How to build a line of credit for your lawn care business.

Building business credit is a concept most new start ups know nothing about. So what kinds of steps can they take to work on building their business credit? In this discussion from the Gopher Lawn Care Business Forum, we hear from multiple business owners who share their experiences in building a business credit score.

One lawn care business owner asked “I am wondering if anyone knows anything about building business credit. I am trying to see if it is possible to build a line of credit for my mowing business.

The purpose of asking is because I would love to buy some commercial grade mowing equipment soon and like many others, I do not have that kind of cash to just throw down. Yes eventually I want the business to have enough money to replace that type of equipment or even pay cash for new things like a truck and trailer. Right now though, a commercial mower is the reason for asking about the credit line.”

A second lawn care business owner responded “from my experiences, one of the major factors is how much money you make and what profits you turn after expenses including paying yourself. For the most part, the line of credit will be initiated around your personal income and credit.

Unfortunately to a bank, owning a business is no better than being unemployed and the only exception to the rule is how much money you make. Once you get over a certain threshold and have developed assets and cash flow they will be more receptive but unfortunately starting or owning a business does not open any new doors credit wise or give you a new lease on life.

If your business pays the bills and keeps you above water but does not leave you much else or even allow you to pay yourself generously 12 months out of the year going, to a bank your application for credit is most likely going to be material for a good laugh at the water cooler.

I am not trying to mock you or belittle you and I certainly don’t want to discourage you or anyone else but I am speaking from experience and after 23 years in business and turning a half million a year I am finally able to have some pull with the banks under my business name.

I don’t think you will need to make a half million but what they will look for is consistency over a period of 5 to 10 years of not only how much your business made but what is left over and if you are not drawing a salary as good or better than a good paying job in the industry for yourself personally, they will not be too confident that your business will be able to pay them back.

What you can do to build up some credit is the next time you buy a commercial mower or other expensive piece of equipment you can finance it through a small business equipment loan company.

They will still use your personal credit but will also look into bank statements and tax records for the business as well as it will be listed on the loan as your name DBA, which will get the name of the business on the loan.

You should not need large lines of credit in business other then what you would need to buy a new truck or something expensive but those are loans not lines of credit. As landscapers, we already have a cash generating business and outside of equipment we really should not need money to survive and if you do, it is a red flag to a bank.

If we were a factory and we just got a contract to build a million units of a particular product, we would need to borrow money to buy the supplies and pay the help until we start fulfilling the order and even when a business like that bills it is payed out in 90 day intervals. Businesses like that have a revolving line of cash flow credit that they borrow and pay back quickly vs a guy like you or me buying a new dump truck and paying for it over 5 years.

If you want to build up your businesses credit then build up your own that is the only way because being the owner or president of your corporation it will only go as far as your own name and credit can take you.”

A third landscaper responded “I just run my business expenses through my credit card and pay them off before grace the period ends. I avoid paying any interest that way. Get a lot of rewards points that way as well.

You should be able to get a small line of credit ($1K - $5k) to meet your business needs provided your income, credit score, etc is decent. The interest rate would probably be high on an unsecured basis. Obviously a bank isn’t going to throw a large chunk of money to a start-up company that isn’t well established unless they had some valuable unencumbered collateral and an external source of income. It does take years for your business to gain a reputation and for banks to get comfortable extending credit to the business.”

Read more about Lawn Care Business Bidding Tips, Upsells, And Disasters To Avoid. Learn how to improve your bidding process with this lawn care business book and be prepared before hand by knowing what you should be looking out for before a problem occurs.ā€¯

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