Most entrepreneurs have their fair share of stories about the difficulties of winning -- and keeping -- an adequate credit line. For struggling new companies, it can be an impossible goal. But many established businesses that have qualified for credit lines have devised smart strategies for holding on to them. Here are some of their ideas.
Barbara Grogan, CEO of Western Industrial Contractors, a construction company in Denver:
"We got our first credit line, which was about $25,000 worth, the first year we were in business, basically because I pledged every single asset I had in the world. As we've grown and become more profitable our line has expanded to over $500,000 on revenues last year of over $10 million. But I work very hard to keep my bankers happy, which includes resting my credit line as much as I can. I try to be a net depositor at my bank whenever possible. I think it helps. When we went through a truly terrible year in 1987, losing $3 million worth of airport-construction contracts in a single day, our bankers hung in with us because we had built a record of credibility."
Ed McGunn, owner of McGunn Safe, a manufacturer of safes and vaults, based in Chicago:
"We've probably switched banks 10 times during our 35 years in business. We've been asked to pay down our credit line a few times and always coped by finding a new bank. That's always very destructive in terms of all the attention that could have been paid to customers and product -- but one advantage of running a small business is that you can turn on a dime if you have to. One thing I've learned is that you have to sell your bankers on your product the same way that you sell your customers. And you have to keep selling them, with regular meetings that keep them informed."
Michael Wahl, owner of HMG Worldwide, an in-store marketing firm in New York City:
"I sold my company to Saatchi & Saatchi 10 years ago and bought it back this past fall for $15 million in cash. Part of that money came from a major money-center bank, which included a very good credit line as part of the package. In fact, it has even offered me additional credit lines that I haven't made use of yet. I've always had very positive relations with my bankers because I believe in telling them the truth, keeping them informed, and avoiding all surprises. One technique that keeps bankers happy is always exceeding expectations. If you believe you're going to earn $1, tell them you're going to earn 90¢ and then earn the $1. That builds credibility."
Art Allen, CEO of Allen Systems Group, a software manufacturer in Naples, Fla.
"The problem with credit lines is, bankers always want you to pay them down -- and when you're a small business, you sometimes need to use that money like a term loan. So what happens? You wind up going from bank to bank to bank every time you need to expand the credit line or deal with a banker who wants you to pay it off." Allen's current solution? "We've switched from traditional banks to Merrill Lynch. I got the suggestion from a company I deal with out on the West Coast. Because nonbank financial institutions don't have to deal with the same regulatory requirements, they can be more flexible with credit lines."