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Ask HN: Has your company ever needed a line of credit?

60 点作者 akrai将近 6 年前
Hi! I’ve been researching this question for a while and after going through a bunch of research reports I’ve decided to ask some entrepreneurs directly. So, here it goes. As an emerging business, have you ever needed a line of credit to meet your obligations or to fund growth? How easily have you been able to secure a line of credit, if you did seek it?

22 条评论

patio11将近 6 年前
When I was running my own software business, we needed one pervasively for cashflow management. They&#x27;re rather difficult for small businesses to secure from traditional financial institutions in the US, especially post financial crisis, and the international character of my business didn&#x27;t make access easier.<p>The initial limit most banks floated to me was 10% of top-line revenue, but once they heard what topline revenue was (low to mid 6 figures), they generally suggested withdrawing the application and getting a credit card issued instead. I believe this is primarily because they thought it was unprofitable to underwrite the line of credit rather than an early denial for probable credit risk.<p>I ended up with ~$200k available on credit cards but couldn&#x27;t get a line of credit through a traditional lender. Since I needed one, I ended up getting it through OnDeck, which charged 36% APRs. While I was not thrilled about that number, at all, it protected me from having to raid family finances to support the business several times.<p>(This product theoretically exists in Japan, too, but is extremely hard to access for SMBs without hard collateral like real estate to lend against.)
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bhouston将近 6 年前
It is actually preferrable to get a line of credit instead of investment as it is non-diluting, especially if the interest rate is low.<p>There are a ton of ways to get loans or lines of credit.<p>In Canada (and there are probably equivalents in your country) there is:<p>The Business Development Bank which is government backed and will lend to riskier businesses. I have taken advantage of it. It will not take on risk like a VC but if you are already profitable, it can help you grow. I&#x27;ve done this to a large extent as the interest is often prime + 4% which is generally amazing.<p>The Export Development Canada which is a bank that will fund export oriented projects. You need a contract and they will advance you the expected payments.<p>There are high interest ways of factoring accounts receivable, but the interest rates can be quite high. I&#x27;ve never done that as I can not justify +30% interest rates.<p>True lines of credit are hard to achieve from a standard bank as they will want collateral that they can seize if you run into trouble. I have a software company so I never had true collateral, thus I couldn&#x27;t get a true line of credit.<p>Lastly, there is the possibility to use VISA and personal lines of credit that are tied to your assets. Just be careful that you do not screw up and put your hard earned assets at risk.<p>Also this seems to be realistic: <a href="https:&#x2F;&#x2F;www.svb.com&#x2F;blogs&#x2F;alex-mccracken&#x2F;guide-to-financing-growth" rel="nofollow">https:&#x2F;&#x2F;www.svb.com&#x2F;blogs&#x2F;alex-mccracken&#x2F;guide-to-financing-...</a>
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syedkarim将近 6 年前
I&#x27;ve used several of the high-interest rate online lenders, such as Able Lending, Kabbage, Fundation, etc. They are all the same. The company was over three years old, which is sometimes a requirement (or a key factor in risk assessment). The business was doing about a million dollars top-line, but not quite profitable. We did not need to point to growth, but did need to outline a plan that shows how we pay the loans back. The lower the amount borrowed, the less the lender was concerned with future cash flow. Almost all of the lenders required access to either Quickbooks or the business bank account.<p>Kabbage was fairly easy for $50,000; 18 month term loan around 19%. Fundation was fairly easy for around $100,000 for 18-months at 13%. Able Lending was an involved process for $500,000. That was a 36-month term loan at roughly 16%.<p>Since we can point to some months of profitability, significant capital expense in the form of R&amp;D, and consistent cash flow, an SBA loan (in the USA) is a possibility now. The interest rate is under 10%, the term length is 7 years (?) for working capital (25 years for real estate). That&#x27;s really the best deal in town, if you qualify. It&#x27;s not that hard to qualify, as long as you are not just starting out.<p>I&#x27;ve also borrowed $250,000 from a supplier. That was a pain in the ass, but was critical to staying alive. In all cases, I&#x27;ve had to personally guarantee the debt.
squirrel将近 6 年前
In the UK at least, lending on accounts receivable is one way businesses, especially those with large, slow-paying clients, can obtain financing. This can be called “factoring” or “invoice discounting” - there are technical distinctions between the two terms, but basically you get, say, £80K now, and the lender later collects your £85K invoice from the customer, keeping the difference as the cost of credit. This can be structured as a one-off, like the example I just gave, or an ongoing line of credit, if you have recurring invoices that you discount consistently. MarketInvoice is one company I know that provides this service.
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tluyben2将近 6 年前
Yes, even though my company was (sold my shares, it still is I think) profitable and wildly successful for the region, we needed a million euro from the bank to cover staff costs. Money comes in slower than it goes out in our business, but we had reputable clients so the bank had no issue providing a line of credit against signed contracts and sent invoices.<p>It was easier (and better imho) than getting an investor. Bank did not meddle in our business, just took interest (if we could pay it; it compounded for 3 years if I remember correctly).
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thrwawyyy1905将近 6 年前
No wasn&#x27;t able to secure it. Should have abused distributors to send us stuff without meeting their payment terms as written, since our fixed costs were low, profits excellent, and people loved it. Flying off shelves with high margin. At the time I thought meeting obligations as written was important for &quot;karma&quot;. Actually, I now think giving the distributors another outlet is way better for karma and for them than not being behind on payments. Abusing them for credit is an easy win for everyone especially them (and they know it) - long-term health is much more important, and money is very scarce and pursuing it is a waste of time. We left behind disappointed customers who couldn&#x27;t give us the money they wanted to, disappointed distributors when we weren&#x27;t reordering, and an ecstatic landlord who got all our renovations for free after successfully evicting us. We should have left behind happy customers, distributors who loved thay we were selling all their stuff and ordering a lot more but a frustrated receivables department with them having to chase us for months, and a disappointed landlord that they were stuck renting a place in a prime location for so cheap, when it was now so palatial.<p>If profits are very high, sales are very high and the fixed costs are low, the missing part of the equation is payment terms. Abuse them. The distributors aren&#x27;t going to go out of business if you pay them from your own profits on them. You will be the one to go out of business, if you try to get credit or factor it instead. Then they don&#x27;t get any reorders from you. I really wish I had known this.
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stevenjgarner将近 6 年前
Managed collateral through a trust: I set up a local access fiber to the home company in Iowa in 1996 and after we invested all our available capital in plant and equipment, we needed a line of credit to provision an unexpectedly large customer. We needed $400k and our assets were worth multiples of that, but they were not corn, securities or real estate (which is all that Iowa banks had any comfort with). An investor had $100k in a securities portfolio, which he was happy to pledge as collateral for the deal, but he did not want to lose the ability to trade the securities. So we set up a trust agreement with our local small town bank and trust, into which our guarantor contributed $100k. The bank (as trustee) opened an online discount brokerage trust account, into which they deposited the funds. Under the trust agreement, the guarantor had the right to trade the securities (but not withdraw any capital) and we had the right to pledge the entire value of the account as collateral towards our $400k line of credit at another bank. This was adequate (together with our plant and equipment) to get a non-recourse $400k line of credit. This technique could be used with virtually any type of collateral.
apcyyn3b7qipz5i将近 6 年前
I relied on a line of credit for my solo consulting business. Was fine for many years until 2008 struck. Lost in the static about 2008 is that from approximately October through the end of the year many businesses couldn&#x27;t get commercial paper debt, no one was buying.<p>In my case both of my clients failed to pay routine invoices, which lead to my being late with a single payment on the LOC. The day after I paid (albeit the bare minimum), the lender closed the LOC and my affiliated credit cards and demanded repayment of all outstanding debt. I ended up digging into my IRA to clear the debt as prospective clients were calling out the debt as a reason not to hire me.<p>I had relied on the LOC to smooth out month–to–month invoice zaniness with client purchasing departments. It had never been a problem until 4Q2008 and then it was a critical problem.<p>One of the two clients never paid, the other paid about six months into 2009.<p>I refuse to float clients any more and require all hardware to be paid for before I buy it or purchased&#x2F;leased directly by the company.<p>Took me over a decade to clean up the hit to my personal finances and credit rating.
rwmj将近 6 年前
When we were running a small company [edit: in the UK] we tried and failed to get an overdraft facility with our bank, and I think it was this failure which led to us having chronic cash-flow problems at the end of every month and for me at least it massively increased the stress of running the business. So line of credit == good!<p>I would just say that the time to get a line of credit is when things are going well. When you&#x27;ve got plenty of cash on hand and regular payments into your account from customers (or investors I suppose), that is the time to ask the bank for an overdraft facility &#x2F; line of credit. The worst time to ask is when you need it.<p>In hindsight I&#x27;d say get one even if you never anticipate needing to use it. (As far as I know an overdraft which you don&#x27;t use is free.)
rmetzler将近 6 年前
Not a founder, but I worked for a small company which was buying hardware and rented it out to their (much bigger) customers. Usually they didn&#x27;t have the money for getting the hardware and had to get a loan from the bank. I don&#x27;t think, there was much risk to it for the bank, because the company would get it back over time with the signed contract. But that might be my bias.<p>The founder told me that they were lucky because if the customer would have wanted even more expensive hardware but the bank wouldn&#x27;t want to lend the needed amount of money that would be a problem. Also timing was important for contract signing, securing the loan, getting the hardware and installing it.
0xcde4c3db将近 6 年前
I&#x27;m not an entrepreneur myself, but I vaguely recall an interview with a tech executive of some sort in which he said that he regretted buying servers instead of leasing them because the latter would have given the company a more solid credit history. Basically, the message was that it&#x27;s a mistake to wait until you <i>need</i> credit to make use of it.
gumby将近 6 年前
I usually get a line of credit as soon as I close venture financing. That’s the easiest time to raise.<p>It increases the cash available in a non-dilutive way, and has been cheaper than factoring and other such tools offered to startups. “Small business” deals are usually terrible — basically credit card deals.<p>If you raise the line and then manage to your original plan you can consider the debt an insurance policy in case things take longer than expected or some assumptions are a little wrong (if they are a <i>lot</i> wrong change your plan!).
antif将近 6 年前
If you have suppliers or vendors, you can request credit lines from them. Business credit cards are an option too, or you can apply your own captial.<p>Commercial lending typically factors in the current business revenues (or receivables). You should have a few lenders able to offer the business a line of credit, capped at about 100-200% of your average monthly deposits.<p>You could demonstrate that for an underwriter by providing either your most recent three months bank statements or a tax return. Personal credit of the owners will be reviewed, unless the business has comparable borrowing history.
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PopeDotNinja将近 6 年前
Banks don&#x27;t like risk, and you can assume they&#x27;ll assume as little risk as possible when extending you a line or credit. If you&#x27;re established (aka not just starting out), it&#x27;s much easier for a bank to see you as stable. If you have no track record of success, a line of credit will almost always be secured by some salable asset: real estate, accounts receivable, inventory, etc. If the business does have the necessary assets, then you&#x27;ll have to secure the debt by using your personal possessions up for collateral.
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idlewords将近 6 年前
I use a credit card that at this point has a $30K lending limit to fund things like hardware purchases. I suspect you&#x27;ll hear something similar from most small outfits, since it&#x27;s essentially impossible to get a bank loan at this size.
mirimir将近 6 年前
I had a ~$50K line of credit from a local bank, when I was working as a consultant. As I recall, I provided maybe five years of federal tax returns. My gross income was ~$100K at the time, but I could go months earning nothing. There was no requirement for collateral. The interest rate was pegged to prime, and about twice the usual mortgage rate.
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dawhizkid将近 6 年前
I see ads for Brex all around SF for corporate credits cards w&#x2F; no personal guarantee.
debatem1将近 6 年前
In the past I&#x27;ve used lines of credit up to roughly $50k. They didn&#x27;t require a lot to get started and I think we peaked at about 50% utilization. Happy to answer questions.
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simonjgreen将近 6 年前
As an organically grown business, rather than investment funded, we live on credit. We flex through an overdraft every month and we make all purchases larger than £10k on HP.
luxuryballs将近 6 年前
Not mine but a family member, frequently waiting to get gov contracts paid, can take months, but still has to make payroll, uses credit all the time to cover the gaps.
charlesdm将近 6 年前
Depends on the country. In the EU many countries make available debt for growth purposes, generally supported by EU funds.
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andrewljohnson将近 6 年前
We got a line of credit via Wells Fargo, but like all the business credit cards, it’s personally guaranteed.