This is a question I really want an answer to. What are you willing to pay for a $100,000 credit line in your business name?I started thinking about this when one of our lending managers received a call from a company who offers $100,000 credit lines to small business owners. The requirements for approval seemed relatively simple, have a FICO score of 680 or better and a business license. Our manager was obviously intrigued based on today’s lending climate.
He spent quite a bit of time working with the company and their underwriters to completely understand their process and requirements before we started offering it to our clients. They told us there were other companies similar to ours offering their program and we should jump on board.
Obviously as part of our due diligence we spend time researching a company before we refer our clients to them. I don’t just jump in based on someone telling me our competitors are doing it. I always do my own due diligence first. In addition we want to see all the paperwork a client would have to sign so we are completely informed of what they are expected to do.
It was during this phase of research we realized what they were charging the clients.
I don’t want to tell you just yet what that figure is. I need to prepare you first, so you don’t fall out of your chair.
When I first founded BCS we spent a lot of time researching companies offering bank lines of credit for small business owners up to $50,000. The line was provided with a good personal FICO score, business credit score and reported to the business credit bureaus so it didn’t show up on your personal credit report. It was a pretty good deal to have four or five of these credit lines even though you may have personally guaranteed it because it wasn’t showing on your personal credit report.
Imagine having access to $250,000 any time you needed it and never having it damage your borrowing ability personally. That’s what many of our clients were and still are able to do with good personal and business credit. Yes, there are some of these programs still available although less than 40% of what it was just 2 years ago.
When we first researched these banks we found brokers who were offering these lines to small business owners for a 5-10% fee when they got them the line of credit. I suppose I can understand someone paying for someone else to research the banks and find them so you don’t have to hassle with applying and getting denied by banks with stricter requirements. The more you apply and get denied the less likely you will get approved when you find the bank that you could have gotten credit with initially.
Even so these companies were charging up to $25,000 for $250,000 in credit lines. If you were to break that down as an annual percentage rate in addition to what the bank charged you would find annual percentage rates of 400% or more. Average credit cards are running 15%
When I saw what everyone was charging to do this, I decided to research the banks ourselves and offer our Business Credit Builder clients access to the list and requirements free of charge. They wouldn’t pay anything extra to know who the banks were, saving them up to $25,000. Obviously for an investment of less than $2,500 with BCS to do much more than just find an application but rather build their business credit profile, a $25,000 savings was worth the initial investment.
So back to the company we just found today offering $100,000 credit lines. In the paperwork we found that they were no different than these other brokers we have seen in the past charging finder fees for getting them the financing. However, this time possibly because it’s more difficult now than ever to obtain small business credit, they have increased the fee to 29% up front when the credit line is secured. In addition they said if you want to make money too just add whatever you want on top of that. That means some companies out there brokering this company’s services are charging upwards of $35,000 for a $100,000 line of credit.
If you could qualify for this line of credit you can find another one somewhere else for no fee.
Please do me a favor and the next time someone wants to get you a credit line ask what all the fees are. It’s really not worth the money for what these sharks are charging.
David Gass – Founder
Business Credit Services, Inc.
www.bcscredit.com
