By Itamar Chalif
How you treat trees early in March and April differs quite a bit from how you do in May or June, right? There’s a certain amount of preparation, nurturing and order of steps needed before you can grow a strong oak. The same is true for acquiring financing. Unfortunately a lot of arborists are not aware of the steps needed to acquire financing, and that can lead to rejection when you’re looking to get a loan or line of credit.
Most of your seasonal business begins to slow down around October. That’s about the time you start to think about improvements you would like to the business to make and equipment you would like to buy for the coming year. However, waiting that long to plan and then approaching the bank or leasing company in November or even December about a line of credit, working capital loan or equipment leasing is pretty much a surefire way to fail. The optimal time to approach your bank is at the tail end of your busy season.
As a rule, lenders like to lend money to people with money. Assuming you’re having a good year, July or August would be the best time to approach the lender. At that time, you’ve probably got cash in reserve and, hopefully, all your bills have been paid. That’s the time to obtain the line of credit that will help you survive the winter lull because you are very liquid and you look great on paper. That makes it much easier to obtain an equipment lease and have a $100 month payment for the first 90 days, which will ensure that (a) you get the needed financing, (b) you have a very low payment for the first three months, and (c) you will have the equipment before the season starts. This enables you to start marketing and bidding on jobs while your competition is in winter hibernation, because you know you will have the equipment.
Understanding your credit score
Besides timing, the key to getting financing or a line of credit remains your personal and business credit scores. There are many factors that affect your credit score in either direction. Some of the most important factors are as follows:
Paying your bills on time. Being late one time on a bill can have a negative effect on your credit score. If your overall credit situation is marginal, then one bill being 31 days past due may break the deal.
Limiting your revolving lines of credit. Lenders like to see you have the discipline not to extend your credit lines, that you “do not need the money” so to speak. Remember, lenders like to lend money to people who know how to use it, but do not need it.
Bringing the balance on your credit cards to 50 percent of the credit line or less. Having one credit card with a $10,000 limit and $9,000 balance will impact your credit score far more than three credit cards with a total credit limit of $30,000 and a balance of $5,000 on each.
Keeping lines of credit separate from your partner or spouse. Whether it’s financing a car, obtaining a credit card, or conducting any transaction that involves borrowing money, if possible do not sign jointly on the account.
Owning a home. To lenders, home ownership represents stability from a character standpoint and from a practical standpoint. People who rent a home do not have an anchor to hold them in one place if things go wrong. People with a home typically will fight harder to make things right and it is much harder to pick up and leave when you have to sell a home. From a character standpoint, it shows you are invested, figuratively and literally, in the place where you live.
By following these simple guidelines, you will have a much better chance of obtaining the capital needed to grow your business.
While planning and credit scores play a major role in obtaining lines of credit, so does the key component of any transaction — the lender. Many small business owners get locked into the mindset that their bank is the only place they can turn to for a line of credit. If their bank turns them down they stop trying.
Your bank, however, is but one lender, and there are many out there. Doing the research to find other lenders requires a lot of legwork and, in the case of many tree care company owners, is outside your area of expertise. That’s why working with a financing consultant can be your best bet.
Financing consultants work with multiple lenders. They know the ins and outs of borrowing money and establishing credit. For example, they know which lenders will want to put a lien on your home or IRA to establish a line of credit (something you should never do, by the way), and those that will not. They will also know whether it is better to lease a particular piece of used equipment or buy it outright.
As an arborist, getting financing doesn’t have to be a painstaking, arduous process. If you take the proper steps to put yourself in the best position credit-wise and approach lenders when your finances are solid (during your peak season) you can not only make it through the quiet winters months, but also make the improvements to your business to grow and enjoy an even better busy season next year.
Itamar Chalif is the founder of Atlantic Capital Solutions, www.atlanticcapitalsolutions.com, and a member of the Tree Care Industry Association.