By George Rose, Wells Fargo V.P., Business Relationship Manager
Maybe it was the candy shop that sold gum drops the size of golf balls. Or the comic book store downtown that ate your allowance and left your fingers black with ink. Or, maybe, it was the family-owned roller rink where you skated in endless circles under pink, yellow and blue disco lights. Whenever, wherever it happened, you’ll never forget it. It was the moment you knew you wanted to own your own business.
Fast forward to now. After endless planning, countless late nights and one giant leap of faith, you’re living your dream. After a couple years in the market, your business is thriving. You’ve got a solid group of clients, income is steady and your continued growth potential seems guaranteed.
You’re in a perfect position to start thinking about how a line of credit could benefit your business. With a couple of years under your belt, you have the perspective you need to understand how a consistent financing source could enhance your operations and make your business run even more smoothly.
Talk with your banker to understand the ways your business could benefit from a line of credit, including:
Short-term working capital
Maybe it’s a desktop printer, a water cooler or a couple of new chairs for the lobby. Or, maybe it’s last year’s taxes. A line of credit can be a great way to cover short-term, business-related purchases or fundamental operating expenses.
“Seasonal” help
Is managing your businesses’ seasonality a challenge? Maybe you need to invest in materials each summer for a return each fall. When income doesn’t flow steadily, coming up with cash to carry you through the lean times can often be difficult. A line of credit can help cover the “slow” times to even out your overall financial picture.
Check with your financial services company to find out if you can link your business checking account to your business line of credit. If this option is available, you’ll likely be able to transfer money between the accounts for even easier financial management.
Payroll
Even if your business experiences seasonality, your staff, and their need to be paid, does not. A line of credit can help ensure that you’re able to successfully manage payroll obligations even during slow times.
Before visiting with your banker about a business line of credit, ask yourself the following questions:
Have you been in business at least three years? Your financial performance over time is usually a pretty good measure of where you’ve been and where you’re going. To get a conventional line of credit from most financial services companies, your application will have a better chance of being approved if you’ve been in business for at least three years, or sometimes less if you’re a current customer. If you’ve been in business less than three years, consider asking your banker about line of credit options assisted by the U.S. Small Business Administration.
Have you filed for bankruptcy within the past 10 years? If either you or your business has declared bankruptcy within the past 10 years, chances are lending will be difficult to obtain unless you have repaid all of your creditors. The best way for you to re-establish a good credit record is to repay your creditors as soon as possible.
Have you consistently paid your bills, business and personal, on time? Most financial services companies will pay close attention to how you have handled your personal debt. While an occasional late or missed payment is understandable, if you consistently pay late, you may not qualify for business credit. If you find that you are consistently running short of cash, then you should take steps to trim expenses, increase sales revenues or raise equity for your business.
Has your business been profitable for the last two years? Generally, most financial services companies will want to know if your business is indeed profitable before developing a line of credit. Before talking with your banker, be prepared to show your business has been financially successful. Tax returns, balance sheets and expense account reports are quick ways to determine if you’ve shown a profit in the last few years. If your business is not profitable, it may be difficult for you to make the payments on your line of credit. You may want to examine your expenses for opportunities to cut back and look at your sales for opportunities to increase revenues.
You’ve worked hard to make your dream of owning your own business a reality. Talk with your banker to learn how you can help ensure the continued success of your business.
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George Rose is a Vice President and Business Relationship Manager for Wells Fargo. He has served in small business banking in Houston TX for over 10 years. George can be reached via email: george.rose@wellsfargo.com
