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Comparing Offers from Banks for Business Lines of Credit
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Home Page > Business > Entrepreneurship > Comparing Offers from Banks for Business Lines of Credit
Comparing Offers from Banks for Business Lines of Credit
Posted: May 05, 2010 |Comments: 0
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Comparing Offers from Banks for Business Lines of Credit
By: Business Venture Solutions
About the Author
Business LOC is a specially designed website for entrepreneurs that are seeking to raise capital for their startups, small businesses, and expanding existing businesses. The focus of the site is on Business Lines of Credit.
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Article Source: http://www.articlesbase.com/ – Comparing Offers from Banks for Business Lines of Credit
If you have a well developed business plan, strong credit, and reasonable collateral then it should not be unrealistic for you to obtain a business line of credit or revolving credit facility. Once you have been accepted by a number of banks or finance companies for a business LOC then it is time to determine which company has offered you the best terms. Foremost, you should look at the interest rate offered by the financial institution. It is a fixed rate credit line or will the interest rate increase/decrease with changes in the general economy.
Other considerations to factor into your decision regard the covenants regarding the credit line. Is the business LOC unsecured or is it secured by a piece of property that you have put up as collateral? Will you be required to personally guarantee the credit line? Additionally, many banks/financing companies require that your business (or your income) maintain a certain minimum level during the time that you are granted access to the revolving credit facility.
One of the other considerations that you must take into account is the nature of the credit line itself. If you draw down the line, what will be the repayment term? Will the business line of credit convert to a normal loan after the terms of the credit facility has expired?
One of the final considerations that you should take into account is if the business credit line of credit secured by your personal guarantee – how will the use of the credit facility impact your personal credit score? This is especially important if you have ongoing personal credit needs (such as property loans, credit cards, or car loans).
Once accepted for a business LOC, these are all questions that you must carefully consider when entertaining offers from a bank or finance company. If you have having difficulty making the proper determination based on the offers that you have received then it may be in the best interest for you to bring the proposals to your accountant who can assist you in making the best determination for both you and your business.
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Business LOC is a specially designed website for entrepreneurs that are seeking to raise capital for their startups, small businesses, and expanding existing businesses. The focus of the site is on Business Lines of Credit.
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Business LOC is a specially designed website for entrepreneurs that are seeking to raise capital for their startups, small businesses, and expanding existing businesses. The focus of the site is on Business Lines of Credit.
There is a very big misconception about the purpose of the SBA (Small Business Administration). Many new entrepreneurs think that the SBA acts as an arm of the government to provide loans for startup and small businesses. This is not true. The SBA acts as a guarantor of business LOC and loans provided by banks enrolled in the SBA program. In the event that you default on a credit facility, the US Federal Government will reimburse an enrolled bank or financial institution. Essentially, Uncle Sam acts as your cosigner on a business line of credit or business loan.
As of 2010, in the event of default, the Federal Government will provide a bank with a reimbursement of up to 85% of the loaned amount depending on the SBA program that you enrolled in when you applied for a credit facility. The requirements for applying for an SBA Business LOC are pretty straightforward. Foremost, you must be a US citizen of good moral character (you cannot be a convicted felon and apply for a SBA program). The second important characteristic of an SBA backed business line of credit or business loan is that you must have the appropriate collateral and credit to support the debt obligation that you are undertaking. If you do not possess these requirements then you may want to seek alternative methods of financing discussed in our previous business articles.
Once you have been accepted into your specified SBA program, you can go to a number of banks to determine which financial institution will give you the best terms for a business LOC. When evaluating proposals from a bank or finance company, you should look at the interest rates, loan covenants, and repayment that is required of the specific company offering you the loan. Again, your CPA will be an invaluable resource during this time as they can assist you in determining which line of credit is most appropriate for you while concurrently assisting you in the negotiation process.
Business LOC is a specially designed website for entrepreneurs that are seeking to raise capital for their startups, small businesses, and expanding existing businesses. The focus of the site is on Business Lines of Credit.
The primary difference between a secured and an unsecured business LOC is that a secured credit facility has underlying collateral of which a bank or finance company can claim if you default on your credit line. As we have seen in previous articles, the collateral that can be used to secure a line of credit can vary greatly. Collateral can include but is not limited to:
Property owned by your business or personally
Equipment owned by the business
Accounts receivables
The general cash flow of your company (although this is semi-secured).
With an unsecured line of credit, there is no collateral involved. Again, this type of business LOC is highly akin to a credit card. Your income and your personal/business credit are the factors considered when applying for this type of credit line.
The primary benefit of using a secured line of credit is that the interest rate is typically far lower than that of an unsecured credit facility. Again, in the event of default, a secured line provides the bank/finance company with a great deal of security as you have pledged a tangible (and saleable) asset that the bank can use to recoup their debt investment. With an unsecured business line of credit, the granting financial institution has far less flexibility when attempting to require the funds that they originally lent to you.
As such, and if it is possible, you should try to obtain a secured business LOC. This will ensure that should something go wrong with your business – you have spelled out exactly what you stand to lose to the bank. However, it should be noted that if the collateral that you have pledged depreciates in value during the duration of the revolving credit facility then you will still owe the balance of what was recouped versus what was borrowed.
It should be noted that while obtaining an unsecured credit line is certainly possible, the current lending environment has caused almost all banks to now require substantial collateral for obtaining a business line of credit.
Business LOC is a specially designed website for entrepreneurs that are seeking to raise capital for their startups, small businesses, and expanding existing businesses. The focus of the site is on Business Lines of Credit.
Thomas Kish, Business Credit Expert, explains the Credit System, and the advantages of obtaining BUSINESS CREDIT. Learn more at www.WhoHasMyCash.biz
As an alternative to obtaining a traditional business line of credit, there are two types of facilities that use your future earnings or current receivables. A credit card receivables LOC is linked to your merchant account. This type of lender typically refers to this type of credit facility as a “credit card receivables advance.” Typically, this lender provides an advance of up to 2 months of income based on your merchant account usage history. Each time a sale is made, a certain percentage of the sale is deducted from your balance owed to the lender. However, this type of lending is very expense. The interest rates for this type of business loc can range anywhere from 15% to 29% depending on the state’s lending laws.
An accounts receivable business loc is secured by the individuals or businesses that owe you money. In this scenario a lender will look at your receivables, who your customers are, and how long they have owed you money. Based on these factors, these lenders (often called factoring companies) will provide you with a capped line of credit. However, it should be noted that even if your client does not pay – you will still be liable for the money drawn down on the business loc.
As an alternative to this, some lenders will “purchase” your receivables for a discounted rate. For instance, if John Doe owes you $1,000 then the lender will buy that receivable from you for $850 to $900. If you decide to sell your receivables to a third party – you need to carefully consider whether or not you can afford to sell your receivables for a substantial discount.
Business LOC is a specially designed website for entrepreneurs that are seeking to raise capital for their startups, small businesses, and expanding existing businesses. The focus of the site is on Business Lines of Credit.
Unlike a business investment from a private investor, obtaining a business LOC requires that you have a good personal credit score. If you do not have a great personal credit score then it is still possible to obtain a business line of credit, but it will be more difficult. In the event that you credit is not “up-to-par” then there are a number of lenders available that can provide you with alternative forms of debt financing that are not wholly dependant on personal credit. However, these lines of credit often have very difficult terms and high interest rates.
As any good accountant will tell you, it is imperative that you have a good credit before applying for a business line of credit, business LOC, or any other type of credit facility. Contrary to popular belief, your credit score is not directly tied to your income. Your credit score is based on the number of accounts that you have open, your outstanding balances, and your history of making payments to your creditors in a timely manner. As such, any bank or finance company that may be providing you with a credit facility will want to know this type of information. If you have large outstanding balances, delinquencies, or if the amount of debt you owe is far above normal than a bank or finance company will be less inclined to provide you with a business LOC.
As was discussed in our of our main articles, it is important that you are well aware of your credit profile among the three major credit bureaus that monitor personal credit profiles (Experian, Equifax, and Trans Union). Each of these companies can provide you with a full credit report that showcases your entire credit history over the past seven years. If there are any errors on your credit report, you have the right to have them fixed or reviewed by the credit bureau. Additionally, you have the right to obtain a free credit report once a year.
Business LOC is a specially designed website for entrepreneurs that are seeking to raise capital for their startups, small businesses, and expanding existing businesses. The focus of the site is on Business Lines of Credit.