Business Line of Credit for Cabinet Shop
Twice I had a business decision to make when I was offered a credit line for my kitchen cabinetry manufacturing shop. Two times I accepted and failed to manage the loans properly. The horror story of missing payments and accumulating interest is an unpleasant memory that hopefully you will be able to learn from. Here’s my story.
What was the reason that I signed the contract in the first place? It was because the business was suffering from lack of revenue streaming in.
The Turning of the Financial Tornado that Wrecked my Credit
During slow business times, I would receive a deposit check from a customer and the bank would not cash it. There were several reasons for this.
1) I had recently bounced check or two.
2) The check was from an out of town bank.
3) There was not enough money in my account to cover the amount of the check.
For any of the above reasons, the bank would place a hold for ten days to two weeks on the check, locking up the flow of my business revenue.
Then one day as the manager was overwriting a hold for me she asked if I had ever considered a line of credit. I replied: “no, with my account history I don’t think the bank would extend me credit.” Two weeks later I was the proud co-owner of a fat business credit line for my cabinet company.
Looking back, I should have never agreed to the terms for the business credit line and signed the contracts .
How can you protect yourself from making a poor credit decisions?
1) Don’t get a loan from your banking institution when times get tough.
2) Avoid the temptation for taking the easy way out.
3) Cut up your plastic charge cards if you are abusing them or have had a history of doing so in the past.
4) Find ways of cutting expenses at home and with the business.
If you do decide that help from the bank is warranted, avoid allowing them to give you more than you’re asking for. This is what happened to me.
I asked for a three thousand dollar loan and sealed the agreement for fifteen thousand dollars worth of credit because that’s what they said I was approved for.
When it seems like there’s an endless supply of money the debt pit goes even deeper.
You know what happens; your interest rate is manageable on the credit line until you miss a payment. Then, suddenly the rate jumps to 35% or more. The payments increase by two hundred dollars and the minimum amount due just barley covers the interest being charged on the loan. Now you’re stuck like chuck with no work and the phone won’t quit ringing and it’s not cabinet customers calling. Your once friendly, favorable, business banking institution is now becoming your worst nightmare.
Both times it seemed like a temporary solution to a slow down in sales.The trouble hit when sales continued to plunder and the amount of the business loan payments continued to increase.
Guard yourself against making poor business decisions. Especially if the one you are wrestling with is a credit line. There’s one thing I’ve noticed about cabinet shops, the companies start up and then the production facilities go under. There is not a real high success rate with manufactures over a twenty year period for keeping the doors open.
An unsecured bank loan with the capabilities of compounding and fluctuating can be a detriment to the lively hood of your cabinet shop and personal life. Proceed with caution or else you’ll be learning how to live with bad credit.