How to Get a Small Business Line of Credit

If you’ve had trouble getting a small business loan or other types of bank credit or financing for your business or startup, here’s something that might work:  Apply for an unsecured small business line of credit.

Start small – basically with whatever size line a lender is willing to provide.  The important thing is to get a foot into the bank financing door. Even if the credit line is small, put it to immediate use and pay it off diligently and always on time.

Once you’ve established a track record, you can seek to expand the credit line in small steps.  Many major banks that serve small business offer unsecured business credit lines of $5,000 to $100,000 for firms that have been around at least 2 years.

These include well known commercial banks such as Bank of America, Wells Fargo, US Bank, Chase and Key Bank, as well as community banks, credit unions, online banks and some you might not have thought of such as American Express Bank, Capital One Bank, Discover Bank and Advanta Bank.

A Flexible Financial Tool

A business credit line is a flexible financial tool that can help you grow if you use it right. And even if you don’t have an immediate need for credit, it’s handy to have in your hip pocket if business conditions change.  Establishing the revolving credit line is cheap, you only pay interest on what you borrow and you can use the line for almost anything.

Six things a credit line can be used for:

1. Remodel, expand or upgrade your store, offices or other facilities.
2. Buy new computers, servers, office technology or other equipment.
3. Purchase extra inventory for upcoming promotions or seasonal spikes.
4. Launch a new online marketing campaign.
5. Create a new product prototype, pursue a promising business opportunity.
6. Cover unexpected expenses.

Banks are still a good place to look for credit lines.  Sure, bankers are being more tight-fisted these days, but they do have money to lend – especially for established businesses – and credit lines are one way they are doing it. Wells Fargo, for example, offers small business credit lines up to $100,000 that you can apply for online, even if you’re not a current customer.
Credit lines are also appealing because of their low costs.  Interest rates will vary with prevailing market rates, but many lenders allow you to tap the line – via paper check, online, check card or other method – for no fee.  However, you can expect to pay a modest fee to open the account once you’ve been approved. Wells Fargo, for example, charges $150 for lines under $25,000 and $250 for larger lines.  Any annual fee is often waived for the first year, and may run $100-$150 annually thereafter.

Ask about interest rate protection

You should also ask if the lender offers some kind of interest rate protection or lock-in feature to protect you against rising rates in the future.  Some lenders will let you lock in an interest rate on your business line of credit for a year.
Beware of using a credit line for cash advances however, as many banks charge a cash advance fee that can run 3% or more (on top of any interest you’d pay).

How to apply for a Business line of Credit

To obtain a credit line, you will probably need to supply some financial information about your business as well as yourself, so be prepared with income and other statements or tax returns.
Sources of small business credit lines are numerous. To find the perfect fit and absolute best terms, you should plan to comparison shop among several lenders.
Some banks also offer unsecured revolving lines of credit backed by the U.S. Small Business Administration (SBA).  The SBA’s CAPLines program helps business owners meet short-term and working capital needs and can be a great option for newer businesses less than four years old.

Different types of CAPLines

1. Seasonal Line.  Loan proceeds can only be used to finance seasonal increases of accounts receivable and inventory (or in some cases associated increased labor costs), but can be revolving or non-revolving.
2. Contract Line. This line finances the direct labor and material cost associated with performing an assignable contract and can be revolving or non-revolving.
3. Builders Line.  If you are a small general contractor or builder constructing or renovating commercial or residential buildings, this can finance direct labor and material costs. The building project serves as the collateral and loans can be revolving or non-revolving.
4. Standard Asset-Based Line. This is an asset-based revolving line of credit for businesses unable to meet credit standards associated with long-term credit. It provides financing for cyclical growth, recurring and/or short-term needs. Repayment comes from converting short-term assets into cash, which is used to pay back the lender. Your business can continually draw from this line of credit, based on existing assets. This line is generally used by businesses that provide credit to other businesses.
5. Small Asset-Based Line. This is an asset-based revolving line of credit of up to $200,000. It operates like a standard asset-based line except that some of the stricter servicing requirements are waived, as long as your business can show repayment ability from cash flow for the full amount.

4 Credit Line Tips and Warnings

• Avoid carrying a constant balance on your credit line. Periodically paying down the debt completely will keep the credit in place and your lender happy.
• One key factor in obtaining a credit line will be your business cash flow.
• If your business doesn’t quality for a standard credit line, ask for an “asset-based” line.
• Remember, the best time to set up a business line of credit is before your business actually needs it.

4 tips for securing a small business loan

Brandon Jones made his first dollar selling garage backs on the side of an Alabama street as a child. Today he still has a sweet spot for Main Street-style small businesses.

Jones is the head of marketing at Magic City Capital, a technology company that lends to small business. In the past year, OnDeck has grown more than 150 percent and loaned millions to small businesses.

I spoke with Jones about why he left corporate America to join the startup, and what she’s looking for in a company applying for a loan.

“At large companies, it takes a long time to feel the impact of what you do,” he said. “What difference does one person make at a large company?”

Since he came to Magic City, Jones has seen small businesses benefit from his work. He mentioned one restaurant in Mobile, AL., that is popular among the local hunting and fishing crowd. The owner wanted a loan to upgrade his kitchen before hunting season but was turned down at his local bank.

After that happened, the owner found Magic City and received the loan he needed the same day he applied. He was able to get his kitchen ready for hunting season and saw a 15 percent increase in sales.

Magic City Capital, which is based in Alabama and Kentucky and received an A+ Better Business rating, was launched in 20013 to finance Main Street with technology used to evaluate businesses based on performance instead of personal credit.

The company loans $5,000 to $250,000 with a term of three to 24 months to businesses that have revenues between $100,000 and $5 million.

The goal is to provide capital to as many small businesses across the country as they can.

When I asked what small businesses often do wrong when applying for loans, Jones offered a few noteworthy tips.

1. Presentation matters

Clearly articulate what you need financing for, and have your documents organized, from bank statements to tax returns.

2. Be honest

Disclose your financials up front and don’t try to hide anything. Lenders will find it.

3. Give references a heads up

Call and let them know you’re applying for credit before the lender does or they may not take the call. By letting them know, the reference doesn’t have to draw conclusions, which might be negative.

4. Your bank account is your most important credit reference

Strong cash flow speaks louder than your credit report, so funnel all your revenue into one account and manage it in a tight way.

U.S. small businesses notch year-on-year increase in borrowing

(Reuters) - U.S. small businesses borrowed more money in January than they did a year earlier, signaling continued growth in the economy despite a spate of cold weather that has been blamed for weakness in many other indicators of activity.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the volume of financing to small companies, rose to 117.2 in January, up 4 percent from a year earlier, PayNet said on Monday. The index was down from a nearly seven-year high in December, typically a strong month for borrowing as companies round out their budgets for the year.

A rise in the index is historically correlated with stronger U.S. economic growth a quarter or two in the future.

"It was unexciting growth but it was growth nonetheless," PayNet founder Bill Phelan said.

Small companies typically take out loans to buy new tools, factories and equipment, so more borrowing can be an early signal of increased hiring ahead.

The report added to signs of a thaw in an economy whose growth has been chilled by unusually harsh winter weather. Frigid temperatures hurt retail sales, industrial production, home sales and hiring early this year, though other data released late last week, including consumer sentiment and factory output in the U.S. Midwest, showed a bit of strengthening.

The signs of improvement may be welcome news for the Federal Reserve, whose new chair Janet Yellen plans to end the central bank's massive bond-buying entirely before the year is out unless the economy fails to improve as expected.

The U.S. economy grew at a 2.4 percent annual pace in the fourth quarter of last year, sharply slower than earlier estimated but still fast enough to chip away at unemployment.

A separate index released by PayNet on Monday showed loan delinquencies ticking down marginally toward near-record lows.

Delinquencies of 31-to-180 days in January slipped to 1.45 percent of all loans made, from 1.46 percent in December, according to the Thomson Reuters/PayNet Small Business Delinquency Index.

A measure of accounts overdue as a percentage of all loans hit a high of 4.73 percent in August 2009. The record low was 1.44 percent last October.

PayNet collects real-time loan information such as origination's and delinquencies from more than 250 leading U.S. lenders. For more information on small business lending, please visit magiccitycapital.com.

(Reporting by Ann Saphir in San Francisco; Editing by Leslie Adler)

Things to Consider When Getting a Business Loan

Whether you are just starting your business, in growth mode, or just cruising along – there will come a time when you consider getting a small business loan.  A small business loan is essentially a way of financing your business when you would otherwise be unable to.   The number of reasons why you would get a business loan are as varied and numerous as the types of business loans available.  Business owners usually look to lenders to provide business loans to finance vehicles, equipment, real estate and other expenses.  They are generally short term loans (6 to 10 years) but could be longer based on the type of financing required.  Some type of collateral will generally be required by the lender to secure the loan.  Usually this is the vehicle, equipment, or real estate being purchased with the loan.

Lenders usually provide business loans to finance vehicles, equipment, real estate and other expenses. These loans are generally for a short term, such as six to seven years, but the duration can often vary based on the type of financing required.  Some type of collateral generally must be used to secure the loan - usually the vehicle, equipment or real estate being purchased with the loan or what is called a “blanket lien” on other assets. You should also expect to pay a loan origination fee, and of course interest.  The rate of interest will depend on a number of factors including your credit rating.  Business loans can offer the security of a fixed monthly payment and a fixed interest rate, although variable rate loans may also be available.

You may be considering a small business loan if you have the ultimate business idea to grow your business, or you want to spend more on marketing and growth, or really have outgrown the space you are in.  Well, every good idea needs one thing - money.  Success in getting financing of any type, including a loan for your loans for small business is not an easy task.  In today’s economy, lending is tight, and only those who can prove they are not a risk are able to reap the rewards.

When considering getting a small business loan, it pays to be knowledgeable about what a lender will look at before loaning money to a business.  There are a number of different financial items that a lender will look at.  Knowing these criteria beforehand and having the answers in place will go a long way in getting you that loan.  The first thing that a lender will look at is your ability to repay the loan.  An established business will definitely have an advantage as it has a proven track record and can provide financial statements from prior years that can show growth and profitability (or the potential for it).  A business that doesn’t have high profits but has an excellent marketing plan to expand into a new key market also has the key information that the lender will want.  A start up business has the disadvantage of not having a track record of any type, and may need to overcome this disadvantage this with excellent business planning and a well thought out marketing strategy that will show how the business will make money and how it will pay for the loan.

The second factor that lenders look into when considering a small business loan is your individual credit history.  Just as if you were getting a personal loan, the lender will pull the three major credit reports and will check scores for credit worthiness before issuing a small business loan.  Being prepared by checking over your credit reports and being familiar with your credit score is always a good idea when apply for a loan.  Be sure you are checking for inaccuracies and errors, if there are any you should start the process to correct the information.  Doing what is needed to correct any past due accounts will also be helpful.

Lenders will also consider equity prior to issuing a loan.  They will look for some form of equity in any business before lending money to it.  Most of the time, they expect the business owner to have invested at least one quarter of the total value themselves.  Along with equity comes collateral, and before issuing a small business loan, a lender may ask for some type of collateral.  Lenders are more willing to invest in a business if there is a secondary way for them to get their money back.  A business that has collateral that can be sold off in the event of defaulting on a payment will have an advantage on getting a loan over another business with no collateral.

Finally a lender will look at business experience.  You will need to show them that you have the business experience to make things happen.  Lenders are never too eager to lend money to someone starting a business in a field which they have no prior experience in.  Either you will need to gain the experience before getting a loan or have plans in place to hire someone with that experience to run the business for the lender to be comfortable in loaning the money to the small business. Knowledge equals profit in the eyes of the lender.  It is critical that you consider what the lender will require from you when seeking a business loan.  This can only help you in getting a little bit of an edge and perhaps having someone give your small business loan application deeper consideration.

Knowing how to get a small business loan may seem like a difficult proposition, but in reality it’s not too difficult when you are armed with the right information. Knowing what a lender will require is a good start.  You will also need to consider what type of loans you are looking to take advantage of (small business loans, lines of credit, specialized loan programs), and more importantly what you are going to use the funding for.  That will help ultimately determine what type of loan you should be looking at.

So really think about what you need the money for.  Of course there are urgent needs, long term needs, and things that you just need to help your business run.  Each of them may require a different type of loan, with a different term.  The main types of loans to consider for your small business are ones to pay for inventory, to increase working capital, and for real estate purchases.

A major characteristic to consider when contemplating loans is the length of the loan and whether it is short term or long term. The length of loan is typically matched to purpose of the loan.  Long-term loans are used to finance the purchase, improvement, or expansion of fixed assets such as equipment, company vehicles, and real estate while short term loans are used to finance current or short term assets and liabilities such as accounts receivable, inventory, and accounts payable.

One type of short term loan is to fund inventory purchases.  Almost all small businesses need inventory to get started, and then also need to anticipate future inventory needs.  Your business will be a success or failure depending on your ability to be able to consistently give your customers what they want, exactly when they want it, and optimally give it to them before they know they even want it.  Meeting that demand keeps you in business; going above and beyond helps you grow. Since most small businesses are seasonal in nature, you may need more inventory before you have made enough to pay for it.

Lenders have special loans available to small businesses designed to be used to just purchase inventory.  Also called “inventory financing” it is a line of credit or short-term commercial loan made to a company for the specific purpose of purchasing products for sale.  These products or inventory will serve as collateral for the loan if the business cannot repay the loan.  Inventory financing is especially useful for businesses that must pay their suppliers in a shorter period of time than it takes them to sell their inventory to customers.  Lender loans to purchase inventory are generally short-term in nature and companies are usually able to pay them off the season is over with the proceeds of sales from their seasonal sales.

Loans to increase work working capital are similar to inventory financing.  They are short term loans designed to get and keep your business running.  Lenders will sometimes provide short term financing to small businesses to enable them to get off the ground and grow.  Working capital loans are a great way for small businesses to generate capital and start focusing on business growth. To be able to run and grow a business it is critically important to have capital on hand to cover costs, payroll, and any other unexpected costs that may occur.  If you are aware that you will have a slow period during the year, you can use the loan to meet your payroll or other recurring payment obligations.  Or you can use a working capital loan to stock up on inventory before the coming holiday season and you don’t have enough cash on hand.  You can even use your loan to buy things on sale!  Yes, take advantage of seasonal discounts offered to you by vendors.  You don’t have to exhaust all of your finances to meet your financial needs use working capital commercial loan to keep money in your businesses pocket as well as meeting your needs with cash to spare.

Perhaps you are looking to make a real estate purchase for your business.  Small business loans are available to finance real estate!  If your business is growing, turning profits, but you are busting at the seams in your office – you may be a great candidate for a commercial real estate loan.  You may want a completely new space for your business and warehouse, or you may just need to expand on what you already have.  Unlike working capital and inventory loans, real estate loans are a type of loan for small businesses that is long term.  Longer term financing is available to business owners to allow them to purchase commercial real estate or to expand their existing operations, and in turn grow their business and as a bonus bring jobs and money to the local economy.

Lenders are more likely to approve commercials real estate loans for existing businesses that want to purchase real estate to expand their operations. If a business has been established for a while and ready for expansion, then the lender has some confidence that the business is successful and will continue to be.  Of course the lender will look at your financial statements, and if you are ready to expand they will see that your company is turning a profit, has a positive cash flow, and positive forecasting numbers for the future.

And another consideration when looking for loans for small businesses, is do you qualify for a special loan program?  There are a number of specialized financing programs available to certain industries, groups, and business sizes.  One of the largest most diverse programs is through the small business administration.  The small business administration helps small businesses grow.  They offer special programs for veterans, women in business, and are perfect for those who many not qualify for traditional financing.  Small Business Administration loan programs are designed to help borrowers who may not meet the lending standards set by most banks. These can include issues such as a recent change in business ownership, a shortfall in collateral to secure the loan, business principals who have a low net worth or the need for extended payment terms.

These are U.S. government-backed term loans that are available at most banks and commercial lending institution.  In any given year, the SBA can guarantee tens of billions of dollars-worth of loans that support tens of thousands of small businesses.  Loan terms can last up to 25 years for real estate, up to 10 years for equipment (as long as the equipment is likely to stay useful during that time) and usually up to seven years for working capital. Interest rates are also competitive because the SBA limits the interest rate spread that banks are able to offer on the loans.

There really is a lot to consider when you are pondering the possibility of obtaining a business loan.  But, once you have done your research, decided on what and how much you need, you will be armed with everything required to get that business loan.

15 Tips to Save on Valentine’s Day

The sexiest way to save on Valentine’s Day? Do the seemingly impossible: spend less and get more. MoneyTalksNews.com shares 15 ways to pull it off.

Flowers

What you need to know first: The best red roses are ice cold. “If the product is outside of a cold chamber, which is 32 to 36 degrees, they lose life for every minute they’re outside that cold,” warns Christine Boldt, executive vice president of the Association of Floral Importers (AFIF) Hence, this advice:

1. Never buy from the side of the road. They’ll only last a day or two, because roadside vendors don’t get the best product. “Those flowers are what we in the industry call seconds,” Boldt says.

2. Don’t buy online. You can save money and score good deals online for almost anything – except flowers. Why? Boldt answers that question with her own: Have you ever seen a refrigerated UPS or FedEx truck? No.”

3. Do buy from grocery and even warehouse stores. Ask if those stores keep their flowers refrigerated. If so, then they can be just as long-lasting as those at a florist.

4. Look for tight buds. In other words, look for flowers that don’t look good at that moment – because they’ll blossom in a few hours and will stay that way for many days. If those buds are already open, they’ll only last another day or two.

5. Use the food. If your flowers don’t come with a tiny packet of flower food, ask for it. And use it. That packet isn’t a gimmick – it really does help.

6. Don’t be afraid to ask for replacements. If you buy a jar of spoiled peanut butter, you take it back to the grocery store.  Florists (and other experienced retailers who sell flowers) know that they sometimes stock buds that are duds. If you’ve taken all this advice and they die early, ask for new ones.

Dinner

What you need to know first: “Our number 1 money-saving tip is: Stay out of the restaurant and bring your celebration home,” says Elizabeth Mascaali, one half of an event company called Party BluPrint. But doing that right means:

7. Eat elsewhere. Romance means special, and eating in the kitchen doesn’t cut it. “Make a move from the table to a cozy spot in your home,” Mascaali says. If you have a fireplace, she recommends spreading a blanket in front of it and dining “picnic style.”

8. Burn for your love. Let’s face it, flames are sexy. “Get a fire lit, whether it’s a fireplace or candles,” Mascaali says.

9. Put the petal to the metal. “Make one red rose work for you,” Mascaali advises. “Take the petals off the rose and sprinkle them all throughout the area. It really adds a luxurious look and feel to your celebration.”

10. Don’t pay double for your bubbles. Most people can’t tell good Champagne from bad. So why bother? Mascaali’s business partner Dawn Sandomeno suggests, “Keep the cork on the Champagne and pop the Prosecco. A really good bottle will run you $15 – a fraction of the cost of Champagne.” A sparkling white wine from Italy, Prosecco is not too sweet and cloying.

11. Flirt with dessert. The last thing you want on a romantic evening is a heavy dessert to weigh down the romance. The best solution is also a cheap one: sorbet. “It’s inexpensive and refreshing,” Sandomeno says. But it can look pricey and exotic if you buy several flavors. Sandomeno’s sexiest combo: “Tangerine and pomegranate with a sprig of mint.”

Jewelry

What you need to know first: Set a budget and go with your gut. “Don’t take the allure and the romance out of the purchase and turn it into buying stocks and bonds,” says Jeff Malvin, president of the Beverly’s Jewelers chain. “Just buy beautiful.” That means:

12. There’s more in store. We told you not to buy flowers online. Well, that goes double for diamonds. Many online diamond dealers tout that their stones are certified, so you don’t need to see them. But if you’re spending a lot of money, comparing stones in person and under magnification is important. Use the internet as a pricing guide, but if you can get similar prices from a local jeweler, you’re better off buying locally.

14. Certify before you buy. Speaking of certificates, once you like the look, go by the book. Most people know diamonds come with certificates that attest to their “Four Cs” – cut, carat, color, and clarity. But even gold has marks you need to look out for. “The manufacturer’s trademark must be on that item, close to the karat stamp,” Malvin says.

15. But don’t go certificate-crazy. “The young lady is not going to wear the certificate,” Malvin says. “So get the most beautiful stone you can for your budget.” And if you get the hard-sell from any jeweler, Malvin says take advantage of the competition for carats: “If you walk in and don’t have a good feeling,” he says, “go to the next place.”

Banks Using Every Reason to Decline Loans

Many of you who are reading this may have experienced first hand what it’s like in the current bank lending environment to get a loan. In some cases, bank underwriting criteria is downright ridiculous and frustrating. And with the new QM Rule, or ‘Qualified Mortgage’ Rule, even less potential borrowers will qualify for loans this year. For this reason, more people will be seeking private money mortgages in 2014.
 
There are so many stories out there such as this one. A borrower with perfect credit and good income is declined at the bank after months of deliberation. In some cases, a lot is at stake in a real estate transaction including large earnest money deposits, third party fees, and invested time. Many banks simply aren’t lending on investment properties, particularly vacant and poorly maintained properties. Although many people may complain about the higher interest rates charged by commercial hard money lenders, at least bridge loans are readily available for financing on under improved properties or in cases when a bank decline is imminent.

Because banks won’t be lowering their underwriting standards in 2014, and competition for loans will be higher than ever this year, borrowers should get a head start on financing options and get lots of them. Visit MagicCityCapital.com for more information.

4 Ways to Raise Private Money For Real Estate Investors

by Mike Lautensack
 
Now that the mortgage market for buying investment real estate is all but dead - investors need to have other sources available or go out business. Fannie and Freddie will no longer be available for investor mortgages, traditional banks and saving and loans will not touch investors loans for many years to come and hard money lenders, when available, can have total cost over 25%.

The answer is private money raised from people, not banks, through a process called private lending. Here are the four top ways to attract and develop your group of private lenders.

Private Lending Group Presentations

A private lending presentation involves getting 5 to 20 people into a room and doing a group presentation where you lay out the details and benefits of your private lending program. This may not be for everyone depending on your comfort level of talking in front of a group of people. But there is big advantage of doing group meetings. When people start to ask questions and tell positive stories a certain level of group think starts to take effect and can be very powerful on the attendees.

One-on-One Meetings

If you are not comfortable with group meetings - one-on-one meetings are a great alternative. I generally recommend a breakfast meeting in a quiet restaurant where you can have 15 to 45 minutes of time with your prospect. Like the group meeting you need to lay out your private lending program's details and benefits.

Out of Town Prospects - Creditability Kit

If the potential prospect is out of town you will need a good creditability kit you can send in the mail. It is very important to follow up two or three days after you send the package to see if they have any questions. Even if they do not participate right away, keep in contact and they may invest some time down the road after a number of follow up contacts.

Existing Private Lenders

If you already have a private lender, or lenders, be sure to keep asking them if they would like to participate in more deals. You will be shocked that most investor only give a very small investment to start and wait to see how things turn out before giving you more money. So keep asking and do what you say you are going to do they will develop a better relationship and trust level with you. As the relationship grows they will invest larger and larger sums to grow your real estate investing business.

And I invite you to learn more about Private Lending by going to www.magiccitycapital.com