Question
“I’m a retail store owner. Even though we’re growing and profitable, I’m having trouble convincing my banker to increase my line of credit. What can I do to win him over, and what are some financing alternatives? Thanks.”
Reader responses
Sharon Davis
Here are some suggestions that may help increase the operating line of credit:
- Does your bank have all of your credit & debit card business? If your bank has access to your daily cash before any other creditors, they are more likely to advance a greater line of credit.
- Is your current ratio in line with your bank’s covenants? If you exceed the positive and negative convenants with your bank then a solid argument exists for an increased line of credit.
- Are your financial statements audited? Banks have more comfort with audited financial statements.
If you meet or exceed the above mentioned covenants and your current bank still will not increase your line I suggest you shop around. Don’t rule out talking to the Business Development Bank of Canada, which offers several different lending programs, some of which are for financing growth.
Murray Kobe, PEO Canada, Calgary
If you make a small profit, you may need to show better cash flow and turnover of cash within your business to receive additional funds from the bank. If you make a larger profit, show your banker projections for consistent future profits and how you will pay back a larger loan.
You should present a positive cash-flow statement to show that your growth and profit is sustainable, which would make the banker more comfortable in lending more cash. Ensure that your accounts-receivable average is less than 30 days to maximize cash flow and increase your security.
Banking is a relationship. If you haven’t already you should be creating a relationship with your banker so that they understand you, your business and your business plan.
Sometimes one banker has had a bad experience with a similar business, or the bank’s corporate policy is to not overextend to companies in certain sectors. This is when you need to change banks and or bankers.
In summary, try and find out why the banker is not willing to extend additional credit, then work on that area or find a banker that will help you grow your business.
Sabine Schleese, Schleese Saddlery Service Ltd.
Marni may have to be open to putting a collateral mortgage on her home and signing a General Security Agreement with the bank in order to give them the confidence that she has just as much at risk as the bank does. Banks are moving away from the financing of receivables and inventory. Another alternative might be approaching an alternative bank, such as BDC. (These are all recommendations based on our own experiences!)
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