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Getting Our Line of Credit

Getting Our Line of Credit

We applied for a line of credit from our bank for the purposes of buying other hosting companies.

Timeline:

Early 90’s – I establish my personal account at Fifth-Third

Late 90’s – I establish my first business account at Fifth-Third – just a checking account. In a few months, people started telling me I’d need a line of credit for operating expenses. At the time, I didn’t know I would ever need one, but I talked to Fifth-Third about it. They declined since I was 23 and didn’t own a house. A National City (now part of PNC) guy heard about it and gave me an unsecured line.

2001 (approx) – opened another business account for Dotson Ventures (my consulting company)

2004-5 – after I sold the business, all accounts stayed at Fifth-Third.

2008 – opened 2 new business accounts for WebMedley.

2009 — 1/12 – I apply for the line of credit. The application includes all 2008 financials, current A/R, personal financials, a description of our business, the industry, etc..

1/16 – declined for an unsecured line since the business is less than 24 months old; my branch manager is applying for a secured line and an unsecured line for Dotson Ventures. There is a bit or irony here…Dotson Ventures has no plans for revenue in 2009 and beyond. So if it is the entity that receives the loan, the system Fifth-Third uses is asking to be gamed.

1/20 – Dotson Ventures is approved for an unsecured line at half the amount we want – but its a start. The funds are available in 24 hours so that is one nice thing.

From that date until 2/5 everything was OK. Then, for some reason the Fifth-Third rep did not know, my line was reduced. When I asked my local folks, they got it fixed.

And its not just Fifth-Third who has issues. When I called my personal Banker at National City, she met with me and got the process started. They Nat. City folks sent me an even longer Personal Financial doc to fill out. I filled out most of it except the numbers – since I provided them in the documents in my loan package. These were returned to me a few times and I chose not to fill them out.

Why wouldn’t I fill them out? Because I’m the client and I already provided all the info they needed. They chose not to fill it in. To me, that says that they do not want the business. It may be that they do not want to take on liability by writing anything on the form or its a “test” to see how interested I am in getting a loan.

Finally, a manager at another branch heard about it and called me to make sure things were handled. He should be given a raise.

One thing they let me know is that the bank will never loan money to me to buy another business unless I have enough free cash flow to pay the whole loan from our main company. To me, this says: “If company A is buying company B and its easy to integrate and has monthly subscribers, we still think B could fail and you’ll owe us the loan amount.” While it is a possibility, the likelihood is small and that attitude will not help any growing business. We owners go to banks because we’re risking our assets (which guarantee the loans) to grow.

Today is 3/17 and they told me I’d have an answer on how much the line of credit will be.

It’s 3/18…Nat City called and will not grant the line of credit due to “new formulas in calculating free cash flow”. The local branch manager did offer to connect me with some community banks that may work with me. I let her know I’d be happy to talk to them and hope she can put me in touch with banks that make decisions locally. And, she did say she’d love to have our regular checking business, but knows that would only happen with the loan.

So, now what?

Well, it seems I’ll wait for another few days to hear from 5/3 and look at some other banks.

8/20/09 — 5/3 has no money so they cannot increase our line. It would be much cheaper for us to pay a bank than to pay the guy’s we bought the business from. So, I’m now looking at two other banks.

September – I was introduced to Traditional Bank through a friend. The experience has been 180 degrees from any other bank. They’ve taken care of a line of credit to allow us to pay off the original owners of WebMedley, to get a mortgage to buy our office condo, and even called to check on things a few weeks after we became clients. I highly recommend working with Traditional.

So what did I learn?

  1. Banks are not required to have the same level of customer or personal service as other companies because for the majority of account holders the banks hold the power. They hold the power b/c they have the money.
  2. We are a relatively small account to large banks (and probably small ones)…for now…
  3. Local banks trump national banks.
  4. The entire process (rigmarole) is known by my entire office. So, who will my co-workers bank with in the future…Hmm, I wonder?

As a result of the decision, Traditional Bank now has two of our bank accounts, a commercial mortgage, and our merchant processing. We have recommended them to other area entrepreneurs.

Service matters.

About the Author

Bill DotsonSee the About page (linked at the top of this page)View all posts by Bill Dotson →

  1. AnonymousAnonymous01-09-2010

    nice work trashing 'national banks'. all of your years as an “entrepreneur” (purposefully in quotes), and you don't understand that national banks are also culturally 'local'? really? ever think that your reputation in the Lexington business community, particularly the banking community, could have contributed to your less than desirable outcome? congrats on perpetuating that reputation with this post. do you even grasp the topics you post on your blog? or is it laughably amateur on purpose? what a fantasy world.