31. October 2017

Does it really? A common mistakes of most small business owners is overlooking the use of all types of business capital to make ends meet. Let's take a look at a few.

Equipment Financing - Very many types of equipment can be financed or leased so that purchasing them does not eat up your valuable working capital. Obviously you can finance; cars, trucks, utility vehicles, fork lifts, tractors, yellow iron, but did you know that you can finance office furniture, cash registers, computer, tablets, software, inventory racks, building signage, vehicle wraps, and much more. Too many times small business owners burn up their cash without even trying to finance the hardware and software they are purchasing.

Invoice Financing - You can turn your invoices into cash the day you send them. As a business owner you know that cash flow is king and having to wait 30, 60, or 90 days to get paid can be a back breaker. There are many companies out there that will purchase invoices from you at 97 cents on the dollar. You get paid next day and best of all they will handle all the billing and collecting so you never have to chase you clients around to get paid. The other advantage to this type of financing is that they become your AR department and now you can offer extended credit terms to your clients.

Purchase Order Financing - You finally got that big order or that big contract but you don't have the means to fill it. These types of lenders will advance you the money based on the strength of your buyer and not on you. They typically like to finance finished goods and act as the middle man between you and the deliver to make sure everybody gets paid and the products get delivered. An excellent way to conserve cash flow by not having the shell out a huge amount of cash before you can get paid.

Credit Cards - Buy now and pay later. Credit cards are the easier to acquire type of financing. Most are show up with good credit scores, state your income, and get approved. As a business owner you can float 10, 11, or 12 cards with limits from $5,000 to $20,000 and use them just like cash. You can balance transfer from one card to another if you need more time to pay and in most cases if you pay within 30 days there are no interest charges at all. Business owner can easily float $100,000 to $200,000 on credit cards and it becomes all about money management and cash flow to be able to pay the cards down so that you can run them up again as needed. The advantage to this type of financing is that it never goes away and you could keep using it for 5, 10 or more years. Also if you keep your balances drop and your payments never late, the credit card companies will keep giving you increases every six months. It is not uncommon for $200,000 in credit card financing turn into $300,000 in financing within a year of excellent payment history and card balance management.

Vendor Credit Lines - Over 90% of the small business financing in the USA is Business-To-Business and not Lender-To-Business. It is very likely that all the inventory, supplies, materials, and even services your business needs can be obtained on Net 30, 60 or 90 day payments by requesting payment terms for your vendors or finding replacement vendors who are will to grant you the terms of need.

There are more non-direct cash business financing methods and all just as effective at offsetting cash flow. So you see, your business may not need more money it may just need better money management.

Alternative Business Financing, Business Credit Cards, Small Business Financing, Vendor Credit Lines

29. October 2017

Small businesses use many different types of financing to fund their businesses. Below is research from the Small Business Administration as to where small business owners find the sources of capital they need to operate.

Trade Credit 34.8%
Personal Savings 31.6%
Credit Cards 11.8%
Business Assets 7.9%
Term Loans 5.3%
Personal Assets 4.1%
Home Equity 3.9%
SBA Loans 0.5%
Venture Capital 0.1%

As you can see the two sources that actually receive the most press (SBA loans and Venture Capital) when combined make up less than one percent (only 0.6%) of small business funding. This is why it is so troubling that small business owners may spend so much time chasing these Unicorn's when other sources are more readily available. Let's focus on one of those.

Credit Cards make up nearly twelve percent (11.8%) of all small business funding. Credit cards can now be used for most business expenses such as paying; rent, utilities, supplies, inventory, travel, phones, websites, marketing, and more. There are many services available which allow you to pay any bill regardless if those needing to be paid accept credit cards or not.

Unlike other sources of business financing, credit cards are available on a "Per Principle" basis. This means if you have three owners of the business you can do three sets of financing  or one per each owner. This also allows you to bring in other owners with good personal credit to have them funded as well.

So what are the requirements for Credit Card financing?

The general guidelines are for the business owners to have FICO 8 credit scores of 720 or higher. The debt to limit on revolving accounts (other credit cards) should be 45% or lower. There should be no lates or other derogatory items in the last two years and the number of recent credit inquiries in the last 6 months should be 3 or less. 

If the above requirements are met, then the average amount of financing approved is typically $70,000 to $90,000 per owner with the financing usually spread out over 7 to 9 credit cards.

One of the major advantages can be only applying for those credit cards that offer a year or more of 0% interest. This way you get to use your new source of financing for at least a year before the interest charges kick in. Another advantage is that the accounts are revolving so that if you keep them in good standing you can use them over and over again for a very long time. Yet another advantage is that after 6 months and again at one year you can ask for a credit line increase which if you have kept the account in good standing can be as much as 50% to 100% credit line increases.

Even more of an advantage to credit card financing is that the approvals tend to be automated and in most cases instant so there is little to no waiting to determine if you are approved and for how much. Normally the cards will arrive within 7 to 10 days after approval and you can start using them immediately.

While 97% of bank and SBA business loan applications are being declined, it is 99% certain business owners will get approved for credit cards if they meet the above criteria. Even if you personally do not yet meet the criteria, you can bring in a "Credit Partner" who is a friend or family member that does meet the criteria in order to fund your business.

A survey of small business owners showed that 85% of them were very satisfied with the process of obtaining credit cards to use for their business and how easy it was to pay for everything they needed with those cards.

Build Business Credit, Business Credit Cards, Optimize Personal Credit, Small Business Financing

31. August 2017

If you have been declined for a business credit card, the most likely reason is that your own personal credit is less than perfect. In today’s economic atmosphere, banks are very leery of giving credit unless the creditor has a great credit reputation. The first thing a business owner should do if they have been turned down is find out specifically why the application was denied. Don’t assume immediately that it was a credit score issue. It could be a simple matter of missing information or inaccurate information.

If the reason was, indeed bad credit, all is not lost. It could actually be a blessing in disguise. New small business owners often make the mistake of using their own credit to back a business credit card or even bank loan for their start ups. This puts them at great risk for financial failure, and it also ties up vital credit options for their personal life, perhaps for years. While opening a business credit card in a company’s name, using its own credit history to qualify for the card takes work, it makes great financial sense.

It is important to understand that there are some differences between a small business credit card and those opened by large corporations. This can be confusing for some small business owners, and a few get in trouble thinking they are safe from repercussions if they miss payments on a business card.

Using a business credit card has many benefits for small business owners. It allows company members using the card to make immediate purchases even though accounts won’t be received until later. A business credit card provides more freedom to get around thanks to the perks such as hotel and gas incentives and it also offers a quick way to keep up with accounting separately from personal accounts. However, the only way to absolve yourself from personal liability for credit cards even when they are opened in a business’ name and using a business’ identification number, is to set up your company as an LLC. 

In spite of the liability issue, having a business credit card in your company’s identity leaves your personal credit free for your own needs, and also continues to build the excellent credit history for your company that will help it become powerful and a good prospect for other forms of financing.

Before even considering a business credit card, prepare your business for acceptance. Provide a unique address and phone number that is listed in the 411 directories of your local area. Have an EIN number with the IRS that sets your company up as an individual apart from yourself. The EIN, also known as an Employer Identification Number, takes the place of your social security number. Finally, have a DUNS number from Dun & Bradstreet that allows creditors to file payment information in your company’s identity to build a solid credit background.

Build Business Credit, Optimize Personal Credit, Small Business Financing, Business Credit Cards

28. August 2017

Business credit cards give a smart company owner a lot of leverage. Along with the purchasing power they provide, many good business credit cards offer such perks as airline and hotel discounts, restaurant discounts and even gasoline price reductions. All of these extras can mean a lot of savings if they are chosen for their usefulness in regards to the business. Applying for business credit can be an exercise in futility, however, if it is done before the business is ready to be successful with its applications.

Get Information in Order

In order to get business credit cards in your company name without risking your own personal credit rating, the company must have a life of its own. Get a separate business phone number and when possible a unique address even if it is a P.O. Box. Make sure you have an EIN number from the IRS. This number replaces your social security number as an identifier. You must also have a DUNS number from Dun & Bradstreet in order to have credit information reported for your company.

Build Credit before Applying for Business Credit Cards

Start by opening a dedicated bank account solely for your business. Making an initial deposit and using the account for all regular business transactions starts off your company’s credit rating by establishing a bank score. This is a number between 1 and 10 and shows a pattern of reliability that can be used to get a foothold in the first line of credit, the vendor account. Once you have your company’s identity and basic credit started, get vendor accounts established and use them wisely. Pay off balances on time for several months in order to have a credit rating on record for your company.

Be Careful How You Apply for Business Credit Cards

Even once all of your business information and credit score levels are in top form don’t go crazy with credit card applications. Too many applications at one time have a negative impact on your score whether you get the cards or not. Choose the business credit cards you are most likely to use the most, and get the most value from, then narrow down your decision to one or two cards. Apply for only those to avoid having your company’s credit rating drop due to excessive credit mining.

You can safely apply for an additional one, or two cards each year if desired, but it only makes sense to have as many cards as you can easily maintain and actually use all of the perks from. Business credit cards have the added value of offering many additional points or cash incentives that will increase your business’ spending power. These are useless if they go unused, and reduce the value of the credit card to a purchasing tool that charges higher interest rates than most traditional loans.

Build Business Credit, Business Credit Scores, Pre-Qualify for Business Loans, Small Business Financing, Business Credit Cards

16. August 2017
Knowing what it will cost to start a business is important for new business owners. When a business owner takes the right steps and knows what is coming, they can be prepared, and ready to get the funding necessary while protecting their credit and at the same time, building their companies credit rating. 
 
When new business owners go into business without taking the time to truly understand what it will cost to start and operate a business through the time it is profitable, chances are good they will end up spending all of your savings and still come up short. When that happens it is even more difficult to obtain further financing or credit. 
 
Unfortunately, figuring out what a new business will cost is difficult business. Since businesses differ in many aspects, there are no two companies that will have the exact same costs to begin. The numbers get even more varied between each company from actual start to the time each will make a profit.
 
Typical Start-Up Costs
 
Using a list of typical start-up costs, and determining if they fit your company’s criteria is a good starting point for calculating your business’ unique needs. Typical costs for the average start-up include:
 
• Rent or property purchase
• Licenses and/or permits
• Office furnishings including: shelves, tables, filing cabinets, copiers, fax machine, chairs, cash registers
• Office equipment including: computers, phones, printers
• Inventory for product sales/Supplies for service providers
• Monthly utility fees
• Business insurance
• Shipping, packaging, shipping insurance
• Legal fees for setting up business structure
• Internet access
• Marketing costs including: Stationary, advertising printing, public relations or marketing campaign advice, trade shows, chamber of commerce fees, travel, entertainment for clients, mailing or lead lists, subscriptions
• Wages and benefits for employees including: salaries, payroll taxes, worker’s compensation and other benefits
 
Expense Deductions
 
While any expense that occurs after you open your doors, or start up online, is completely tax deductible for that year, there is a very important distinction for actual pre-business start-up costs. You can only deduct up to $5,000 total costs in the first year of operation for any expenses occurred in the year’s prior to actually beginning to operate.

Lender Compliance Items, Small Business Financing, Vendor Credit Lines, Business Credit Cards