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By Tom Gazaway

In our four-part series on getting a business line of credit, we’ve discussed evaluating your deal and acquiring capital. In the previous post, we discussed best practices for utilizing your Unsecured Business Line. Now we’ve arrived at the final step in the process: Managing your UBL.

Some people will tell you that you’ve made it and now you’re home free. I would agree that after you have obtained your approvals, you’ve accomplished your goal. But there are some very important keys to proper management of your business lines of credit.

Let’s start by discussing traditional business lines.  These are unsecured lines of credit that are not tied to a credit card.  This advice is meant specifically for the management of unsecured business lines.  Unsecured lines pose a greater risk to a bank, so you will play by some different rules when managing an unsecured line than you will when managing a business line that’s secured by collateral.

Remember that business lines of credit are intended to be used for short-term borrowing needs.  A business line isn’t really intended for long-term borrowing.  You shouldn’t be using it as a down payment on your dream home or to buy that new S-Class Mercedes. For longer term purposes, you should be looking at a different type of financing – normally, an installment-loan product.

One of your goals in managing your UBL is to avoid the lender’s attention.  In other words, you don’t want your account activity or your account history to cause the lender to review your account and begin asking questions. You don’t want them to seek additional answers or documentation from you.

Most lenders who issue these unsecured lines of credit will open a business checking account — also known as a deposit account — that is attached to your business credit line.  Although each institution manages its portfolio differently, there are two main rules to follow if you wish to keep your UBL open and active:

• Never pay this account late. Not even one day late.  If you wish to maintain and preserve this account, then don’t give the lender a reason to close it or review your account. If you pay them late, it could work against you. I’m not saying that if you do this then the lender will never take any adverse action against you, but I am saying you don’t want to give them any ammunition. Don’t pay late. Period.
• Don’t let your deposit account get overdrawn. Keep it funded. It’s probably not a great idea to keep $100 in this account, but whatever you do, don’t become overdrawn. Yes, sometimes the business line serves as overdraft protection. In those situations it’s usually not a big deal, but I still recommend very close, vigilant management of the deposit account. Zero overdrafts is better than one overdraft, so avoid it if at all possible.

These are the two main factors that cause lenders to review your file. If a review is done, it’s more likely your credit will be checked, questions will be asked, and possibly the lender will request documentation from you. Avoid that if possible.

Next let’s talk about the management of the UBLs that come in the form of business credit cards. After those UBLs are properly utilized and you borrow from them, it’s wise to set up each and every business card for autopay of the minimum monthly payment from one of your accounts.

Another UBL management tip: Let’s say you have $100,000 in business credit cards and you want to access those funds. We always suggest that you set aside $20,000 – $30,000, and then only use the balance of those funds.  In other words, if you only use $70,000, then you’ll have $30,000 set aside. That $30,000 could cover your monthly payments for over a year.  If you do this then your UBL payments will have zero impact on your budget.

This strategy is especially good when you have the 0% introductory offers that most of our clients receive. If that’s the case, then you not only protect your budget, but you’ll have little to no cost for doing it this way.

Right now, in summer 2010, we’re in a credit environment where lenders are actually more likely to cut credit lines than they are to increase them. That does not mean that you cannot get your credit lines increased — it’s simply that you want to make well-informed decisions with the best possible chance of getting your desired outcome. We see more success in opening new business credit lines than we’re seeing in the increase of existing credit lines.

The other aspect of UBL management involves interest rates. Rates on business cards obviously fluctuate up and down based on a few different factors. As long as you’re making your payments on time, not going over your credit limits, and managing your account properly, you should be able to maintain good interest rates on your UBL.  At either six months or one year intervals, it’s a good strategy to ask the lender for either a credit line increase or a lower your rate.  You won’t normally get these if you don’t ask.  Nowadays, I think it’s best to ask for a lower rate rather than a credit-line increase.

If you found this series on getting unsecured business lines of credit helpful, or if you still have questions, please feel free to get in touch with me.  At Hawkeye Management, we’re here to give you honest and dependable answers about your business financing needs.

My best to each of you who are starting, building, or growing your businesses.

Photo via Flickr user jayneandd

By Tom Gazaway

In part one of this series, we discussed how to evaluate a prospective business line of credit deal. Next, we’ll discuss how to put together a strategy to obtain an unsecured business line of credit (UBL).

The next step is simple — notice I didn’t say easy. I said simple.

After evaluating a deal and determining that you and your business have the credit history necessary to obtain a UBL, it’s now time to acquire the capital. It’s time to go and get the UBL from the lender.  At this point, how we proceed depends on whether you will obtain a traditional Unsecured Business Line, or you are using a business credit card platform.

If you have a business that did at least $500,000 in annual gross revenue, which meets the seasoning requirements of the lender, and it is not in a high-risk industry, then you need to know the right bank in your market that will issue the UBL.  It’s important to note a couple of things at this point.

One is that most banks are no longer offering business lines of credit without collateral. So just because a bank offers business lines of credit isn’t enough. You need to know that you can obtain those business credit lines without collateral.

If the bank offers UBLs, then it’s very important to work with a competent financial professional who can help see your deal through the underwriting process.  I can’t tell you how many times people have picked the right bank and failed to get a UBL because they didn’t know the right person within the bank.

At Hawkeye Management, we’ve worked with many clients who came to us after they were denied by a bank — and then we took them back to that very same bank and worked with our contact person and were able to get the deal closed. If you are doing a traditional UBL and have the right bank and the right person, then you submit the application and your financials and work through the lender’s application process.

The other type of UBL uses a business credit card platform.  In this case, the acquisition phase is a little more complex.  You want to know which lenders offer business credit cards, and you need to know if they underwrite and service the loans themselves or if they have an agreement with another credit-card provider.

The largest banks in the United States offer credit cards directly. Beyond the largest tier of banks, the vast majority of banks don’t offer credit cards on their own — they partner with one of the larger credit-card providers and offer credit cards through a relationship with that larger lender.  Most of the larger banks have at least some of these relationships.  The bank with the largest number of these agreements — known as “private label” relationships — is US Bank, through their Elan Financial Services subsidiary.

The reason why the private-label component is so important is because if you applied at three different banks who all have the same private-label product with the same bank, then you’ve essentially just applied at the same bank three times.

Although we’re unaware of any industry data that confirms or denies this, we estimate that in over 90 percent of the hundreds of private-label credit-card agreements that exist, the underwriting and servicing of the account is done by the larger bank that offers the private-label agreement.

The other key thing to know is just because a lender offers a business credit card doesn’t mean that it’s a good one.  You must examine the terms. More importantly, in my opinion, you need to know if that lender is going to report the information to your three personal credit reports or not.

If the bank reports this UBL to all three credit bureaus, it kind of defeats the purpose. Then you’re not separating your personal and business credit, and it becomes no different than using a personal credit card.  We actually run into this sometimes, when people tried to obtain financing on their own.  Although there are other lenders who do this too, it’s pretty common knowledge that Capital One and Discover Card report the monthly activity for their business cards to all three personal credit bureaus. So please don’t apply for their business cards.

Once you get beyond those concerns, you’ll want to know who the best lenders are, how many of them you can approach, and the order in which to submit your applications.  Most of the best lenders for business credit cards are not the largest national lenders.

If you look at the Big Three – Chase, Bank of America, and Citi – none of them would be in the top five right now for number of credit lines issued and the ease with which the credit lines can be obtained.  If you look at a bank like Wells Fargo, which took over Wachovia Bank, it’s kind of unfortunate.

Wachovia used to be a very good unsecured lending institution, but now they are extremely difficult. Wells Fargo is traditionally very disinterested in unsecured lending solutions for small business owners.  Most of the larger credit lines on business credit cards held by the Big Three are from lines that were established prior to 2008.  Again, there are exceptions to every rule and they are still offering the product, but they have scaled back pretty dramatically on the credit lines they are issuing to small businesses.

The last thing to understand is the best order in which to approach the lenders, and what their lending criteria are. Probably most importantly, you want to know which credit bureau they consult when underwriting you application, along with their tolerance for multiple inquiries.

In other words, if you submitted six different applications for six different business credit cards to six different banks, and your credit was great, and all six of the lenders were good lenders for this product in our current lending environment, is that all that matters?  Well, not exactly.

This is where you need to remember what we mentioned in part one of our this series: The number-one reason for people with excellent credit to get denied for a UBL is “too many recent inquiries.”  Well, what do you think the chances are that your 4^th, 5^th, and 6^th applications will be approved, when they will possibly see all those previous inquiries?

The answer is that if you know which credit bureau they each use, along with their inquiry tolerance, then you can plan those six applications accordingly.  Those six submissions, done right, could yield a great crop of approvals — but those same six applications done wrong could have minimal success.

Another important thing to note is that simply getting an approval is not your only goal.  Let me explain.

What happens if you get a $5,000 approval from a lender on a business credit card?  You might think that’s great, or maybe it’s at least a good start, and maybe that’s correct.  However, what happens if that $5,000 approval is with a lender who commonly issues $20,000 — $25,000 approvals?  You just lost $15,000 or $20,000.

Most of the time, there’s no getting the additional credit you lost if you obtained the smaller amount to start.  At Hawkeye, we prefer denials over small approvals when it’s a lender who has demonstrated a consistent track record of larger approvals.  This is because we know it’s easier to appeal a denial or come back to that lender two to six months later and reapply.

After you’ve successfully acquired the capital you need for your business, you need to learn about how to utilize your credit. We talk about that next week in the post on utilization.  At Hawkeye Management we firmly believe that if you’re going to do this then you might as well do it the RIGHT way!

If you have questions about the process of securing a small business loan or unsecured business lines of credit feel free to contact us for a free consultation.

Photo via Flickr user AMagill

By Tom Gazaway

As I discussed in last week’s overview, the first step in any well-planned strategy for getting an unsecured business line of credit (UBL) involves evaluating the deal.  Let me explain this.

In our program, this process is basically our responsibility once you get us all the required documentation we need.  We will evaluate your business along with you and any additional credit partners or personal guarantors involved in your financing.

The primary portion of the free evaluation is a thorough and in-depth credit check. It should be done for all owners of the company as well as their spouses.  This will allow you to know and understand every angle of your credit situation.

Since credit is often the primary element that will determine if you’re approved, its importance cannot be over-emphasized.  The other thing you need to understand is that this process is more than simply checking a credit score.  First of all, you need to know all your FICO scores, and NOT a non-FICO-based credit score.

The only way you’ll obtain all three FICO scores is to obtain a so-called “tri-merge” credit report that is normally available through mortgage brokers and banks.  Since this is often difficult to obtain and because your request for your credit reports will then show up on your reports, we do not suggest a tri-merge report.  We utilize a combination of myfico.com and truecredit.com. This will give you two of your three FICO scores, and truecredit will give you additional data that’s not available at myfico.

The three most common problems we see in denied unsecured business credit applications are high use of personal credit cards, too many recent inquiries, and some minor negative items such as late payments.  Any of these or a combination of them can be very problematic. But they are almost always problems that can be resolved if you understand how to lower utilization and properly remove inquiries. We normally can do it without the accounts needing to be paid off.

The number-one reason why people with excellent credit are denied for UBLs is too many recent inquiries.  Don’t attempt to remove inquiries if you don’t know how to do this properly.  It’s also something that well over 90 percent of credit-repair agencies do not truly understand.  Please DO NOT attempt to remove your inquiries through a letter-writing campaign or credit-reporting agency dispute process.

If this is done the wrong way, then it’s likely the damage will not be easily undone. So do it the right way, or don’t try it at all.

The main goals of the evaluation phase are to make sure:

• your FICO scores are sufficient
• your utilization meets the lenders’ requirements
• the evidence of previous inquiries is not too damaging
• the age of the file and number of tradelines will match up with lenders’ expectations
• the business is seasoned enough, if the lender has seasoning requirements
• the business is not considered high-risk to your prospective lenders

Knowing what you need to know about your credit and your business will also help you understand if you qualify for a traditional unsecured business line of credit, or if you can only qualify for a UBL strategy that uses a platform of business credit cards.

After a complete and thorough evaluation of the deal, you will move on to the acquisition phase. We describe this phase in the next post week’s post on acquiring capital.

Photo via Flickr user bixentro

By Tom Gazaway

Obtaining an unsecured business line of credit can be an elusive process. So we’ve decided to share some of what we’ve learned.  We’ve been doing UBLs exclusively at Hawkeye Managment for the last three years, so we know what works and what doesn’t work.

This post kicks off a blog series that introduces the four-part process we use to help our clients get a UBL. We’ll explain each of the four steps in the process.

There are many people that will tell you that UBLs are too hard to get, or that they don’t really exist.  As small-business finance professionals, obviously  we have heard all the good and bad about UBLs, and want to share our insights with you.

To start with we want you to know — if you don’t already — that obtaining an unsecured business line of credit is probably going to be difficult without the services of a well-qualified consultant.  Keep in mind that I said “probably,” because it’s certainly not impossible for you to go directly to a bank and get your UBL.

But whether you choose to do it on your own or to work with a third-party consultant, there’s a lot to know about UBLs. That’s why we’ve created this informational blog series.  I also want to point out that many of the third-party consultants who claim to know how to access UBLs are, quite simply, scams.

We recommend you investigate any consultant you’re contemplating hiring by checking with consumer organizations such as The Better Business Bureau. Watch out for the one sure sign of a problem: up-front fees. If someone tries to sell you a cool program that sounds great, but you are asked to pay them before you obtain your financing, beware.

In the following four posts, you’ll learn the four key steps in the process of getting unsecured business credit.  It’s a system that was developed by me personally, and we use it every day at Hawkeye Management.  Keep in mind that this process does not exist anywhere else in its fullness.  I didn’t buy a franchise and have this information given to me.  It’s something I have done to help my clients. It’s been proven time and again with hundreds of our clients from across the country who have obtained their financing after choosing to work with Hawkeye.

Your comments and feedback on this blog series are welcome and appreciated. Feel free to email me with your questions.

Photo via Flickr user ivanpw