12. November 2017

Let’s compare business credit to personal credit and see what we know about both.

Scoring Systems
Both business and personal credit have a scoring system. In personal credit it ranges from 350 to 850 and with business credit it ranges from 0 to 100. What is common to both is that if you have 700 or higher personal credit scores lenders and offers will fill up your mail box and if you have 70 or higher business credit your mail box will be just as full.

Types of Credit
To achieve 700 or better personal scores you are going to need a mortgage, some installment accounts, and a few credit cards. One mortgage, 2 or 3 installments (cars, furniture, appliances) and 4 to 7 credit cards. The optimal is about 10 reporting trade lines all showing that you have paid perfectly for at least two years. Business credit is no different in that you are going to need at least 10 reporting trade lines to establish and build string business credit scores and to demonstrate to future lenders that your business has a history of on time payments. The 10 reporting trade lines can be bank or credit union term loans, business credit cards, store business cards, vehicle or equipment financing or leasing, or vendor lines of credit. You just need 10 and those ten must report every month.

Magic Number
There is nothing magic about 10 reporting trade lines other than the fact that many lenders and vendors have set that as the bar for no longer requiring a personal guarantee for lending your business the money or providing your business with the line of credit. Think about it, they need enough reporting payment history to determine a strong pattern of how your business pays its bills month in and month out and that cannot be established if your business only has 2 or 3 reporting trade lines. If you only had two credit cards and one student loan payment would you be qualified for a home mortgage? Probably not.

High Risk Versus Low Risk
Now, let’s make you the landlord and you have a choice between two prospective tenants. One has a five year credit history with 10 or more paid perfect reporting trade lines and credit scores in the 740 range. The other prospect has only 3 reporting trade lines, a few 30 day late payments, and credit scores in the 620 range. Both are willing to meet your lease terms. Which one do you select? Exactly! Lenders and credit providers are no different. They are going to approve the lower risk prospects and pass on those that have too little credit history or poor payment history, just as you would.

Becoming Bankable
Having at least 10 reporting trade lines on your business credit reports is a great step towards becoming bankable. Then you must also pay them on time over a period of time (at least one year) and during that time you must complete all lender compliance items and establish a low 5 bank rating. The 10 trade lines paid on time will create 70 or higher business credit scores. Lender compliance items and bank rating details are covered in separate blog posts. Together these four things make up how your business makes itself become bankable and be able to stand on its own for financing.

Build Business Credit, Business Credit Scores, Lender Compliance Items, Small Business Financing

1. November 2017

The Federal Contract process can be very complex and a little overwhelming. This can result in small businesses either not bidding on contracts or hiring someone to help them through the process. The problem comes from the latter. Unfortunately this sets small businesses up for scammers.

Businesses who wish to bid on federal contracts are required to register with the General Services Administration's (GSA) System for Award Management (SAM).

It is at this point that small businesses are being scammed into thinking that they must pay high registration fees in order to become eligible to bid on government contracts. This could not be farther from the truth. Both the registration and bidding are 100% free and open to all businesses.

The problem actually begins once you register. At this point your information becomes public and that is where and when the scammers get a hold of it. Everything you listed in your registration is available to them; your name, your business name, phone number, email address, and more.

These scammers then act as either real consultants or government officials and begin calling and emailing you almost immediately after you register.  Scammers will go to lengths of impersonating government officials just to mislead you into paying them.

Most small business owners do not know that there is free help for the registration and bidding process that is provided to them by existing federal programs. Therefore they end up engaging with the scammers who are seeking hundreds if not thousands of dollars for their so called registration and contract bidding help.

There are many companies providing legitimate registration and contract bidding help.  If your business does elect to engage a consultant, make sure you check them out. Do they have a BBB.org listing and rating?If not or if it not at least an "A", you should probably stay away. Ask for references of businesses they have helped to successfully obtain contract awards. Remember contract awards are public so you can see business that were awarded contracts. Since their business data is also public, you can call them to ask if they used the consultant and what was their experience.

There is also the Association of Procurement Technical Assistance Centers (APTAC). They want to get your business the help you need at no cost. They are a nationwide network of Procurement Technical Assistance Centers (PTAC). You can search to find the one closest to you and, more than likely, get all the registration and contract bidding help you need for free.

Avoiding Small Business Scams, Build Business Credit, Lender Compliance Items

28. October 2017

The Census Bureau defines Microbusinesses a firms having one to nine (1 to 9) employees. They count them in the years ending in 2 and 7, so in our case 2012 and 2017. 

They last reported that microbusinesses are the most common kind of businesses which have employees and that in 2012 there were 3.7 million microbusinesses. 

Most microbusinesses are not startups but rather have already survived that 97.5% startup failure rate. They are in fact over 60% more than five years old. (Source: Bureau of Labor Statistics)

Microbusinesses typically account for more than 20% of the new job growth in the USA each year, therefore they account for a major shot in the economy's arm. 

The real estate, insurance and finance industries make up the largest shares of microbusinesses. And at last count made up 85 percent of these three industries.

Financing for microbusinesses can be even harder than other types of small business with even obtaining merchant processing accounts being a struggle at times. This is a major reason that microbusinesses need to pay special care to making their businesses pre-qualified, fundable, and bankable. Your industry and your size have placed you at a major disadvantage for obtaining traditional lending and the only way you have of breaking through that is to have already removed all other high risk of default factors before you apply.

The good news is that microbusinesses are providing roughly 12 million jobs in the USA and with just a little help about what it takes for them to become bankable they could provide even more. 

Build Business Credit, Business Loan Approvals, Lender Compliance Items, Pre-Qualify for Business Loans, Small Business Financing

23. October 2017

And that number goes up when talking about small businesses with 10 or less employees. Small business owners have no insurance because it is their belief that there is not enough cash flow to support it and it is expensive.

First, let's review the cost of not having business insurance. No insurance means that you are putting your business at risk. Fire, flood, storm damage, theft, an accident, or a lawsuit anyone of which can wipe out your business and might do the same to your personal assets.

Fact, when it comes time to close on many types of business loans the lenders are going to require to see proof of insurance. They are usually all too happy to provide it, but it will be at double or triple the market rate. Better to get yours before they require it of you.

Many insurance companies have what they call "a business owner's policy". These policies provide basic property and accident coverage at a reasonable costs. These policies will normally satisfy your Landlord as well. You can usually lower the cost of this basic coverage by increasing the amount of your deductible. This costs you more if you need to make a claim, but can still keep you from being wiped out.

Be sure to look at what your policy covers, such as; fire, storms, casualty, theft, fraud, embezzlement, and injury claims. Floods are almost never covered under a basic business policy and normally require a rider.

The bottom line is that operating a business without having business insurance is a very bad idea and one that can damage you personally if you don't attend to it. 

Many of these policies have no deductible for liability actions with a standard starting point deductible of $250 for property damage. Again, most lenders, leasing companies, landlords, etc. will require proof of insurance before doing a deal with you.

Business Loan Approvals, Lender Compliance Items, Pre-Qualify for Business Loans, Small Business Financing

20. October 2017

It is staggering to think that less than thirty out of every one thousand businesses is able to obtain the financing they need from a bank. So unless you know exactly how to prepare and you work to pre-qualify your business before you apply you have about a 3 in one hundred chance of being approved. Wow!

What can you do about it? The best thing you can do is to increase your odds of being approved for any type of financing; bank, traditional lenders, alternative financing, crowd funding, etc.. You do that by knowing exactly what is required to become pre-qualified, fundable, and bankable.

Pre-qualified is simply knowing that yoiu are ready to apply for one or more specific business finance programs.  Fundable is knowing that you meet the general requirements of a large number and type of lenders. Bankable means that you have gone the extra mile to make sure all Lender Compliance items have been completed, you have built and optimized your business credit scores, that you have optimized the personal FICO 8 scores of the business owners, and you have made sure your business has a bank rating of a low 5 or above.

Having your business become bankable before you apply for any type of business financing will help insure you hear "Approved" rather than "Declined". Doing nothing put just applying will almost certainly place you in the 97% who are not getting approved now.

Becoming bankable have many other benefits. Vendors will offer you better terms and without personal guarantees. Landlords may give you lower rates and leases with signing personally. Business financing offers will come in the mail for all types of programs. You may beat out a competitor for that project or contract because your business is viewing as more credible or stable.

Your business becoming bankable is also something that can increase the value of your business if and when you sell. It is also transferrable to the new business owners making your business much more attractive than others the buyers may be considering.

The bottom line is it you want to move your business into the 3% rather than the 97% you will need to do the work to become bankable.  

Build Business Credit, Business Credit Scores, Lender Compliance Items, Pre-Qualify for Business Loans