How to Negotiate a Line of Credit

line of creditWhen Robert Joseph opened R J Construction Co. Inc. in 1993, he capitalized the business using $20,000 in personal savings. Three investors (relatives and former co-workers he has since bought out) also had an equity stake in the company. At the time, Joseph did his personal banking with Wells Fargo, so he opened up his business account there as well.

R J Construction, in Missouri City, Texas, is a general contractor/commercial construction company that works on projects such as industrial wastewater treatment plants and sanitary pump stations.

“We were five years into the business before we were profitable, generating $1 million in revenues,” says the 49-year-old civil engineer. “That’s when we established an initial line of credit with Wells Fargo for $100,000.”

For most construction companies, winning a bid on a contract is just the beginning, since capital is needed up front to purchase materials. Joseph used the credit line as working capital so he could meet his contractual obligations.

Today, R J Construction’s largest client is the nearby City of Houston. For the past eight or nine years, the company has carried a workload of about $7 million a year and completes about $4 million of that.

“What we do is specialized, so there’s always been work,” Joseph says.

R J Construction taps its revolving line of credit—now $350,000—roughly three times a year, but the funds get paid back within three to six months.

“Some projects are more equipment intensive than others,” says Joseph, whose company employs 12 full-time workers including his wife of 27 years, Barbara, who works as the office manager. “We also like to make sure our vendors get paid up front,” Joseph adds.

As Joseph’s example illustrates, businesses typically use a line of credit to maintain or expand a business—not start a new one. A line of credit provides business owners much-needed short-term working capital to meet payroll, pay vendors, or purchase raw materials. According to the National Federation of Independent Business, 86% of small businesses use some type of credit from a financial institution—76% possess a credit card, 47% a credit line, and 31% a business loan. Failure to obtain credit is associated with having low credit scores, a large number of mortgages outstanding, fewer unencumbered assets, and being located in states hit hardest by the housing bubble.

Loan officers need to understand the condition of the business and its prospects, says Bank of America small business executive Robb Hilson. Shaun Coard, senior vice president and business banking manager at Wells Fargo, says the owner’s financial information is used to determine his or her net worth; the company’s is used to analyze trends in annual sales, net income, and equity in the company.

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  • andreas fulcher

    I wrote this essay 6 years ago

    From: Andreas Fulcher
    Honorary Chairman
    2003 Texas Businessman of the Year, NRCC

    A memo to my friends at the City of Dallas and to our great Nation from a
    black contractor

    GREAT NEWS! Martin Luther Kings dream that we be judged by the content of
    our character and not the color of our skin has become reality! Social
    injustice is no more, Al Sharpton, Jesse Jackson.

    In 10 years of being self employed, I feel compelled to thank America for
    allowing me to experience the American dream. I founded my company at the
    age of 28, 1996, with a Ford Probe and a mortgage on my first house. I
    have no college degree and only had one year of construction experience in
    1996, working for $6.00 an hour.

    Read this:
    In 1997, my company engaged in what was intended to be a large sidewalk
    replacement contract with the City of Dallas. I was chosen by an African
    American General Contractor, TEI Construction and Engineering, to
    participate in this contract due to my minority status. I was given a
    signed contract and proceeded out to sign 6 concrete subcontractors to
    begin work on this wonderful contract. In a span of 3 months I billed TEI
    for $268,000.00. I was paid $48,000.00. Then the payments stopped coming!
    I pleaded with the owner, twice my age, telling him I had maxed out my
    credit cards, paying my subcontractors for their completed work. I
    informed him I did not want to file claims as he will loose his bond
    privileges. Ego and pride prevailed and I was forced to file claims. What
    a blow! (the bonding company and I would settle for $52,000.00 4 years

    By 1998, looking at the big picture, I grudjingly paid the minimums on my
    maxed out $5,000.00 limit credit cards, only to see my balances increase
    each month. I decided to go to a bonding company, just me and my 1996 Ford
    Probe, and apply for my own surety bond line. I had received a request for
    bid from Plano Independent School District on an estimated $80,000.00
    parking lot for Plano High School. With maxed out credit cards, a Ford
    Probe as my company collateral, but evidence of what I had accomplished
    with the City of Dallas through Dallas references, I was granted my first
    surety bond line ($200,000.00 bond line) by the content of my character.
    Praise Jesus!

    I bid on and won the Plano parking lot. I carried out my first project to
    perfection. I then went to Sherman, Tx. to buy my first true work truck, a
    1996 Dodge dually. I was seduced into buying two 1996 Dodge Rams and a
    1996 Ford Taurus, all white in color. The salesman sighted my credit was
    that good! I left the dealership in a panic, thinking I may have gotten
    over my head. By the grace of God, all three vehicles were paid off early!

    By 1999, my bond line had jumped to $500,000.00, by the content of my
    character. Toward the end of 1999, I won $600,000.00 in sidewalk contracts
    with the City of Dallas. I went to Metro Ford in Dallas to buy my first
    dump truck, brand new. I walked in with my check book expecting to pay
    something down. Instead of asking me for a check, the dealer gave me the
    keys and escorted me to my new truck. The dealer smiled and said, ”She’s
    all yours, you’ll get your first bill in 6 weeks.” NOTHING DOWN! Based on
    the content of my character.

    The Dallas contracts were completed on time and to perfection. By this
    time, my credit card debt was no more. I also bought a Bobcat front end
    loader in 1999. I added some more work trucks and had a formidable amount
    of business collateral.

    By 2002, my company had grossed $2,700,000.00. I completed nearly
    $900,000.00 with the City of Dallas with no discrepancies. Early that year
    I received a phone call from a black janitorial contractor, Century
    Services, out of Ft.Worth. He wanted to collaborate with me on bidding on
    a City of Dallas sidewalk project on Skillman Road in Dallas because he
    acknowledged I was an expert with the City of Dallas. I would engage in a
    contract with an African American for the second time in my career. I
    picked up the bid specs. from the City and filled out all the bid
    documents including the unit items. He signed it and provided the surety
    bond. We won the bid and set out to procure the project. By this time I
    was five months in payments away from being paid off in full. It was
    around this time I became deadly ill with a neural virus. My crew
    completed the job with no discrepancies.

    I was admitted into the hospital on Feb. 25, 2003, fearing for my life. I
    had lost 80 lbs. I was released 8 days later. I called Lewis Johnson of
    Century Services in reference to payment. I reminded him I needed at
    least $5,000.00 to pay off my bobcat. He refused, not explaining why he
    wouldn’t pay. I knew then the demon of envy, covetedness, pride and greed
    had infiltrated his spirit. He perjured himself on a government document,
    Form 8, of which I was the only contractor listed. He signed the document
    claiming he had paid me $52,000.00. He never paid me a dime on this
    $70,000.00 contract! It doesn’t end there, this man who cursed at me when
    I told him God would not condone his actions is a minister!

    The virus took me out for five months. Because I had no money to meet my
    bills, I was forced to file bankruptcy. I lost all my equipment at my
    storage facility and my dump truck which was a year away from being paid
    off in full was repossessed as was my bobcat which was 5 months away from
    being paid off, my first repossessions of my LIFE! An additional black
    contractor blocked checks of $12,000.00 made out to me believing I would
    pass away. I was too ill to file timely claims, so I gave it to God. I
    asked the Lord to forgive him and bless him. In 2004, he filed for
    bankruptcy as a sole proprietor which put him completely out of business.
    Praise God for the corporate system which doesn’t effect my business.
    However, the loss of all my equipment and the inability to qualify for
    surety bonds, due to my bankruptcy, eliminates me from giving jobs to
    minorities and black subcontractors.
    Who’s keeping our people down? And who is going to get me out of this
    mess? The same people who have chosen to walk the walk of the precepts
    set forth by the spirit God over 400 years ago, the same spirit which
    freed us in 1864, and gave us affirmative action and voting rights 100
    years later. Unfortunately, What LBJ meant for good and compensation for
    past discrimination has left us with no excuses.

    The reason my spirit is so high is because in ten years of business at age
    38 and more than $3,000,000.00 in gross sales, I’ve seen the change in
    our culture regarding race.

    White America has become apathetic to our complaints. They have done
    everything they could to make amends for past transgressions even though
    most weren’t around during the civil rights movement. We need to stop
    being so cynical toward white America and understand we are the greatest
    nation in the world because they have decided to walk the walk of their
    faith in the last 40 years. We don’t want to believe it because it holds
    us accountable.

    I feel I owe white America a debt of gratitude for blessing me without any
    transgressions in 10 years. This is because true Christians don’t covet.
    They walk the walk. They don’t need our killings and our disrespect. But
    they forgive us for our transgressions in hope of a changing environment.
    A Christian attitude.

    We talk the talk of Jesus Christ but we don’t walk the walk. We need to
    get on our knees and thank God to be living in this environment. We are
    not living for the right reasons. I work hard to make my wife proud of me
    and so she can enjoy the American dream, (she’s from Germany)

    We’ve grossed over $3,000,000.00 to date
    I am thankful to America for helping pay off my house in North Garland in
    5 years.
    I am thankful to America for being voted 2003 Texas Businessman of the
    Year by the NRCC in Washington D.C. by the content of my character
    Invited to George Bushes 2004 Annual Dinner and attending by the content
    of my character
    Awarded the 2006 Merit Award by the content of my character.
    I am thankful to America for being blessed to travel anywhere in the world
    on a credit card because I was approved by my credibility and not my skin
    I traveled to Europe ever year since 1996. I’ve traveled to Cambodia twice
    on mission trips, changing course on the way back home to run the beaches
    of Cancun for a week at the exclusive five star Hotel. Oh no! Don’t tell
    Al Sharpton. He proclaimed on national TV “We’re not free, no, we’re not
    free!” This is our spiritual leader inciting anger and strife among the

    If anything, we owe this country a debt of gratitude for allowing us to have the same freedoms as anybody else in this country, despite our social impotence!

    Thank you and God less America!!!