30. November 2017

We are sure that many business owners have heard the claim that lenders do not use or care about business credit. That claim is made due to the fact that most businesses have never taken the time to build their business credit or even know what is in their business credit files.

Far too often there is not enough history to base any lending decision on and therefore traditional bank type lenders are forced to look only to the business owner's personal credit as a measure of how their business is going to pay its bills. The truth to this is that reliance upon personal credit only leads to vastly over extended business owners, businesses that are way under funded, and then have access to no further funding once the limited resource of personal credit is exhausted.

Less Than 5% Of All Business Lending Comes From “Lenders”
The other side of this story is the fact that when you total up all small business lending in the United States you discover that less than 5% comes from Bank Lenders. The reality is that there are over 500,000 businesses (called vendors) in the United States who are extending credit payment terms to other businesses. This is where 95% of all business lending gets done. This is typically referred to as "Net Terms" where the company extending the credit provides 30, 60 or 90 days in which to pay for the goods or services provided.

Less Than 2,000 Lenders Nationwide
So you when you compare more than 500,000 vendors who are extending B2B credit terms to the less than 2,000 of the traditional bank type “Business Lenders” you also find some other huge differences. One such diffference is the amount. Banks that are making these personal credit based business loans end up with most of these loans being for $100,000 or less. They will not go higher unless the loan is secured by hard assets such as investments, equipment or real estate which are unavailable from the larger percentage of small businesses. Therefore using only personal credit for business lending ends up in businesses that are under funded.

97% Decline Rate
When these “Business Lenders” do not look at or care about your business credit you will find that they are also not reporting credit on your business if they make the loan. They are reporting on you personally. The other untold story there is that they are declining 97% of all applicants. Basically if you are financially well off and have at least 760 credit scores they will make you a $100,000 or less personal loan with your business name on it. They will then make you personally responsible so that when you default they can take your house, car, and savings. Maybe you should rethink business credit.

The Issue With Business Credit
The reason that many bank type lenders do not look at business credit is that most businesses do not have enough business credit history to make loan approval decisions on. I am willing to bet if you check your business credit right now you will see maybe 3 tradelines reporting and even those may have gaps in their histories. That is the real issue, not enough credit history. The average business that has been in business for three years has 3 or less reporting business credit tradelines and even those have gaps in their reporting.

So Little Reporting History
Why is there so little reporting history? While it is true that there are over 500,000 businesses extending credit to other businesses, the other truth is less than 5,000 are reporting payment histories to the business credit agencies. Therefore as a business owners you should try and use those vendors that will report your business payment history and you should strive to build at least 10 of those into reporting tradelines. 

Business Credit Lenders Are Hard To Find 
I am going to let you in on a little secret. Those businesses who build excellent business credit scores and that have 10 or more reporting business credit tradelines do not have to search for lenders. If your business builds business credit scores above 70 and develops at least 10 reporting tradelines you will have placed your business in the top 1% of all small businesses. You will not have to go looking for lenders and “hope” they will approve your business. Your mailbox will fill up with lenders and lending offers almost every day.

Average Daily Bank Balance
Lenders and vendors alike care about your ability to make your debt payments. This ability is going to be demonstrated by your Business Bank Rating. If you think business owners do not pay attention to their business credit you would be right. But something business owners pay less attention to is their Business Bank Rating. In fact most business owners have never heard of a Business Bank Rating and have no clue as to what their bank rating might be. Basically if your Business Bank rating is less than a "Low 5" then your loan application will most likely be declined as your business has shown no ability to have the funds available to cover the debt payments.

Business Becomes Bankable
There are four components to having your business become bankable. Business credit is one of those and your business bank rating is another. If you want to have the ability to move past the limited funding that is available using only your personal credit then you must have your business become bankable.  The full four components of becoming bankable are; having all items of lender compliance completed, having at least 10 reporting business credit tradelines, having business credit scores of 70 or above, and maintaining a business bank rating of a low 5 or above. Becoming bankable requires work and attention to detail by you.

You Choose The Outcome 
Having been is business lending since the early 90s I have seen more that 700,000 businesses in search of capital. From experience those who only seek the money are almost always already doomed to failure. It goes like this ...

Option A: Get the money, go thorugh the money like water through your fingers, business is starved for cash, personal credit is maxed out, business owner has exhausted personal resources, business goes under, and the business owners go bankrupt. Or there is:

Option B: Get the money, go down the become bankable path, establish many non-cash resources to conserve capital, within six months have many additional options for more funding, can call upon vendor relationships to extend more credit or longer terms, lenders will increase existing credit lines, and you will have credit offers filling up the company mail box.

As a small business owner the choice is yours. You have been warned that Option A "Is Going To Be Hot".

Build Business Credit, Business Credit Scores, Business Planning, Pre-Qualify for Business Loans, Vendor Credit Lines

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

19. October 2017

As a Vendor or a Lender everything you pronounce a person or a business as "Declined" you make an enemy. If you are Home depot and a business owner applies for your Commercial Card and you decline them, well then they never want to shop at Home Depot again. You just created a Lowes customer for life. And why?

Anyone hearing declined from whatever source is offended. Declined at Wells Fargo so they will never do business there again, when it didn't have to be. But when "Declined" or "Approved" are your only two options you have left yourself only two choices, approve them and make a friend who speaks well about you to others or decline them and make an enemy who speaks badly about you to others.

Enter a third choice and that is "Not Yet". 

"We very much want to approve you but you are Not Yet where we can. To help you get there we would like you to go to Fundability.com. It is a free service that provides you with all the education, tools, and help you need for us and many others to approve you".

Now think about the mental state of those who simply hear "Declined" versus those who hear "Not Yet". How would you feel? There is a world of difference.

Vendors and Lenders are in business themselves to make a profit so they must guard against their number of defaults. That is just good business. Approving everyone has been tried over and over again and it always leads to failure. Too many defaults leads to too many losses, which leads to a business closure.

Business owners has to do their part as well. Their part is to not apply before they know they are pre-qualified. Home Depot wants to approve you. Of course they do. They don't want you as an enemy. But when you walk in unprepared for the test, then you are as much to blame for the "Declined" as they are and maybe even more.

The solution to both sides of this is to remove "Declined" from the equation. If as a business owner you go to Fundability.com first, before you apply, then you will know with whom you are pre-qualified. And if you are a Vendor or a Lender who says "Not Yet" and sends that business owner to Fundability.com then you have empowered their success rather than damaging it.

Solutions to problems are usually found if only we take the time to look.

Business Loan Approvals, Pre-Qualify for Business Loans, Small Business Financing, Vendor Credit Lines

12. October 2017

The major mistake that almost all businesses make is co-mingling their personal credit and finances with their business credit and finances.

Let’s take a look a few examples of this:

Example #1

You start your business, you open a business bank account, and from whatever resources you deposit money into that account. BIG MISTAKE!  

Here is the correct way for this to happen. You start your business, you open a business bank account, and from whatever resources you open a certificate of deposit and then use then CD to secure a business loan for the same amount from your bank.

Why do that? First you checked with your bank to see if they will do this transaction, and later we will provide you with a list of banks that do, and then you make sure that your bank will report your new business loan to the business credit reporting agencies.  When your new business loan reports it does not report as secured and it alerts all other potential business lenders that your business was worthy of getting approval for a bank business loan. Your business is now on other business lenders radar.

Example #2

You personally have good credit scores. You believe you can use those scores to secure business financing and in many cases you are correct. But you haven’t taken the time to know if your business is in lender compliance and you just apply. 

Unfortunately you get declined. You got declined because the address you provided was a residential address and you didn’t know that business lender declines all home based businesses.  

By not being ready to apply you have now damaged both your personal credit and business credit scores.

The solution to this is to know that you and your business are truly pre-qualified and ready to apply before you actually apply.

Example #3 

You are operating your business as a sole proprietor or partnership. While these are viable forms of business, you are in business but you are not “a” business.  What this means is that you do not have a business entity and that everything you do in that business comes back to you personally. 

This means any debt or liability the business might have you are now personally liable for which is a major risk for your personal credit and finances.

The solution is to have a separate business legal entity that can be responsible for the business liabilities and which can develop its own credit scores that are separate from you personally.

Unlike your personal credit, which goes with you when you leave your business, your business credit remains attached only to your business.  Your business having its own strong business credit scores creates an asset.  This asset is valuable because it can be transferred to the new owners and is immediately available for their use.

Building strong business credit scores is all about having reporting trade lines that you use regularly and that you pay on time.  To optimize your business credit scores your business will need at least 10 positive reporting trade lines which show a pattern of month in and month out usage with good payment histories. 

Build Business Credit, Business Credit Scores, Vendor Credit Lines

18. September 2017

Working capital tends to be in short supply for new or growing businesses, and that is why many entrepreneurs and business managers devote lots of time and stress into coming up with capital for their business. The good news is that locating capital for a business isn't as difficult as one may think. Using account receivables or invoices a business can obtain instant capital by selling them off to a "factor" for a small discount. This process is known as an account receivable credit line because most of the time the "factor" will give the business a type of "credit line". 

Account receivable credit line financing works great because most of the time startup and growth companies, in particular, simply can't afford to wait for customers to pay on invoices, or they get in a bind if the customer pays late. It is much easier to get approved for this sort of financing than for a standard business loan from a bank. The flexibility of account receivable credit line financing is attractive to businesses in need of capital.  

Your business could choose to factor only a few invoices or all invoices. You are by no means required to factor all account receivables. Since you are actually selling the invoice to the factor you have the freedom to choose which company to sell the account receivables to, and you of course control when you sell them. You would sell the account receivables for a discount to the factor. 

The company you sell your invoices to would then be in charge of collecting payments from your clients, processing the payments, and also generating reports. This is another positive for businesses that decide to factor invoices. Your client would be notified of the billing address change. 

There are some requirements laid out by the factors who offer an account receivable credit line. Since they are taking on a risk for your clients they will want to make sure that your client is creditworthy. Your businesses credit won't need to be established to qualify, but your client will need good credit and references as to their payment history. Many new businesses don't have business credit scores established, so an account receivable credit line allows younger businesses to get capital without long application processes. 

This is also the only form of capital that grows as your business grows. As your sales grow, so does the amount that you can factor, or the amount of capital your business has access to for faster growth. Your business could take advantage of supplier specials or other special deals to save money, or the money could be used to pay your bills early to receive an early payment discount with some suppliers. The list of benefits goes on and on. 

It is important to know your business capital options. 

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