Make Your Own Line of Credit

Tweet

I was at my local Chase branch in Chicago this weekend chatting with my banker. I asked him if more small businesses were applying for credit. "Yes," he said. Then I asked how hard it was to get approved these days. "Pretty hard," he said. Then I ask how many new business lines of credit this branch has opened in 2009. His response said it all: "zero."

My bustling branch at Chase, our country's strongest bank, has opened zero new small business lines of credit in 2009!

With the major banks retreating from lending and hording our deposit cash for their own survival, it is fortress balance sheet, indeed, Mr. Dimon. The problem, though, is that extending that cash as credit is the lifeblood of our economy, even more so for small business. So what are you to do?

Make your own line of credit.

How? By taking advantage of a little-known trick of credit card balance transfers. Witness two small biz credit cards, the CitiBusiness Mastercard and the BankAtlantic Businesscard (serviced by Barclays). Both have "0% balance transfer" offers. Traditionally, that means Citi would pay off your old high-interest credit balance and transfer the debt to your new 0% account. The beauty, though, is that you don't need an old balance, you can make a payment to yourself.

Here's a hypothetical scenario of how it works:
1) Apply for the CitiBusiness Mastercard and get approved for $20k
2) Call and ask for a balance transfer directly to your checking account. This option may be available online.
3) A few days later, $20,000 will be transferred electronically to your account.
4) For the next 12 months, you'll have interest-free use of that money, provided you make your minimum monthly payments.

I'd stash the new money in a high-yield online savings account. Even at just 2% or so interest, your new $20k "line of credit" will actually make you money while you are not using it.

What are the catches and caveats? There are many. You'll need great credit (720+) to get approved. You'll have to make minimum payments every month towards principal. If you don't pay the remaining balance back in 12 months, you'll be stuck at a very-high credit card rate of interest. The biggest catch, though, is that there are very few credit cards that have 0% balance transfers and don't charge you a big up-front fee to do so, usually 3% to 5% of the transfer. Some cards still charge a fee but cap it at a very amount so, for example, you'll pay the lower of 3% or $75.

Here are a few cards that do:

Business:
-0% for 12 months; $0 fee - CitiBusiness Mastercard
-0% for 15 months; 3% fee with $75 max - BankAtlantic Businesscard

Personal: (this money can be contributed to your small biz)
-0% for 12 months; 3% fee with $75 max - Chase Disney Rewards
-0% for 12 months; $0 fee - US Bank PBR Visa

Please let me know your questions and thoughts, as well as any other suggestions for small business credit.