By Hugh Stewart
A line of credit is a useful way to raise money for a business and should be procured before it is needed.
What happens all too frequently is that a business runs through the cash it has on hand and has no line of credit. Then, when a business owner goes to a bank in need of business credit, he or she is refused. This is the ultimate transgression: needing money. And in this environment, if you need money, you’re dead in the water.
There was one point in my business where this happened. Our growth rate was at 40 percent and we needed an extra $150,000 per week. A line of credit would have been useful — but we didn’t have one. When we applied, we were unable to get it. That is not a position you want your business to be in.
If you don’t need a line of credit to start your business, I suggest establishing one and not using it. Why? Even if the line of credit is a token amount, it begins a relationship with that lender, and as the business grows, it will be in a better position to increase the line of credit.
With a line of credit, there is interest that has to be paid. If your bank requires you to use it a little bit so that it stays open, then do so, as long as you do not incur too much extra expense.
There’s a company that I’ve had good success with in the past that has helped us get to where we need to go.
That company is fundinguniverse.com, now also known as lendio.com. Another useful site is unsecuredline.com. They both have a number of programs that systematically prepare and develop your business to be ready for multiple streams of funding. Both help get you funds anywhere from $15,000 all the way up to $500,000.
What I am seeing in the current marketplace is that it is very difficult for regular individual business owners who are busy to go apply for loans. It is not very easy. The chances of being turned down are very high.
I’ve found that by engaging some of these loan brokers out there, you have the opportunity to leverage their knowledge and their skill. Many will not get paid until you get funded. The thing I liked about Funding Universe is that they actually take your business through a review process and show you the weaknesses that you have on your business credit that are seen as derogatory in the eyes of the banks that you are applying to. They will help you improve your business credit score and get you to a point where you are applying with multiple banks, getting the money that you need to grow appropriately and responsibly.
It is better to have a line of business credit than to need it and not have it. Get it early.
Hugh Stewart, founder and CEO of Confident Solutions Coach, has both a substantial education background and diverse entrepreneurial background. Hugh was not only a nuclear fuel designer, but he has created and operated more than 17 businesses in the past 10 years, in industries such as money services, real estate, advertising, reinsurance consulting, and coaching. Hugh seeks to help business owners who are struggling or simply wish to move their business to the next level. You can reach him at email@example.com.
Originally published: Sep 14, 2011