I’ve written about the importance of establishing business credit as a means of distinctly separating your personal credit from your business credit. Since it’s an important topic, I’m revisiting the discussion. If you don’t begin building business credit as early as possible, you will constantly be asked to utilize your personal credit as the basis for a business terms or business loan decision. At the very least, you will be asked for a personal guarantee. All of this ends on your personal credit report.

When you access a fair amount of credit for your business in your name – i.e., credit cards, SBA (small business administration) loans, other small business loans, equipment loans, supplier credit or guarantees, store credit, trade credit lines – each inquiry and any subsequent reported debt potentially drags your personal credit score down. Get too many inquiries or too much credit in too short a period of time and you could, at least temporarily, end up with a fairly low credit score.

So what do you do if you are just starting out and have not yet established credit? Or if you’ve been in business and barely incurred any debt and hence never really paid it much thought? Or perhaps you just assumed you’d have to leverage your personal credit score from here to eternity (or at least until your business was generating millions in income) before you’d be eligible to pursue loans or other debt based wholly on the company’s financial strength.

The answer: Pursue building credit under your EIN – employer identification number aka tax id number. You then have the opportunity to strengthen the credit profile of your company. Register with D&B (short for Dun and Bradstreet) and obtain a D&B number. Submit a copy of your company’s financials and any supplier or other trade references you may have. Whenever you apply for credit, make sure you include both your company’s EIN and your D&B number on the application even if the latter is not requested. Apply for smaller credit limits or apply for trade credit with entities you have relationships with  using only your EIN. The process of establishing business credit is very similar to that of establishing personal credit.  Just think back to how it was when you were in college and had no credit. I know it’s hard but try to remember. What process did you go through to build your credit report?

You had to get letters from utility companies. You had to ask your landlord to report your on-time rent payments to Equifax or Experian (or its predecessor). You had to initially settle for a $200 limit on a store credit card and work up from there. You had to get a $1,000 Visa card from your credit union backed/secured by a $1,000 certificate of deposit. You had to obtain a car loan with your parent or older sibling as a co-signer. Do you remember these types of activities? You didn’t just wake up with a strong credit history.

Well, you can do the same thing for your business. What’s the equivalent to the above from a business perspective? You get letters from your suppliers and send those letters on to Dun and Bradstreet or Equifax or supply them to the bank with which you are applying for a loan. If you are leasing, you ask your landlord to report your on-time rent payments to Equifax or Dun and Bradstreet. (Dun and Bradstreet is the primary entity for business credit and financial strength reporting but Equifax also has a business credit division.)

You apply for a low limit charge card from Home Depot, Lowes, Sams Club,Staples or other retailer that focuses on servicing small businesses. At the financial institution of your choice you take $2,000 or $10,000 or whatever you can spare and place it in a 6-month or 1-year CD as security for the secured Visa or Mastercard you obtain for the the same amount. You establish credit with Dell in the name of the company but with you as a personal guarantor (similar to a co-signer) to buy the servers and other computing equipment your company needs. After a year of on-time payments and/or periodic payoffs, you ask Dell to remove you as the guarantor. From this detailed description, you can see how similar the process of building credit is.

If you are using your personal credit to fund your business, you need to assess your personal credit if you haven’t already done so. There are numerous entities online that  provide access to your credit report and a few that even provide a free credit score. There is a federal law which requires all the credit reporting agencies – Transunion, Equifax, Experian – to provide you with a free credit report every two years. However if you want to see a credit score, you’ll have to pay them…and those entities don’t typically provide you with the same score your mortgage banker would see when you applied for a loan. See the impact of your business on your personal…and resolve to take some of the actions I’ve outlined above.

Technorati Tags: build business credit, business credit, credit report, credit score, Dun and Bradstreet

Interesting article about credit card financing. A great read for consumer-oriented small business owners and other whose businesses take a lot of credit card orders and generate a fair amount of sales in credit cards. If yours doesn’t, this article won’t be as interesting but still may serve as a good FYI. – TW

Types of Working Capital – Opportunities Do Exist In a Difficult Business Lending Environment
By Neal Coxworth

Tightly manage your cash to build your business.

In today’s restricted lending environment, many types of working capital that was available only a few short years ago have been severely curtailed. Many of the larger commercial banks are “sitting on their hands” taking advantage of the cheap money provided to them under different government programs and not necessarily lending this money back out to the small businesses that have acute working capital needs.

Despite the fact the government has increased its support for the Small Business Administration or SBA, this option is still extremely hard to qualify for given today’s lending restrictions. Because many businesses are considered “credit challenged” due to the downturn, it has become increasingly difficult to replace lost lines of working capital cash that banks were previously clamoring to sign businesses up for.

However, there are a few types of business loans that may be available, even if you or your business has less than perfect business or personal credit. The key to many of these loans is to have a decent credit card processing volume, a decent cash flow that is provable with bank statements, or both. These so-called merchant cash advances, which advance an amount against your future credit card receivables, are hallmarked by high rates and fees.

On the flip side, these cash advances are short term loans that last no longer than 12 months, with payments being made daily out of credit card proceeds. They also can handle difficult credit situations that many banks and business loan companies would not even consider. Keep in mind you may need to switch processors and/or pay upfront fees as a condition of receiving this type of working capital cash.

There is also a new, more cost effective option called a credit card receivable loan that can handle businesses with a predominantly cash or credit income stream and features rates that can be as much as 50% less than a comparable cash advance with no upfront fees or requirement to switch credit card processing companies, but can also handle the credit-challenged business that needs a working capital term loan that is both cost effective and flexible.

Hopefully, this brief overview if the different types of capital will get you thinking in some new directions that don’t involve getting told “no” at your local bank. Want to know more about affordable working capital term loan alternatives? Click below now.

Neal Coxworth is an entrepreneur and a 17 year veteran of the consumer credit industry with experience in originating, underwriting and processing mortgage, student and consumer credit loans.

IF YOUR BUSINESS NEEDS WORKING CAPITAL NOW, CLICK BELOW:

Types Of Working Capital

Article Source: http://EzineArticles.com/?expert=Neal_Coxworth

http://EzineArticles.com/?Types-of-Working-Capital—Opportunities-Do-Exist-In-a-Difficult-Business-Lending-Environment&id=5931125

Technorati Tags: Types of Working Capital, working capital cash, working capital needs, working capital term loan

I’m a believer in using debt to grow a business, as long as you have the short, medium, and long term cash flow to support it. Many business owners think debt is bad. I know. I have spoken to hundreds. Some of them avoid debt like the plague to the point that they’ll inhibit the growth of their business by not considering taking on any debt. Debt is not bad. Not in and of itself.

Is this how you look when you consider getting a business loan?

To ensure that you properly utilize debt to help you grow your business, you need to be able to assess your company’s financial health and position before taking on the debt, then monitor its health after. For this, you need to do the following:

1. Track your operational cash flow on at least a weekly basis.
2. Know what your monthly net income is, as well as your balance sheet positions.
3. Have good projections for your future growth and performance that you adjust as needed at least every six months.

If you don’t do this, then I can understand why such a business owner would consider all debt to be bad.

I like the idea of bootstrapping because it requires you to focus on the company’s fundamentals and not grow more quickly than you can operationally (and financially) manage it. Too much equity too soon can result in you losing control of your company to the investors. Too much debt can result in losing control of your company to the debtholders…or in the demise of your company. Which is better? Neither, of course. Both can result in you losing money. (However, losing control to debtholders can ruin your personal credit if you have personal guarantees.)

The same way you take on personal debt to buy a house or car or pay for school, is the same way you approach business debt. Debt can be great. Excessive debt is not. Businesses have access to many other alternatives beyond traditional bank financing. I always ask, “What do you want to do with the money?” If you can partner to access resources that keep cash in your pocket, you should do so, and do so before pursuing debt. Then when you do utilize debt, your balance sheet and your company will be, and will remain, healthy as a result.

Technorati Tags: business debts, business owners, debtholders, personal guarantee

Here is a video presentation that explains in more detail than an article why and how to build business credit.

Technorati Tags: build business credit, business credit

Cash flow is the lifeblood of any business, no matter the size. If your company does not have adequate operational cash flow (cash generated on a daily or weekly basis from daily operation of your business), then you have to access cash from selling assets (cash flow from investing) or from financing. To access financing either you as the business owner or your business needs credit. If you want to keep your personal finances COMPLETELY separate from your business finances, you will need to establish credit for your business that is completely separate from you. In other words, you will want to obtain supplier terms, bank loans, and equipment financing with only the company’s performance or assets as a guarantee of performance, not YOUR assets or signature as a guarantee. No personal guarantees.

Imagine this scenario: Your business has been doing extremely well but two of your largest customers file for bankruptcy and you did not see it coming. That could wipe out your business cash flow overnight, especially if you had not been managing your receivables tightly and those customers owe you a large sum of money. But regardless, you will need time to build relationships and replace those customers. Your business may encounter financial distress in the interim as a result. If the company subsequently cannot make its payments on loans or to suppliers, if you have personal guarantees in place, those guarantees could be called upon.

So in the case of a failing company, whether temporarily or permanently, you would lose the income the business paid you as a salary PLUS you would have to make loan repayments out of your personal assets. It just went from bad to worse! What if all you had was tied up in the business? Well, if the company has to file for bankruptcy, you may have to also. If you had stand-alone business credit, your personal finances would not be an issue. You may CHOOSE to inject money into the company, but you would not HAVE to.

In a less serious scenario, your company has encountered some difficulties due to the current economic environment and now “recovering” recession. You would like to negotiate better terms on your loan or with your suppliers. If the company is the sole guarantor and the company is struggling, assuming you have a decent plan to weather the storm, your lender is highly likely to negotiate with you. However, if you are a guarantor and have sizable assets, why should the lender negotiate when they can pursue your assets and be done with it? (Of course, having a strong relationship with your lender ALWAYS helps.)

On the opposite side, many business owners complain about how all the credit they have for the business in their name drags their personal credit scores down. By separating and building your business’ credit profile, you, as the business owner, can get business credit cards, equipment loans, etc. in the business’ name and tax identification number. Consequently, the business loans will not be associated with the owner’s social security number and thus, do not impact his or her personal credit. Again,no personal guarantees.

Okay, enough of the what if scenarios. You get the gist behind the reason for having a strong business credit profile. For emphasis one more time, here’s what Wells Fargo Bank has said regarding separating business and personal credit and financing: “The longer you delay establishing business credit, the longer you delay taking advantage of business loans.” To learn more about how you can build your company’s business credit and remove personal guarantees and other hits to your personal credit, view this course!

Technorati Tags: business bankruptcy, business debts, personal liability

Continuing from earlier this week, another source is purchase order financing. The ‘financing” is a bit of a misnomer. No company that I know of actually lends against the purchase order. Never say never, but I’ve talked to representatives of over ten companies that purport to offer purchase order financing. When I delve down what they actually offer is a letter of credit or guarantee of payment. For example, you need to manufacture 1,000 items to fulfill the terms of a contract with a large, credit worthy entity such as a government agency or Fortune 1000 company. The purchase order financing company would guarantee payment upon delivery or within 30 days to the manufacturer, using your purchase order as the “collateral”. So the financing entity has essentially inserted itself as a high credit-worthy company in order to get terms. Otherwise, you’d have to pre-pay the manufacturer for the order. Consequently, although it’s not officially ‘financing’, purchase order financing serves a business financing need.

Another debt source for small businesses is equipment loans or lease providers. These are typically industry-specific equipment manufacturers or distributors. Why industry-specific? Because the equipment providers know the industry, market, pressures, issues, etc. that help them determine whether or not a potential customer is credit worthy or not. Third party equipment loan and lease providers often span several different industries. They broaden their understanding of the dynamics in various industries by employing people who may specialize in one or two industries. The others understand how to credit assess small and medium businesses and what the red flag items are. If your company’s credit profile is iffy, I recommend pursuing a 3rd party equipment financing provider that specializes in two or three industries. These will have the highest risk tolerance because they are highly adept at identifying and mitigating risks in that market sector.

Other options include personal, rental, or business property credit lines and business credit or charge cards. These are very self-explanatory so I will not go into them. My only comment on business credit and charge cards is to get them without a personal guarantee, if you can. If you cannot, then make sure that you obtain the business credit card in your company’s name AND under your company’s tax id number and check in every quarter to either reduce or remove the personal guarantee (i.e., any association with your social security number). You will need to build your business credit to do this. That includes obtaining store credit, such as Staple’s or Office Depot, Home Depot or Lowe’s, etc. in your company’s name and tax id.

The next time I’ll cover the last three options I intend to cover in this series on alternative debt sources: supplier/vendor financing, micro lenders, and peer-to-peer lending.

Technorati Tags: alternative debt sources, alternative financing, small businesses, supplier vendor financing

How do you build your business credit?

Here’s what Wells Fargo Bank (now the owner of Wachovia Bank) has said regarding Separating Personal and Business Finances…

“The longer you delay establishing business credit,
the longer you delay taking advantage of business loans.”

By strengthening your business credit, you will not have to use the owner or shareholder(s)’ guarantee(s) for loans, leases, credit cards and other sources of debt financing. If your company has a strong operating history and financials to support this, you can build your credit. If you have not already done so, do the following as soon as possible to build your small business credit:

• Make sure you are registered with Dun and Bradstreet and have a D&B number. Then sign up for the free self-monitoring system.

• Obtain credit cards from Staples, Office Depot or other office product provider up to the amount allowed with no guarantee. Use these cards to purchase your office supplies.

• If you have lines of credit with any of your vendors or suppliers, ask that they report this information – and your performance – to D&B. If you do not have any lines of credit, ask for them.

o Each year, see if you can increase the size of the credit line. Make sure you use it as appropriate to keep the credit line there. (i.e., If you have a $50,000 credit line but always pay within 10 days by check, your credit line will disappear. You should place your orders using the credit line, then pay off the credit line every 30 – 60 days.

• If you have a bank or other financial institution business loan, even if it is guaranteed by an individual and another corporate entity, make sure that the loan is reported on the COMPANY’S credit report. Properly paying a bank loan can very positively impact your credit.

• Check your D&B report quarterly, but no less than annually. Make sure that any loans, leases, or other debts showing are correct. Many times entities report when they file a UCC but don’t report when the loan is paid off. So what’s showing on the company’s report will make it seem like it has a higher debt ratio than it actually does.

• Pay your suppliers within their specified terms. Make sure that you are working with at least 2 suppliers who report to D&B and/or Experian. Otherwise, your great payment record is completely unknown.

In addition, you should have a business plan. The bank will look at the company’s credit profile, its financial history, financial projections, and the business plan.

Why is business credit so important?

Cash flow is the lifeline of any business, no matter the size. If your company does not have adequate operational cash flow (cash generated on a daily and weekly basis from the daily operation of your business), then you have to access cash from selling assets (cash flow from investing) or from financing. To access financing, either you as the business owner or one of the owners, or your business needs credit. If you want to keep your personal finances COMPLETELY separate from your business finances, you will need to establish credit for your business that is completely separate from you. In other words, You will need to build business credit. You will want to obtain supplier terms and bank loans and equipment financing with only the company’s performance or assets as a guarantee of performance, not YOUR assets or signature as a guarantee. THAT is how you build your small business credit.

What if the business is doing extremely well but two (2) of your largest customers file for bankruptcy and you did not see it coming. That could wipe out your cash flow overnight, especially if you have not been managing your receivables tightly and those customers owe you a large sum of money. But you will need time to build relationships and replace those customers. Your company may encounter financial distress as a result. If the company subsequently cannot make its payments on loans or to suppliers, if you have personal guarantees in place, those guarantees could be called upon. So, in the case of a failing company, whether temporarily or permanently, you would lose the income the business paid you as a salary PLUS you may have to make loan repayments out of your personal assets. It just went from bad to worse. What if all you had was tied up in the business? Well, if the company has to file for bankruptcy, you may have to also. If you had stand-alone business credit, your personal finances would not be an issue. You may CHOOSE at that time to inject money into the company. But you wouldn’t HAVE to.

In a less serious scenario, your company has encountered some difficulties due to the current economic environment and now “recovering” recession. You would like to negotiate better terms on your loans or with your suppliers. If the company is the sole guarantor and the company is struggling, assuming you have a decent plan to weather the storm, your lender is highly likely to negotiate with you. However, if you are a guarantor and have sizable assets, why should the lender negotiate when they can pursue your assets and be done with it? (Of course, having a strong relationship with your lender ALWAYS helps, as I repeatedly state over and over, like a broken record. Or shall I say “CD?”. )

On the opposite side, many business owners complain about how all the credit they have for the business drags their personal credit scores down. By separating and building the business credit profile, the business owner can get credit cards, equipment loans, etc. in the business’ name and tax identification number. Thus, business loans are not associated with the owner’s social security number and thus, do not impact his or her personal credit.

Okay, enough of the “What if” scenarios. You get the gist behind the reason for having a strong business credit profile. I’ll continue next time with the “how” of building your business credit.

Why is business credit so important?

Cash flow is the lifeblood of any business, no matter the size. If your company does not have adequate operational cash flow (cash generated on a daily or weekly basis from daily operation of your business), then you have to access cash from selling assets (cash flow from investing) or from financing. To access financing either you as the business owner, or one of the owners, or your business needs credit. If you want to keep your personal finances COMPLETELY separate from your business finances, you will need to establish credit for your business that is completely separate from you. In other words, you will want to obtain supplier terms, bank loans, and equipment financing with only the company’s performance or assets as a guarantee of performance, not YOUR assets or signature as a guarantee. No personal guarantees.

Imagine this scenario: Your business has been doing extremely well but two of your largest customers file for bankruptcy and you did not see it coming. That could wipe out your cash flow overnight, especially if you had not been managing your receivables tightly and those customers owe you a large sum of money. But regardless, you will need time to build relationships and replace those customers. Your business may encounter financial distress in the interim as a result. If the company subsequently cannot make its payments on loans or to suppliers, if you have personal guarantees in place, those guarantees could be called upon.

So in the case of a failing company, whether temporarily or permanently, you would lose the income the business paid you as a salary PLUS you would have to make loan repayments out of your personal assets. It just went from bad to worse! What if all you had was tied up in the business? Well, if the company has to file for bankruptcy, you may have to also. If you had stand-alone business credit, your personal finances would not be an issue. You may CHOOSE to inject money into the company, but you don’t HAVE to.

To be continued