Over 90% of bank financing applications are denied on the spot without telling you why. It won’t take long before the inquiries pile up and your credit goes down. You need to know you qualify before you even apply. Plato once said that “the beginning of wisdom is the definition of terms” and in that spirit, let’s get clear on a couple of key terms that you’ll see repeated throughout this site:
- Business Credit: This is a wide net that can encompass several terms. For sake of clarity, we split business credit into two areas: Trade Credit & Bank Financing
- Business Credit Score: Just like your personal credit score, your business can develop a score of its own with the business credit bureaus. Your business credit score is routinely used for trade credit and equipment leasing.
- Trade Credit: This is credit with a specific business. Some vendors may offer revolving accounts that are good only with their business. Others offer terms, a number of days to pay your invoice.
- Bank Financing: When we talk about bank financing, we are specifically referring to business lines of credit, business loans and credit cards. Commercial mortgages and factoring are other popular offerings from banks.
- Unsecured Lines of Credit: This credit is as good as cash. It can be transferred into business accounts, drawn upon with checks and most even provide a credit card for easy access. The credit isn’t secured by any underlying asset – just guaranteed by you personally.
- Secured Lines of Credit: This credit operates just like an unsecured line, except, you guessed it, it is secured by an underlying asset, usually real estate.
There are a lot of companies pitching to small businesses that like to blur these terms. In particular, they try to make bank financing appear to operate just like trade credit. Don’t be suckered. No one has discovered secret banks or a free lunch. Short-cuts are usually doublespeak for fraud, so be careful out there. I believe that an unsecured line of credit is one of the best business financing products on the market. You can’t beat the flexibility or advantages they provide.
The single greatest advantage of an unsecured line of credit is what I refer to as a “ghost guarantee.” Most banks, and certainly all of the banks we work with, permit a ghost guarantee for their unsecured business lines of credit. What this means is that while you are personally guaranteeing the line of credit, it does not appear on your personal credit! Unfortunately, very few report anything to your business credit either (so they don’t help you build your business credit score). These lines only report in the event of default, in which case it will report on your personal credit and may report on your business too.
Let me explain why the ghost guarantee is so important to you. The single greatest risk you run as a business owner is that you’ll leverage your personal credit cards and push your revolving debt ratios beyond the acceptable limit. This can push you outside of the acceptable parameters for qualifying for future business and personal financing and can lower your credit score considerably. Having and using an unsecured line of credit wisely, will enable you to create a personal credit report that accurately reflects your personal credit habits, while keeping the business separate.
Another area where business owners are routinely snookered is business plans. There are many reasons to create a business plan, in most cases, obtaining a business loan is not one of them. I’ve seen entrepreneurs present $5,000 – 100 page plans to bankers who courteously flip through them, brush them aside and go directly to the one page application. You don’t need to prepare a boat anchor business plan that no one will read. Unless you have several years in business and at least a couple million in revenue, you won’t even speak with the one banker that might know how to read them! The vast majority of business owners will be best served with the stated income, no documentation unsecured line of credit offerings. These programs are autoscored. Meaning that banks have developed complex lending matrices upon which they make their lending decisions. You either meet the criteria or you don’t. All the begging and butt-kissing in the world won’t change that. In fact, in most banks, the business banker dedicated to small business owners (revenues under $2m) splits time between car loans and setting up checking accounts.
In order to reach economies of scale, banks have killed the business banker and replaced him with THE MATRIX. Over the years I’ve spoken with a number of business owners who have knocked on bank doors searching for financing, only to rack up a string of inquiries and denials. Such rejection leaves their personal credit worse off than when they started and they are no closer to financing than when they started.
At the XBanker, we take a radically different approach. We offer the Business X-Ray. The Business X-Ray is our patent-pending process for analyzing your business and personal credit, and your business’ readiness for financing. The Business X-Ray will tell you exactly what you need to do to get financing for your business. All this is done without generating an inquiry on your credit report and whether you choose to do business with us or not, it is packed with sufficient data to be a valuable asset for you and your business. Assuming you qualify for the XPress Financing program, our consultants will work with you to make sure that you have the best possible chance of being approved.
Over the years we have built the Bank Xchange – a proprietary database of bank lending criteria and banking insiders that we use to pair you with banks that give you the best possible chance for getting financing. The days of shooting in the dark are over. Click here to schedule a free initial consultation.
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