
Business lenders are not going to make an investment in your business if you have not already done so. Taking out a mortgage makes your new offices a debt instead of an asset you can use as collateral. Pay cash and lenders see you have made a huge investment and have little or no debt, and they will be happy to give you a business line of credit.
You will also be building your business credit score by staying within the limits of your line of credit and making regular payments. Moreover, you will have a higher credit line with better terms, and your next loan will be easier to acquire.
Small business lending
Small business lending to get boost from TARP funds
The U.S. Treasury Department announced today that Main Street is about to get some of the same home cooking enjoyed by Wall Street.
As much as $1 billion from the Troubled Asset Recovery Plan will be made available to banks, credit unions and thrifts certified by the Treasury as Community Development Financial Institutions (CDFIs). CDFIs are committed to lending to businesses in poverty-stricken rural and urban areas.
During a time when small business lending dropped off precipitously, the Obama administration has met with bitterness from voters and struggling small business owners resentful of the $700 billion given to some of the largest Wall Street banks, which, in turn, refused to loosen the purse strings and spread the wealth.
Earlier this week President Obama asked Congress to make another $30 billion of the remaining TARP bail out money available for small business lending from community banks. Last week, in his State of the Union address, Obama stressed the urgency of creating new jobs to stanch the small business failures contribution to high unemployment levels. Roughly half of American jobs are in small businesses.
Congress is not required to approve the money to CDIFs, but because the small business lending plan is an altogether new program, Congress must approve it. Congressional members, however, are already giving the lending plan a stiff arm.
“The law is very clear. The monies recouped from the TARP shall be paid into the general fund of the Treasury for the reduction of the public debt,” Sen. Judd Gregg, R-N.H., said in a Senate Budget Committee hearing Tuesday. “It’s not for a piggy bank because you’re concerned about lending to small businesses.
Last month, the 22 banks that received TARP bail out money announced they were cutting another $1 billion from small business lending for the tenth straight month.
Startup business loans
Startup business loans becoming more available
New business owners looking for startup business loans knows it’s been all but impossible to get credit since fall 2008, when Lehman Brothers crashed and burned. There are, however, signs that things are getting better, and several things would-be borrowers can do to improve their chances of getting startup business loans.
The Small Business Administration (SBA) processed 12,393 loans in the final quarter of 2009, a total of $3.8 billion; that’s a 200% increase over the number of loans processed in the same period of 2008. While the SBA only guarantees loans, the increase means lenders are again willing to make loans, including startup business loans.
That’s the good news; the bad news is that the final quarter numbers from 2009 are still only 60% of the numbers from the same period in 2007. In other words, things are better, but still very competitive, and acquiring startup business loans is going to be a lot of work and require a lot of investment.
- First off, banks will turn a cold shoulder to applications for small business startups if the owners haven’t already invested everything they have: personal real estate, savings, life insurance and credit cards.
- Scrape together money wherever possible. Young entrepreneurs have opportunities to participate in student competitions with cash prizes. Award winners impress bankers who would rather make startup business loans to winners.
- It might be painful to take on partners, but doing so brings more assets and talents to the table, while reducing risk. And remember, banks want to see a lot personal asset investment before they’ll commit to startup business loans.
- Business plans have to be magnificent and accompanied by polished and professional presentations and personal pleas.
- Start small, startup business loans aren’t awarded to businesses without track records. Wait until the revenues have accumulated to show stability and promise.
What type of business loan is right for your business?
Whether you have a fledgling business or one that’s been long established, at some stage of the game, you’re going to need a business loan.
Needing one and getting one are two different things, though. You can maximize your chances of getting a business loan—any business loan—by knowing what to expect from the lender.
At the very beginning – At this stage of the game you’ll need seed money, but you can’t get it as a business loan from the bank. You’ll have to use your own assets, get a business loan from family or friends, or take out a personal loan. Wherever it comes from, this money will be used to create your business plan—an essential for starting a business and getting a loan later on.
Almost there – This is the time for a startup loan to purchase inventory, and to lease or buy equipment or the location for your business. The importance of a thorough business plan can’t be overstated, but that alone won’t get you a business loan. You’ll need to show the lender that you’ve invested a considerable amount of your own financial assets, and are prepared to contribute more.
When you apply for this first business loan, a big part of the bank’s decision is going to be based on your personal character, reputation and financial history, so be prepared.
Well underway – Get a business line of credit before you need it. There will be times you need to increase inventory, do some additional hiring, replace equipment or respond to a sudden emergency. You’ll need to show the bank you have enough excess revenue to make the loan payments, so don’t wait till you’re in dire straits to apply
Ready for the next stage – Your business plan should be evolving as your business does. When the time is right for expansion, you’ll use that plan and your projections obtain a business loan to help you continue growing your business.
Contact American Unsecured and let one of the nation’s largest loan-consulting firms help you obtain your business loans. Since 1999, their experience and bank partnerships have helped others acquire hundreds of millions of dollars in personal and business loans.
Getting small business funding during economic downturn
What’s the upside to losing your job during an economic downturn? The freedom to start your own business. It might seem counterintuitive, but half of the businesses on the Fortune 500 list began during a recession or bear market, according to a study by the Kaufmann Foundation.
When money’s tight it might be more challenging to open an affordable business and get the small business funding you need for your startup, but it’s not impossible.
• You always need a thorough business plan to get small business funding, but when money’s tight make you must include contingency plans.
• Make sure your business is recession-proof by offering an alternative to similar, more expensive services or products. For instance, the average cost of a wedding has dropped from an all-time high of nearly $30,000 in 2007 to around $17,000. Why not be the wedding consultant who specializes in elegant, scaled-back weddings?
• Lenders appreciate that franchisees benefit from training, management support, name recognition and shared marketing, so they might be more likely to approve small business funding for the right franchise business.
Lenders will be more likely to provide small business funding to applicants who have built cost-saving measures into their startup’s business plan. For instance:
• If possible, start with an in-home operation. Even if your home needs minor renovations to accommodate your new workspace, that’s less expensive than new construction or a commercial lease.
• Consider sharing space with another business if you can’t operate your business from home.
• Rent your office furnishings and equipment or buy them used.
• Tap into the talents of unemployed friends and relatives to save money.
Once you’ve acquired small business funding, how can you improve your chance of success?
• Network through your local chamber of commerce or professional association.
• Barter services with other businesses.
• Customer service is more important than ever when people are pinching pennies. You need their referrals.
• Offer first-time customers discounts or gifts. Give them additional discounts for each referral.
• Take advantage of free or low-cost classes through the Small Business Administration, or local community colleges or technical schools.
Business Line of Credit
Starting or running a business without a business line of credit is like jumping out of a plane without a parachute: it can be done, but seldom with the desired outcome.
A business line of credit is an invaluable asset during those inevitable brief periods when accounts payable can’t wait for assured accounts receivable. Other common uses for a business line of credit include covering unforeseen expenses or an investment in equipment, inventory or personnel required for a particularly lucrative project.
A business line of credit is usually obtained from a business bank, and requires only common sense criteria for approval:
• Does your business show a positive cash flow?
• Is there enough profit to make monthly payments on the credit line?
• Is the projected revenue and cash flow adequate to make the payments?
The same criteria that determine whether the business line of credit will be approved will determine the amount of the credit line, and repayment terms. Collateral isn’t usually required for a business line of credit, though an exception could be made for a business or individual with a low credit score, or inadequate cash flow or projected cash flow.
The interest rate and terms for a business line of credit is usually variable, allowing banks to adjust to changing market conditions. For instance, during a period of economic downturn a business’ line of credit may be decreased, the billing period shortened or the interest rates increased.
Business owners should do extensive comparative shopping before accepting any credit line. Let American Unsecured advise you on your suitability for different options and help you find the best solutions for your business needs. Since its founding in 1999, American Unsecured in one of the largest loan consulting firms in the United States and helped their clients get hundreds of millions of dollars to keep their businesses and the county strong. Let them help you too.
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