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How do you establish a line of credit for business if you're just starting out?


Topic Expert
Tom Pai
Title: CFO consultant
Company: Sunstone Group
(CFO consultant, Sunstone Group) |

This very difficult, especially in the current credit environment. But there banks out there that specialize in working with early-stage venture backed companies that may work with you. Folks such as Silicon Valley Bank, Square One Bank (and a few others). Their criteria are hard to say, but they look at the investors, as well as the founding team.

Alternatives are lines personally secured by the key founder(s). This is common many any small business or early stage business.

If you are looking for receivables based lines, there's lots of folks out there that will work with a variety of company profiles. But the terms and rates can be prohibitive. But they do make sense for some situations.

Also if what you use the money for is mainly equipment, leasing and venture-leasing are also things to consider.

Topic Expert
Kent Thomas
Title: Founder
Company: Advanced CFO Solutions
(Founder, Advanced CFO Solutions) |

Tom provides good advice above - remember that a line of credit is generally used to fund a company's growth by advancing money against receivables and/or inventory so that you don't have to wait until you collect from customers to get the cash. If your start-up is profitable and needs money to cover receivable and/or inventory growth, you can use factoring or an SBA-backed line of credit. If your business is not profitable and you will use the cash to cover "cash burn" from operating expenses, a line of credit is not the proper source of financing to pursue. You need something more permanent. Good luck!

(Agent, JKS Solutions, Inc.) |

Essentially every one of my new clients is a start up business here in silicon valley. Ways to get funding from a traditional bank - 3 years of profits, secure loan against some form of property - generally your principal residence and they will generally require a personal guarantee if you dont have security.

If you're a technology company that has a patent or process that is beginning to get traction and all you need is cash to facilitate this growth you can get venture debt where you will use security of the technology - you generally pay very high interest on this debt - 15-20% - you will also be required to give up a warrant to purcahse equity in the future to this lender - expensive debt - but without it you dont have a company - hence thy can charge that kind of rate.

If you're not a technology company you will really struggle to get venture debt and really need to fall back to the traditional route mentioned above.

Hope this helps.


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