Get A Small Business Line Of Credit Before You Need It

By Bob Phibbs

small business loanI’ve had a small business bank account with Bank of America for over twenty years. When I had setup the account, they simply asked, “Do you want an overdraft line of credit?” I answered yes and thousands of dollars were placed at my disposal.

That all changed this winter when BofA sold several branches around Albany to another bank.

Retailers: Check out more of my cash flow tips here.

Since I had to get a new account, I chose a local community bank. I opened the account and then asked, “Where’s the box to check to get an overdraft line of credit?”

“We don’t work that way,” I was told.

That was an understatement.

I had to fill out a 3-page loan application. Then came the requests for my P&L statement, my LLC incorporation documents, my tax records for the past three years, and a current list of clients.

I almost gave up.

But I didn’t.

Like any small business, my cash flow isn’t always predictable. There are marketing programs I may need to implement or additional costs I might need for unexpected seasonal expenses. I know that I might need access to extra cash from time to time.

So might you retailers.

Don’t let a 3-page loan application stop you from taking out a line of credit before you need it.

If you wait too long, you will not be bankable. And then you might do something like take out an equity loan on your house putting your home at risk.

You need to apply for a line of credit before you desperately need it.

Like an insurance company won't write a fire policy when your home is on fire, banks won’t give you one when your back’s up against the wall.

If your back is against the wall, the bank will question your ability to manage your money. They will ask if there other ways you can find to raise money. Can you get money from family and friends? Can you access the equity in your building. Can you get better terms from your retail suppliers? Can you incent those you’ve offered credit to? Can you offer a discount so they pay early? If revenues are down, have you managed down expenses?

Or the worst, Are you trying to put off the inevitable?

But for everyone who is trying to establish a line of credit, your banker will want to see how you have managed your business. Are you gaining customers? Are you proactively going for new accounts? Are you too dependent on just one customer? How are you planning to grow?

These are all questions you want to be able to answer before you go for a line of credit or a small business loan, as these are the kinds of things your community banker will ask.

Your local banker is looking to see that if they give you this credit, it will it change your game and grow your business.

Bankers want to help you, they really do, and not just with money.

Your community banker also has knowledge and information about all types of businesses in your community. They can give recommendations in general terms about trends in your area, as well as give you referrals for other professional services that could help your business.

Finally, they can look at all your obligations and streamline them to make you more profitable. They can do all that, but you have to be willing to get your business in shape and go through the process before you really need that money. Then you get the peace of mind a line of credit brings. Here's a list of six small business lines of credit.

It's great to say you only pay cash but that may be limiting your ability to grow your business.

You have a lawyer, an accountant and a doctor, why not a banker?

Go for the line of credit when you are more bankable, not less.

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