Need to expand your business? Maybe you’ve outgrown your garage workshop and need a space for your business to call its own. Or maybe you’re applying for a big job and want to have a fail safe in place in case your cash flow dries up one or two weeks short of completion. All of these scenarios could mean you’re in the market to apply for a line of credit.
If you’ve just started your search for a lender, you’ll notice that it’s incredibly hard for a self-employed contractor to secure a line of credit. Financial institutions often don’t see you as an entrepreneur with a dream, they see you as an unreliable liability, a variable with whom anything could happen.
As miserable as some lenders are, try not to take it personally. Banks are in the business of betting – they’re betting on the fact that you won’t make it. It’s your job to prove them wrong. Showing a strong history of payments and deposits can help your case, but even then you may have to sign a personal guarantee against your home, car or other personal assets – something that not everyone is willing or able to do.
So what’s a contractor to do when they need a line of credit but the bank of their choice just won’t budge? Here are a few tips.
– Start shopping around. Check out your local credit unions and even other banks. Sometimes just the thought of losing a current or potentially valued customer is incentive enough to make your bank reconsider their position. If not, you’ll have a number of new options to choose from.
– Consider alternative sources. Certain financing companies are in the market and exist solely to help small businesses establish a revolving line of credit.
– Your local chamber of commerce or small business association can help you out with finding small business financing companies in your area.
– Whether you go with a traditional bank, a credit union or an alternative lender, know that you’ll have to make yourself look good on paper.
– Make sure your business plan (you do have one, right?) is solid and contains as much data as possible. Be prepared to offer up a list of suppliers and customers, or even client testimonials.
Sometimes it also helps to play around with terminology, and “self-employed” might sound risky to a potential lender. But “business owner” or “President of XYZ Corporation” sounds better to lenders. Even if you’re a company of one, you’re still the owner of that business. Flaunt it. While terminology may just be a technicality or a formality, it can also sometimes be the difference between securing a line of credit for your business and ending up out in the cold.
Finally, if you’re having no luck at all, all the networking you’ve done for your business and personal life may pay off. If you can’t get a line of credit anywhere else, social lending and social funding websites like Kickstarter or Indiegogo can help you establish a cash flow. How successful you are depends on your promotion skills and the ability to sell your business. While they’re still relatively new options in the world of finance, don’t discount them just because they’re non-traditional – a non-traditional funding option may be just what you need to get started.
The long and short of it is that you need to sell yourself as best as you can and put your best foot forward when dealing with financial institutions. As a business owner looking to get a line of credit, you must present yourself as fiscally responsible, financially successful and willing to do whatever you can to make your business work – and you need to be able to convey that on paper as well as in person.