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Small Business Financing

Why is it Hard for an Established Business to Borrow Money? (Video)

Why is it Hard for an Established Business to Borrow Money? (Video)

 

Hey guys Sean Mory joining you for another session of LenCred Credit Geek Q&A, where we underwrite your dreams and give the lenders a reason to say say “YES” when the usually say “no.” Joined here by Dustin Weitzell today and we are talking about, “Why is it hard for an established business to borrow money?” I really like this one because, the question came from Mike out of Washington, Mike I really appreciate this because most small business owners do not really understand that just because you are able to get you company started and establish revenue and you did it with your own money. Good for you and you did not mess up in the process, that doesn’t mean that the banks are just going always lend you everything that you want.

The best story I have Dustin is I had a client doing two million in revenue, 10 years in business, he had a 12% plus profit margin every single year, taxes were perfect, everything was prefect, 800 FICO score. He got denied because he never established any business credit. He used his cash from the company, the revenue and his personal credit. Just because you have the ability to do it without business capital, does not mean you should.

Unsecured and having cash and we pay cash for everything is kind of a no no. Because for one you always want to keep that cash for reserve. Cash is your backup to your backup. Even if you want to pay cash put it on the cards and then pay that off with the cash so you are building credit history. You are letting them have a paper trail because granted you are not going know when you need it and you need it tomorrow and you have not done any of the building. Now you are going to start 6,9,12 months down the road of building creditably with the lenders.

Not to mention just that you establish those lender relationships! In your first two years you maybe use business credit cards and maybe you had a Chase Business Credit Card. You used it well, you paid it on time, maxed it our, paid it down, etc. Now you have established a strong borrowing relationship where if your revenue is good and your profit is there and your paperwork is right. That is a knockout punch, lenders are going to roll out the red carpet and beg you to come to let them give you some money so they can make some money off you. That is what lending is all about, it cost money to have money.

Lenders are all about the risk. They more you open your doors to how you use and pay back money, the more likely they are to give you more of it! They would rather give a real estate investor, once he has built a little bit of credibility and uses $50,000 and then pays it down and uses $50,000 and then pays it down. Lenders will give him more and more money as he shows he can handle it.

Say if you only spent $1,000 on a $50,000, if you were to need another $25,000 why are they going to give you more money when you have not used what they have given to you. Lenders will not know how you will spend it when you go out and max out the new lines because you have not used the money I have already given you. Lenders need to make money as well, so they are investing in you essentially. They are not lending out of the kindness of their heart. I hope that answers your question Mike. hope that was good information guys. I really felt that was a good question and I think it is important for those small business owners who are established to know, just because you are making money does not mean you are going to get everything you want and then some in the lending world. The lending space changes all the time. Thank you for joining us for another session of LenCred Credit Geek Q&A. We will keep on answering your questions keep on sending them to us.


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