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How To Manage A Small Business Credit Line

by Dawn Fotopulos on 2013-01-08

Very few small business owners know how to manage a credit line from the bank.

Laura Reddy, interior designer, is the exception. She's on her way to a $1million dollar business, but she doesn't know it yet.

We had a great conversation the other day celebrating the $50,000 credit line the bank extended to her business for the first time.

Laura said, "I have a real business now!"

She always has, it just feels different when the bank confirms it. 

Here are five tips for managing a credit line:

First, pull down 10% of the credit line when you don't need it.

Park the funds in the company's checking or savings account for five days, then pay it back before the weekend.

Two weeks later, do the same transaction. 

Do this every two weeks for the first two months you have the line. It will cost you a tiny bit in interest costs, but it really helps your company's credit rating.

After that, do this once a quarter.

From the bank's standpoint, you look like you don't need the money. Truth is, you don't initially.

Banks love customers who prove they can use credit lines responsibly. Then when you actually DO use the credit line for a longer period of time, the bank won't blink an eye.

To them, it's just business as usual.

Second, only use a credit line to invest in activities that drive revenues directly.

This includes strategic marketing efforts like effective online marketing campaigns or sales people who deliver.

Third, do not use a credit line to expand your operations unless you have the purchase orders and revenues in your hands.

It's better to chase capacity to get the job done than to stay up late stressing about how you'll pay for the expanded space with a dry sales pipeline.

You're not working for the landlord. You're working for you.

Laura totally gets this. Her credit line is approved, but first, she's going to one of my workshops to develop a great sales plan for this year.

Remember, revenues first, then hold the reigns on spending.

A colleague said she should only expect to do 20% increase in revenues over last year.

Armed with her Profit and Loss Statement data, a leaner operation, great customer satisfaction and a spanking new credit line from the bank, I think she can blow that revenue goal out of the water.

Stay tuned….





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