While the stories surrounding several national banks cutting small business lines of credit for business owners it’s important to note that there are state banks, credit unions, and regional banks that are still issuing credit lines to small business.
After the recent economic downturn small business owners like you are facing a new era when it comes to business financing. Banks, lenders, suppliers, leasing companies and others are making adjustments, adopting new rules, and facing new regulations in the lending arena.
When you are prepared and educated on the approval process you can have full confidence in knowing that you can obtain as much bank lines of credit as you need with as many banks as you wish. Now, let me be the first one to admit that the following information does not guarantee an approval but you can be assured that it does greatly increase your chances.
First, you should already have a business bank account and a good working relationship with your local banking contact. Your banking history is vital to your ability of being able to get approved for a line of credit.
Your bank will look to see how long that relationship has been established, so once you get your account set-up don’t change banks! There’s nothing wrong with having several business bank accounts and relationships with multiple banks.
To make the application process easier with less paperwork I suggest you apply for no more than a $50k line of credit. In most cases you will not have to provide tax returns or profit and loss statements when requesting this amount.
Use the following checklist prior to applying for a business credit line:
. Business credit file with a minimum 80 paydex score
. Personal credit score of 680+
. Bank rating classification of low 5 (minimum)
. Balance rating classification of low 5 (3 mos prior to applying)
. No NSF track record
Keep in mind that in order to qualify banks will refer to your business bank account because it reflects how you manage your cash flow. Lenders want to know that your business cash flow is capable of handling the business debt and expenses on a consistent basis. Bank accounts with low average daily balances, or that show many NSF returned checks, can get your business credit line application declined right away.
If a loan amount requires a $1,000 month payments then lenders need to see at least a “Low 5??? bank rating. Your “Bank Rating” is based on your average daily minimum balance over the last 3 months. Let’s take a closer look at what factors are considered when you apply for a business line of credit.
Three Factors Banks Review for Approving a Small Business Line Of Credit
. The first factor is your balance rating. This rating is your average minimum balance maintained in your account over a three month period. A $10,000 balance will rate as “Low 5???, $5,000 rates as “Mid 4???, $999 rates as “High 3???, and so on. You need to maintain a minimum “Low 5” bank rating ($10,000) for at least 3 months. Unfortunately, without at least a “low 5??? rating, most lenders will assume that your business has little ability to repay.
. The second factor is the bank rating cycle which is three (3) months. You’ll want to have at least a low 5 for the three months prior to applying for a line of credit or larger loan.
. The third and final factor has to do with how you manage the account. NSF (bounced) checks destroy bank ratings. From this point forward, NSF checks are something you can’t let happen. I would suggest that you add overdraft protection to your account as soon as possible.
These factors can greatly improve your chances for getting approved for a business credit line as long as you’re personal credit scores are 680+ not in the low 500 range. If your scores are in the low 500’s, it’s best to start repairing your credit and consider a CD Secured loan with your bank.
About the Author: Marco Carbajo is founder of the Business Credit Insider’s Circle. To learn more about business credit without a personal guarantee claim Marco’s popular FREE business credit seminar ($597 Value), available at: => http://www.startbusinesscredit.com Follow Marco on Twitter @MarcoCarbajo and read more of his insights on http://www.BusinessCreditBlogger.com