A husband and wife team owned a plant nursery and garden store. The store was small, and located in a relatively upscale, established neighborhood. We saw each other from time to time when they came in to make deposits with the tellers.
One day, they sat down with me and told me that they had an opportunity to expand their business from their current small location to an additional larger one. The sales and revenue warranted it, and they simply needed more room, and some capital to get it done. However, their personal credit cards were near their credit limits. They had used all of their available credit while growing their business. They had been in business for one year and 11 months. Those personal credit cards were with our bank.
We applied for business credit cards and were denied due to “total bank exposure”.
“But James”, they said, “we are good customers of this bank. Our personal credit cards are here, and so are our car loans and mortgage. Why can’t they accommodate us?”
All of those loans were exactly the problem. You see, underwriting guidelines are meant to protect the bank from too much credit extended to one party, which applied in this case because their personal credit cards and all of those other loans were with our bank. In the event of a customer bankruptcy, the bank would be unable to collect on any of the personal or business balances. The resulting losses from such a customer could easily exceed six figures.
Additionally, like most other banks, ours would not provide credit to a business that had not been in operation for at least two years. At one year, and 11 months, they were one month away from qualifying.
I was able to override the denial based on their deposits with our bank and a counteroffer. The counteroffer was the customers’ agreement to transfer the personal credit card balances to the business, followed by closing out the personal credit cards. If they wanted personal credit, it could be obtained elsewhere. We also waited for less than a month until the exact two year anniversary of the business opening to re-apply. Now that they had been in business for two years, the business was eligible for credit on its own. No personal guarantee was necessary.
The customers were happy to do all of this. It transferred some personal debt to the business, and there was enough available credit left to fund more inventory for their new location. The business credit card also featured seven months with no interest, which gave them an opportunity to pay down principal. Since they were selling most of their inventory within 30 days, their interest costs for future use remained near zero.
Throughout this process, the customers were accessible and transparent with the financial data we needed for a successful counteroffer.
They were able to expand as they had hoped, and are currently doing well.
Key to Triumph: They had built their business realistically, making wise use of credit and expanding only when demand and sales made it necessary to do so.
**NOTE: All “Bankable Stories” were written by One Click Advisor founder James Chittenden and are true stories of clients that he assisted as a business banker. Names have been changed to protect client confidentiality.