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

29. November 2017

Angel investors are high net worth individuals that are seeking a large return by investing in what they perceive as fast growth startups. At any given time there are about 250,000 Angel Investors. For the most part they like to invest locally so they can drop by and visit their investment. Angel Investors tend to invest in that which they know and/or feel that their network of contacts can be of great value to their investment.

Angel Investors come in second for private investment capital into small businesses behind only that invested by the principles of the company and their family or friends. The average investment is normally less than $300,000 as this is a private individual investment and not a venture capital fund. Securing an Angel Investment can often lead to more significant investment interest from venture capital or other investment groups.

More than likely you will make your pitch to a single investor or a group of Angel investors. The setting is typically informal and your pitch needs to be brief and to the point. Pre-planning is the key so come prepared to share full product or service details, market size, market capture, competition, etc. It does not need to be a complete business plan but it should be a full executive summary. Slide presentations with talking points make a good pitch. Even a short professional video can work well. Avoid the hype, such as “unlimited potential”, “massive market”, “no competition”, “never been done before”. Anything that cannot be backed up by facts and stats should be left out of your pitch.

Angels are savvy investors who are focused on how their investment is going to be used to make them money. You should be excited about your business and its opportunity, but not over the top. These Angels are being asked to invest in a real business and not it something you thought it would be cool to do. Bottom line is they are all about turning their money into more money and finding out if you having the education, experience, desire, and will to do that.

If you can turn your passion into production you will have their interest. This is where demonstrating how well thought out your business plan is plays a critical part. For example if you are projecting your gross margin to be 20% where the average in your market niche is 8%, then you better be able to show exactly how and why.

Trust is a big factor in their decision to invest in you. Angel investments are very personal. They are investing in your business, but even more so they are investing in you. You cannot slide past this one. If they ask questions that you don’t have the answers to, then the best response is “I don’t know, but I will find out”. If you make something up or lie about the answer you will get found out and the deal will blow up. Be confident in your answers, but even better is to be informed and prepared.

Don’t have your first pitch be to the Angels. Practice with a coach. Practice with your friends and family. Seek out other business associates and pitch them. Get feedback from them and be ready to give a great pitch without a bunch of gaffs and without stumbling through a lot of unprepared for questions.

Lastly have a really good idea of the amount you are looking for and what you are willing to give for it. If you want $300,000 for 10% of your business and they offer $200,000 for 20% are you prepared to accept it?

Alternative Business Financing, Business Startups

28. November 2017

Unfortunately, fear is a much larger motivator than potential success. That is why out of a population of 326 million people there are less than 10% who ever elect to go into business for themselves.

Fear of failure, financial fear, and fear of risk are the big three that you will have to overcome if you plan on joining the few who become small business owners. It is those small business owners who overcame their fears to create half of all jobs in the United States. 60 million people have jobs due to small business owners who overcame their fears and went for it.

Having these fears is not irrational, actually they are well founded. More than half of all small businesses fail within the first three years. The largest reason for the failures are financial in that there was not enough capital to sustain the business which in turn lead business owners to risk their personal assets thereby covering all three major fears; failure, financial, and risk. So what do you do about it? We suggest you “plan away your fears”. Completing a solid business plan and getting help to review it and pick it apart go a long way to dispelling those fears. Let’s address them.

Fear 1 – Failure
Failure can be planned away by fully understanding the market for your business. Who will buy what you’re selling? How much will they spend for it? What are competitors selling it for? How much does it cost you to sell it? Is the market growing or shrinking? Are there more players in the market now than five years ago or are there less? There are a hundred more planning questions that can be asked which after you answer them will provide you with an answer to the question of “can you succeed at this or not?”

Fear 2 – Financial
Since we already know that the most common cause of business failure is running out of money, then it would follow that this is the most important part of your planning. How much money do you have now? How much will you need to make a go of this? What are your options if you hit a cash shortfall? Where will additional capital come from? How quickly can you access it? How expensive will it be to get it? Planning for both the upside and even more importantly the downside will give you the ability to overcome the financial fear and should also tell you if you should begin or not.

Fear 3 – Risk
The fear of risk comes in so many forms. One major form is responsibility. Who are you responsible for? The more people you are responsible for the greater the fear of risk will be. That is why you see so many successful “single” business owners. Young men and women who don’t yet have anyone to be responsible for other than themselves. Older men and women whose families are grown and out of the nest. So single people of any age who have the ability to take risks without having to account or explain or get approval before they can freely jump in. To overcome the risk fear you either need to have only to gain your own approval or you should get those you are responsible for involved in the decision.

Becoming a small business owner not only involves taking risks, it also takes up alot of time. Lots of your time required to begin, maybe more to grow, and even more to succeed. Detailed, researched, and educated planning is the key to overcoming all three of these major fears if you are going to not only decide to start your own business but you also want to succeed at it.

The old quote “Failing to plan is planning to fail” is oh so true when it is about becoming a small business owner.

Business Planning, Business Startups, Entrepreneurship, Pre-Qualify for Business Loans

27. November 2017

Starting a business always begins with what you think or believe is a great idea. For most people that is where the story ends. Just an idea that they bring out over drinks with friends or at family gatherings but that never becomes more than just an idea. Taking action to move from an idea into an actual business for most is an overwhelming task and one for which they have not been trained or educated.

Having no practical experience in starting a business and no formal education on the same tends to compound what already seems like a huge task. It is at this point that many would be business owners freeze up and while they know there are lots of actions which need to be taken they do not know which to do first or in what order they need to be done. Let’s break it down into bite size tasks and place them in a relative order to make the idea to action part of starting a business a little easier.

Action 1 – Business Name
This may sound easy but maybe not as easy as it appears. You will want a name that no other business is using and not one that just nobody is using in your State. You will want the website name to be available for your business name so that you do not have to add anything to your business name just to have a website for it. Search the BBB.org site, use the godaddy.com domain search, check the TESS (US Trademark search), and you can check the Experian and Dun & Bradstreet business credit files.

Action 2 – Business Entity
Do not do business as a sole proprietor or partnership. Those forms of business are not stand alone entities and they put everything you own personally at risk. One mistake can result in you losing your savings, investments, your home, and anything else you own. Form either an LLC or INC to protect yourself personally and to have a standalone entity.

Action 3 – Your Plan
This doesn’t have to be some kind of canned plan, Rather it should be your idea written down. Answer things like “is there a market?”, “how much competition is there?”, “is it sustainable?”. There are many good business plan checklists out there that will help you write down your idea and see if it really makes sense. Demographics play a huge role, “does anybody want what you are offering?”. An example might be to not open a bagel and coffee shop where everyone has to make a left hand turn on their way to work. Your business has already failed. People will not cross traffic to both get to your shop and then to get back out. And they do not buy bagels and coffee on their way home. Do your homework.

Action 4 – The Money
“How much money will it take to start?”, “do you have enough?”, “do you have access to more when needed?”. Doing the budget before you begin is a massive part of your success. Most business that fail do so due to a lack of cash flow or financing. The budget was not well thought out to begin with, revenue production was over estimated, and there was no pre-qualification done to have access to more cash if and when crunch time came.

Action 5 – Required Services
Your cash flow can be gone quickly when you start adding up all the services you need to successful build and grow your business. You need; a phone system, website, accounting, ecommerce, local marketing, SEO, CRM, ERP, mobile marketing, location, email marketing, direct marketing, and more. By the time you add them all up you find you are spending thousands each month $49 to $499 at a time. But trying to operate your business without these critical services surely increases you chance of failure.

Action 6 – The Best News
The best news you can receive about starting a business is Fundability.com. All of our action steps are clearly laid out and provided. There are virtual coaches on each step instructing you what to do, why to do it, and how to do it. There is also a professional team you can contact at any time to get the answers. Your business success begins one step at a time and getting the best help possible each step of the way.

Business Planning, Business Startups, Entrepreneurship, Small Business Financing

23. November 2017

There is a massive difference in the types of debt you may have already or will take on for your business.

1 – Entity
First off if you are doing business as either a sole proprietorship or partnership then the point is mute because all the business debt is attached to you personally and there is no way of having it be otherwise. This is why your business should always be a standalone entity such as an LLC or INC. Without an entity then every dollar in debt your business owes you owe personally. If your business fails the creditors will come after all your personal assets to satisfy the business debt. In any scenario this is a horrible way to be in business and no one should risk it. Form an entity! In the case of a partnership, each partner is liable for 100% of the debt and creditors do not care who they take it from. In the event of a failure creditors will look to each partner individually and it is common to place liens on each partner for the entire amount owed. Yet another reason to form an entity!

2 – PG
The next thing to check for in your business debt are personal guarantees (PG). What these do is to make any debt that has them carry through to you personally in the event of a business default. This will be true even if you have formed an entity so these should be given out as little as possible. Many types of debt almost always require a personal guarantee. They are most common with business credit cards and term loans. They are far less likely and can be avoided all together with asset financing such as for equipment and vehicles, contract financing, invoice factoring, revenue based loans, purchase order financing and all types of vendor financing. Limit you use of personal guarantees when you can.

3 – Convert Debt
You should always take stock of what kind of business debt you have and focus on paying off that which holds you personally liable first. There are many ways to do this. For example, let’s say you have financed a vehicle and provided a personal guarantee. Now your business is a year older, you have taken the time to build your business credit and have your business become bankable so now you can refinance the same vehicle with a different lender and not sign a personal guarantee. If your business is now turning a profit and you have built strong business credit scores this will be true of any assets you have previously financed with a PG. If you have given your PG to vendors or other creditors you can now go back and ask to have it removed. If they refuse, then change vendors as there will be many ready to take their place.

4 – Personal Credit
Check your personal credit reports. Any business related debt that is reporting on you personally should be your top priority to either pay off or convert to true business debt. Also check your business credit reports. Many lenders such as Amex do not issue credit cards to small businesses. Instead they issue you a personal credit card with your business name on it. This is why you will not see it as a trade line on your business credit reports, but rather it appears only on your personal credit report. Kind of sneaky isn’t it?

5 – Ten Reporting Trade Lines
There are many articles out there providing terrible advice. Such as advice like “pay off all your small business debts first”. Pure junk! To build and maintain strong business credit scores you need at least ten trade lines that report each month on you paying your business bills on time. Way too many business owners do not know that this is a vital component of making your business bankable and able to stand on its own for financing without your PG. Instead when creditors pull up their business credit reports they see only 2 or 3 reporting trade lines. Business owners think this is great. IT IS NOT! Now you have no credit history for lender to base their approvals upon and you are forced back into everything requiring your personal guarantee.

The bottom line is that business debt is not a bad thing and neither is PG business debt when used to turn a profit. Having your business take all the steps to becoming bankable and thereby being able to stand on its own for financing is the key to your business debt not keeping you up at night.

Alternative Business Financing, Build Business Credit, Business Credit Scores, Small Business Financing