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Getting a Line of Credit, Sigh
 
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    Getting a Line of Credit, Sigh
    Hello-

    Does anyone have any advice on how to best approach a lender, or perhaps recommendations on lenders in the US to approach? I sat down with my bank's business officer and after a long discussion he thought my business was great and everything would be fine for my application for a $10,000 line of credit -- but the processing department declined it.

    Apparently, since I only have 2 employees the bank considers my application 100% entirely on my personal credit report without regard to anything in my business financials or business plan. That's their internal policy.

    My credit report does not have a single negative item, everything is always paid. The problem (as I'm sure the rest of the business owners here are aware) is business items being reported on personal reports and left over startup costs I financed on my personal credit resulting in "large balances". As a result it drops my FICO into the 670 range.

    Approximately $180,000 in startup was financed by myself, and in 2.5 years I've paid that down to $25,000 along with taking out a living salary and growing the business. Doesn't seem bad to me.

    I have a very realistic business plan that with very conservative estimates (backed up with documentation) show definite growth. I just need the benefit of a working capital line here and there.

    I certainly understand their concern in lending the money, but I figure they would at least be open to some more discussion beyond the point-click-fico-too-low-denied.

    I'm hesitant to try another bank if my own bank that can see my account history won't consider it, and I don't want to lower my FICO even more by excessive inquiries.

    Any suggestions?

    Jasper


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    Hi Jasper
    I can understand your frustration. I operate a SME finance and advisory business in Australia and the conditions are much the same. When it comes to SMEs banks generally have a 'mass produced' system and pay little attention to individual circumstances.
    It seems you have done very well in the short period since inception. You are correct in saying that you should not simply keep applying to more lenders until you have set up a system where you can be surer of success.
    Have you tried putting a package together for private investors or lenders?
    What business are you in?
    Peter


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    Hi Peter-

    Thanks for replying.

    I've been told I should seek out private investors and lenders, but for starters I don't know where to look -- and secondly, I don't think my business would be attractive to them since I have growth that is sufficient to statisfy a bank loan, but I don't see a very attractive "exit potential" for a private investor to see mega growth on their investment.

    Since I'm in retail selling yarn, I don't have large equipment on real estate that I can use to collatoralize the loan. Just inventory -- which my bank doesn't consider as collatoral.

    I spoke to my bank officer yesterday and I'm considering putting up 50% in a certificate of deposit to secure part of the line to get the application approved. Obviously I don't want to tie up that much money, but I do need to start some good business credit history so maybe it's worth it.

    Gotta think on that one....

    Jasper


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    Do you have collateral that you can offer to help secure the loan? The issue isn't your good credit, but your personal ability to repay the loan. If you don't have the personal means to guarantee the loan, the bank won't approve you because they are taking on a lot of risk with it. If you had collateral to help offset the risk, they might be more willing to grant the loan. Have you talked to the lender to find out why they declined it? If you haven't, it might be worth a conversation to see why and what it would take to get it approved and then work it from that angle.


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    It's best to go to your bank in which you have had a fairly good amount of transactions. As long as they see that you are actively using your bank account and that your transactions are legal and fair, I do not see why you would be declined. Indeed, developing good relationships with banks is very crucial whenever you're setting up a business.


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    Can't you use something, such as your house/apartment, as additional collateral?

    Also seeing as it's only $10k, have you thought about asking some good friends or relatives for a loan? I know it's not the ideal situation, but seeing as you seem pretty confident in your capabilities of paying it back... it's worth thinking about.


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    It seems like you've been growing the business very well. If I owned a bank, I'd happily lend you $10,000.

    As recommended by an above poster, I would try going to family, friends etc. to get the money seeing as though it isn't a huge amount.


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    It's exactly like you already said: when you talk to someone in person, you seem like a perfect person to lend money to because you are able to explain the entire situation. When you leave and your information moves to the processing department, they only look at number. They don't know anything about you or your business. So if the numbers aren't that great, they just decline you.
    You could try other banks and hope someone will take a longer look.
    Don't ever loan money from some of those scamming loan sharks even when your need is high.


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    I've seen a few folks recommend that you borrow $10K from family or friends...I can't fathom the thought of borrowing this amount of cash from either. It's a lot of money to me and if someone were to ask me to borrow $10,000, there would be no way, no matter how good the person is or how good the investment looks. You are better off looking for angel investors or even trying a crowdfunding campaign then trying to borrow this money from friends or family. But, like delusional recommends, stay away from high interest loan sharks.


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    I feel your pain. My credit is in the 500s and I find it almost impossible to get a loan. Every time I do I have to put up some kind of collateral like my house or car. I always manage to pay my loans back but it's pretty nerve racking until I do. That's why I just do internet marketing from my home as my business. That way there's no rent involved for an office, no payroll for employees, I think you know where I'm going here. Just keep things as small as possible that way you won't have to worry about borrowing a lot of money.


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