Over the last year or two, we’ve heard on all kinds of distress from small businesses that banks aren’t lending or creating credit lines for businesses….those with less than 500 employees. Actually, it’s in the segment below 50 employees that the most distress is being felt, so we’d like to outline some steps that the average small business can take. We have more of these ideas in the American School of Entrepreneurship’s Course on Alternative Financing (E-14, web site www.theasoe.com), but here’s a quick summary of some of the highlights:
1. Change Banks. If you’ve been turned down by a ‘money center’ bank, such as Citi, Chase, BofA or Wells, take your case to another bank. The big banks have always specialized in lending to large companies, and will continue to do so. Mid-tier banks (e.g., M&I, now owned by Bank of Montreal, Mid First, Parkway) are lending, and would actually like to see you.
2.Get a Plan. Banks are no longer your ATM, where you show up and they give you $25K whenever you want it. You’ve got to have a plan as to what you’re going to do with the money, and how you’ll repay it. A one-page plan in the hands of a new banker does wonders. For example, one client just borrowed $1.4 million to do an acquisition, and another is approved for $140,000 for an acquisition, both using a one page plan.
3.Check Your Credit. Your bank may be operating on erroneous credit information on your company or yourself. Get a copy of your business DUNS report (Dun and Bradstreet), and go over what’s in the report. It might cost a few bucks, but it’s worth it. Do the same with your personal credit. If you are in a state hard hit by real estate property declines, you just might have severe problems, according to NFIB (National Federation of Independent Business), regardless of plans, credit reports, etc. Seek alternative financing, as outlined in our course.
4. Talk to Multiple Banks. Credit lines in particular were savaged by the money center banks in 2008/9, for very picayune reasons, such as being late one day in payments. The big banks will stick to their practices, but the mid-tier banks are more receptive.
5.One Page Summary. Put together a one-page summary of what you want to do with the money and plans for repayment, with two years’ tax returns (preferably signed by a CPA), and put the entire package in the hands of at least three banks. Meet the Business Bankers from each Bank, and judge the cut of their jib, to see if you’d like doing business with them. Odds are that one or two of the banks will approve your credit line. You’ll have to move your business checking account, too.
That’s it for now. Try these procedures and let us know how you’re doing
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