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Banks nowadays are being pretty tight fisted with their money especially when it comes to small businesses. I recently talked to a friend of mine who is a Vice President at Bank of Nevada in Las Vegas. The topic of the current credit situation came up and I asked him how tight the lending was. He said to me the only thing that the banks really care about now is your Fico score. Even your company financials are secondary to your score. He then mentioned to me that the same principles are applying to renewals that they apply to new applications. But some old principles can help your cause at renewal time provided you've been applying them since the start.
So what does your bank want to see you doing? Well for starters they want to see you using your credit line. The purpose of a bank line of credit is to cover cash shortfalls for small amounts of time. A bill needs to be paid but your customer hasn't yet paid you. You draw on the line and borrow the money you need to pay the bill. Once you've been paid you pay the money back to the bank. Over the life of the credit line you repeat this process continuously. Borrow and repay is what they want to see.
Now you need to remember the golden rule about asking for money. Ask when you don't need it. Then when you do need it you already have it. Credit lines are meant to give you short term flexibility. They should be used for ongoing cash generating operations. They should not be used for projects that may or may not see a return in the future. Nor should you stretch your budget for projects that are based on future returns thinking that you can use your credit line to cover expenses.
That's the mistake a lot of small businesses make. Say they find a piece of equipment they could use. Now they've done just fine without this piece of equipment in the past but for whatever reason they just have to have it. Maybe they think it will improve productivity or that there is more demand for its use than there actually is. But they don't have enough money set aside to buy it and they can't finance it. So they use money from there credit line to buy it.
Well now we run into the problem. If your company didn't have the money to buy the equipment outright without help how then are you supposed to pay the credit line back down. You see the second thing banks are always looking for is your ability to pay the balance down to zero. They want to know you have the ability to pay them back. And the more times you borrow on the line and then pay it down to zero the better you will look.
Now let's look at the other end of the spectrum. Your company has plenty of money and doesn't need to use the line. Use it anyway. You never know when your situation might change and if you show your bank you don't actually need the line they may not be inclined to renew it when it comes time. Remember they're in business to make money too and they only do that on money you've actually borrowed not on the fact you have a credit line.
Credit lines can be of great help or cause major problems. So don't treat it like you've just won a shopping spree because you have to pay it back.
Cash Miller is the Editor of SmallBusinessDelivered.com and hosts his own blog at www.SmallBusinessDelivered.com/cash-millers-blog.
So what does your bank want to see you doing? Well for starters they want to see you using your credit line. The purpose of a bank line of credit is to cover cash shortfalls for small amounts of time. A bill needs to be paid but your customer hasn't yet paid you. You draw on the line and borrow the money you need to pay the bill. Once you've been paid you pay the money back to the bank. Over the life of the credit line you repeat this process continuously. Borrow and repay is what they want to see.
Now you need to remember the golden rule about asking for money. Ask when you don't need it. Then when you do need it you already have it. Credit lines are meant to give you short term flexibility. They should be used for ongoing cash generating operations. They should not be used for projects that may or may not see a return in the future. Nor should you stretch your budget for projects that are based on future returns thinking that you can use your credit line to cover expenses.
That's the mistake a lot of small businesses make. Say they find a piece of equipment they could use. Now they've done just fine without this piece of equipment in the past but for whatever reason they just have to have it. Maybe they think it will improve productivity or that there is more demand for its use than there actually is. But they don't have enough money set aside to buy it and they can't finance it. So they use money from there credit line to buy it.
Well now we run into the problem. If your company didn't have the money to buy the equipment outright without help how then are you supposed to pay the credit line back down. You see the second thing banks are always looking for is your ability to pay the balance down to zero. They want to know you have the ability to pay them back. And the more times you borrow on the line and then pay it down to zero the better you will look.
Now let's look at the other end of the spectrum. Your company has plenty of money and doesn't need to use the line. Use it anyway. You never know when your situation might change and if you show your bank you don't actually need the line they may not be inclined to renew it when it comes time. Remember they're in business to make money too and they only do that on money you've actually borrowed not on the fact you have a credit line.
Credit lines can be of great help or cause major problems. So don't treat it like you've just won a shopping spree because you have to pay it back.
Cash Miller is the Editor of SmallBusinessDelivered.com and hosts his own blog at www.SmallBusinessDelivered.com/cash-millers-blog.
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Tips On Using Business Lines Of Credit
Okay so you've managed to land that much coveted credit line from your bank. But now you want to make sure you use it wisely.
By: Cash Miller
Okay so you've managed to land that much coveted credit line from your bank. But now you want to make sure you use it wisely.
By: Cash Miller
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Find the Pieces to Your Business Puzzle Right Here
Find the Pieces to Your Business Puzzle Right Here
Are Banks Turning You Away? You Might Want To Consider Person To Person Lending
In an age of tightening credit, when banks care about nothing more than your fico score and financial statement. When they no longer care about how good your product might be or about how long you've done business with them. More people are turning to micro lenders such as Prosper that help facilitate person to person lending.
How Does Accounts Receivable Factoring Work? A businesses strongest asset is its customers. Unfortunately they are also not normally considered a liquid asset. But you can still leverage that asset if you need to. And accounts receivable factoring is a way to do. You just need to be careful using this method.
Need A Little Breathing Room? Ask Your Suppliers For A Credit Line
If your business model is business to business then you've probably got a familiar problem. Like most such businesses you've got to wait to be paid. In the mean time you need materials for the next job. Your suppliers can probably help.
The Truth About Building Your Business Credit All businesses whether large or small usually rely on some form of credit to help get things done. In today’s business environment establishing your credit is more important than ever. What you may not know is the financial risk you may be personally taking when you sign on the dotted line.
In an age of tightening credit, when banks care about nothing more than your fico score and financial statement. When they no longer care about how good your product might be or about how long you've done business with them. More people are turning to micro lenders such as Prosper that help facilitate person to person lending.
How Does Accounts Receivable Factoring Work? A businesses strongest asset is its customers. Unfortunately they are also not normally considered a liquid asset. But you can still leverage that asset if you need to. And accounts receivable factoring is a way to do. You just need to be careful using this method.
Need A Little Breathing Room? Ask Your Suppliers For A Credit Line
If your business model is business to business then you've probably got a familiar problem. Like most such businesses you've got to wait to be paid. In the mean time you need materials for the next job. Your suppliers can probably help.
The Truth About Building Your Business Credit All businesses whether large or small usually rely on some form of credit to help get things done. In today’s business environment establishing your credit is more important than ever. What you may not know is the financial risk you may be personally taking when you sign on the dotted line.