Some of my students who are part of my business credit building teachings like to put the cart before the horse, usually even before they get or read my course materials.
I got an email today from one such student who asked about opening up several BLOCs (business lines of credit) at the same time. After all, he wanted to open up as many as he possibly can in the shortest amount of time. (Who doesn't?)
First of all, business credit access doesn't work like this.
How does it work?
Glad you asked!
In order to gain access to lines of credit from $50,000 and up (preferably a lot more than that), you have to start establishing yourself with a bank. Preferably a large bank.
You can't realistically walk into any bank in town and say, "Hey, I have a DNB profile with a 90 Paydex so...where's my $200,000?"
As you can probably guess, that's not how it works. Not by a long shot.
When getting unsecured BLOCs, you have to understand that the bank has to "get to know you" on a financial level.
And this starts with an unsecured business credit card.
Now, here's the trick and something I've learned the hard way:
You can't have your business bank accounts at this bank where you want to establish a relationship (to get a BLOC eventually) unless you do a sizeable volume of business (i.e. have a huge business cash flow). If you just open a business bank account with $100 in it, never have any volume or business transactions, and expect that they won't consider this inactive account in their credit decision on a BLOC, you have another thing coming.
You have your business account somewhere else.
Here's a scenario for you:
1) Open up a business bank account at Chase.
2) Get an unsecured business credit card at Wells Fargo. (Wells Fargo is the only bank that offers secured business credit cards now too; in the event that you have poor personal credit, you can start with a secured business credit card now.)
3) Get a second unsecured business credit card at Bank of America. (May as well establish credit with 2 banks at the same time, right?)
4) When basing credit decisions (even down to getting your unsecured business credit cards), these decisions won't be based on what's in your bank account or what type of business volume you do since they don't have access to that information.
5) Once you establish a payment history with your business credit cards, you can now start the process of getting a very low BLOC...like $5,000 to $10,000.
Now, in case you don't understand what a BLOC is...it's a line of credit. And it's revolving, much like how a credit card works. You gain access to a certain amount of money that the bank allows you access to. Say it's $10,000. You can draw out $5,000. This means you still have access to $5,000 that's left. Say you make a payment of $2,500. This means now you have access to $7,500. Say you pay all $5,000. You now have access to all $10,000 again.
Eventually, after showing that you can take money, pay it back, take it again, pay it back...you can now ask for the bank to increase your BLOC.
So, this goes against my students' common misunderstanding that a BLOC is a loan. A loan is an open and closed deal. You get a certain amount. You get the whole amount, usually in the form of a check that is deposited into your account. You make payments on the loan. Once the loan is paid off, the loan closes. It's not revolving in any way.
A BLOC is not like this at all. The account stays open...forever (or until you die, close it, or screw the bank over, which I hope isn't an option for you).
So, when a student is asking me how he can open up as many BLOCs as possible, my question is..."Why?"
You need to establish a solid relationship with a bank, first starting with a business credit card then a small BLOC. Once you get this relationship going, they'll keep increasing the size of this one BLOC. No need to have 20 BLOCs when you can keep increasing and stretching the one you got!
Then, hopefully if you paid attention, you will have started establishing a business credit card at a second large bank and this is when you can also get a small BLOC with them for the purposes of establishing credit.
Now, when I say "for the purposes of establishing credit," I mean you're not using this money to buy anything. You're taking the money out, parking it into a savings or checking account, then using the same money to pay back the bank.
Within a short time, you'll notice that you'll have a BLOC (or two) that are collectively worth several hundreds of thousands of dollars that you can use for investing, starting a business, etc.
As you know, to compete in real estate investing right now, you are going to be going up against seasoned investors that have money down. This is the way it's going to be from now until about 2020. So, if you don't have the cash to compete, establishing solid business credit is your last chance aside from robbing a bank, hitting up rich Aunt Sally, or winning the lottery. (You could get an investor partner.)
See you at the top!