The craze among banks to increase small business lending is taking a new marketing turn. Chase Bank recently launched (6/30/10) a new lending program to lower interest rates for businesses obtaining lines of credit. Interest rates will be discounted by 0.5% for each new hire, up to three, for the life of the loan. In addition, if the business has a checking account they will receive another 0.5% discount. So, the total potential interest rate discount is 2%. To get a better idea of the total benefit, Chase estimates that total savings on a $65K loan over 3 years would be $4K or 6%. Sounds nice. Let’s take a closer look at which businesses should be interested in the program.
Don’t Hire Just For The Interest Savings
Businesses looking to expand by hiring should not be focused on just the interest savings. We understand that the monetary incentives for the program may be very real but there are risks too. Every interested business owner should be asking themselves if they have the current business & pipeline of business to comfortably take on debt AND plan to pay off that debt in the near future.
Many times we have clients that get ahead of themselves with leveraging up their balance sheet and hiring staff without having the business or future business to support such a model. Debt can put businesses in a very deep hole that can become very tough to climb out of.
Who Qualifies?
Businesses opening a new line of credit, up to $250,000, or existing businesses that increase their line of credit by $10,000 or more are eligible. BUT, the strict standards for businesses looking to obtain credit are not changing. As a result, there will be a lot of businesses that won’t even be eligible for the program.
Is the Incentive Really There?
A discounted line of credit for new or existing customers is enticing BUT it doesn’t mean that Chase is offering the absolute best loan rates. For instance, if Chase is offering a discount on a new line of credit but a Chase competitor is offering a line of credit with similar rates, then it might not make sense to apply for the Chase Loan for Hire. You really need to do research & compare the rate that Chase is offering to other bank rates. Also, don’t forget about the other important factors you should be considering when choosing an issuing bank. Those factors include the size of the line credit & any covenants that place restrictions on your ability to draw on the line of credit should business go sour.
More Finance Questions?
If so, our Finance Experts are happy to help answer all of your finance questions.
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