6. August 2017

Getting business credit starts with building a solid credit rating for your company. This credit score should be completely separate from your personal credit information. Having business credit helps to protect your own credit, and also allows you to get financing in your business name. Keeping your company’s credit and financing separate keeps your own credit lines open for personal needs to provide for yourself and your family.

Making a Legal Entity

It is possible to build credit for a business without incorporating it, but the safest way to make sure your own finances are not entwined with your business is to form an LLC. This is a legal process that will cost money, but protects you from responsibility for the debts and legal responsibilities of your company. Most business owners can appreciate how this protects them from being responsible for financial debt from the business, but think they can get away without that protection as long as they never miss payments.

While that is a noble thought, many small businesses fail and the LLC will protect you. There’s another side of the financial responsibility issue that many new business owners do not think about at the start, however, and it may be the most important reason for protecting yourself. People in today’s society are quick to sue over even the smallest of perceived injuries, be they monetary injuries, physical or even emotional injury. If your business falls victim to a lawsuit, you will be responsible if it isn’t at least an LLC.

Identification Numbers for Building Credit

Whether you incorporate, or not, you will need identification numbers for your company. These numbers are what credit agencies use in place of your personal Social Security Number. The first is easy to obtain from the IRS on their website. You will be able to apply online for an EIN from the IRS. The next is a DUNS number from Dun & Bradstreet, and it takes a few more weeks to obtain. 

Steps to Create Business Credit

Once you have a solid business identity established the first thing to do is open a business bank account. From the start all of your daily transactions should be made from a business account, not your own personal bank account, or your wallet. Using business funds from a separate account provides two things. First, it gives you a bank score and helps show fiscal responsibility. Second, it provides a clear outline of costs and income throughout the history of your company. This will be helpful when creating an overview for a lender in the future.

The fastest way to begin building an actual credit rating is to open several vendor accounts with companies you do business with regularly. A vendor account is a revolving credit account with a particular store or chain. It is usually a very short-term account that must be paid in full within a certain number of days, usually 30 to 90 days. However, there is often no interest charged on vendor accounts when they are paid on time. This not only allows you to get goods necessary for running your business while you are earning the money to pay for them, it builds your credit without costing you added interest.

Don’t forget the most important step in creating a solid business credit score for your company: Pay on time.

Build Business Credit, Small Business Financing, Vendor Credit Lines

5. August 2017

An article published by the Small Business Association stated that a good guideline for a startup estimate costs is the 2009 study by the Ewing Marion Kaufmann Foundation. In this study it is shown that $30,000 is an average for a new business from scratch. While that may be a good basis for determining a baseline from where to begin, it is rarely such an easy one number statement. Thanks to the enormous variety of business landscapes now there is a lot more that goes into the cost evaluation of a new business.

Determining Startup Costs

Perhaps the single most important impact on the cost of startup is how big the business will be. The cost of operating a “mom and pop” storefront is much different that the cost of opening a department store or large-scale manufacturing plant. Depending on the type of product and number of offerings you will have in your business, or what kind of services your company provides will determine the initial size and scope of its needs.

The size of your business will also determine the space needed to operate from the start. While every business hopes to expand and grow as the years go on, some can start from a small corner in a living room, and some require large warehouses or manufacturing plants in order to get off the ground.

If your business will require products to be manufactured, do you have to do it yourself? Can the costs be reduced by sending products out to be made or is part of the attraction your special products have the fact that they are made the way only you can create them? Is your market in your hometown or does it reach all corners of the globe? Can you sell what you have to offer online without the costs of a store front? Will you be able to store the inventory needed or do you need a spate warehouse? These are just a few of the many questions that come into play when considering the cost of a startup.

A Business Plan Holds the Answers to Startup Costs

Will you be able to perform all of the functions of daily operation as well as conduct business operations at the highest levels by yourself, or will you need a full staff of people to get all of the work done? The only real way you will be able to tell exactly how much money you need to begin a company is to develop a business plan that thoroughly investigates every aspect of the company from the beginning. Another very important piece of information a business plan will provide is a clear path to profit and a solid estimate of how long it will take to be profitable. 

Small Business Financing

4. August 2017

Any business owner knows that “cash is king” and nothing beats having money in hand to keep a business afloat. However, in order to maximize sales, it can be a very good move to offer terms to regular customers, so they can get the items they need and provide you with consistent sales.

That means much of your income could be in the form of receivables; money that is owed to you on account. Having accounts receivables on a balance sheet can provide a great deal of comfort, but they don’t help much when it comes to providing necessary cash for expenses such as inventory, payroll or other regular bills.

When you need money, but only have the promise for payment to bank on, it’s time to consider accounts receivable factoring. This uses as an asset to get a line of credit that allows you to pay your bills on time while waiting for the money to come in from the sales.

Another very attractive quality of accounts receivable factoring is that by selling those promises to pay to the lender, it transfers the collection responsibility to them. That leaves you free to conduct your business without the stress of chasing down payments.

Vendor accounts and in-house credit are not the only form of accounts receivables that can be used as a loan advance. Credit card payments from consumers are even more valuable to lenders, because they are far less risky and require little in the form of collections. The interest on a loan from this type of receivable is usually collected by charging back a small amount to the future credit card collections from your company.

How Much Assets Receive in Loan Value

Loans based on business revenue carry more weight than their face value. Many lenders will loan up to 1.5 times the amount of your business’ gross revenue. The fact that the loan is largely backed by accounts receivables means the risk to the lender is lower, and that is mirrored in lower interest rates than standard loans. Using cash flow accounting lets owners keep cash available at low interest rates and you only have to pay interest the amount used.

Other Ways to Improve Cash Flow

Many new business owners feel it is smarter to use cash on hand for all purchases rather than paying interest on a long term loan. This seems to make sense, but it can leave a new business owner in a cash crunch when making big purchases. One way to avoid spending too much available cash is to lease equipment instead of making a large purchase. Leasing is often cheaper than a loan for the purchase price, and yet doesn’t require a huge cash expenditure that can cut off cash flow.

Leasing also helps cut business costs, because you as the business owner are not responsible for major breakdowns, or replacing the equipment when it is no longer useful. It is important to read any leading agreement to make sure you understand what the terms of the lease are. However, most only require the leasee keeps up with regular maintenance.

Alternative Business Financing, Business Loan Approvals, Pre-Qualify for Business Loans, Small Business Financing

3. August 2017
Business owners are always wise to do their best to separate their personal credit from business credit. Using personal credit to back business ventures is dangerous on several levels. However, just because you won’t look to use your own personal credit score to get a business loan or other financing does not mean your personal credit score isn’t important.
 
Personal credit scores are very important to lenders, other businesses and anyone who may be considering doing business with you. Your personal credit score reflects your attitudes and reliability when it comes to keeping your finances in order. This is especially true when a business owner is just starting out and the business itself has no track record to use as a way of determining fiscal responsibility.
 
Having late payments or collections on your personal credit record will also impact the types of financing you may be eligible for, as well as the interest rate you will have to pay to get the loan. Higher interest rates will decrease your business’ success and create a situation where it will take longer to make a profit. This will also give lenders a reason to have reservations about lending money to the company.
 
How to Protect Your Personal Credit Score to Make it More Attractive to Lenders
 
Before applying for a new business loan, or an expansion loan for an existing business that doesn’t have a long enough track record of credit, make sure you bring your personal credit debt down to below 30% of your total available credit. Debt to credit ratio is one of the figures lenders look at to see if you are responsible enough to keep from being over-extended.
 
Be cautious about applying for new credit accounts. Even if you do not get a credit card, the application itself shows on your record. Too many applications may look like you are trying to attain a high level of debt that will be overwhelming, especially if you are dealing with a new, struggling business.
 
Avoid the temptation to beg from one credit account to pay off another. Seeing money simply being shifted from one card to another is a clear signal that you can’t really pay the debts you have. Some cards give new account holders the option of paying off an existing account with a new one, which is great for them since they now get the interest you were paying the former account. If you do it too often it looks bad on your credit and lowers your score.
 
Paying off old accounts and closing them can be a good thing. There are two important factors to consider before closing an existing credit account, however. First, make sure the accounts you close have at least a 2 year history of timely payments. If there is a history of delinquent payments on a credit account, pay it off, but keep it open. Abrupt closing of a credit account after paying it off can actually lower your credit score.
 
In addition, reducing your overall credit availability can lower your score too. It is better to pay accounts down, or off, and keep them open. When you close the account you reduce your available credit, and your debt to credit ratio goes up.

Build Business Credit, Business Credit Scores, Optimize Personal Credit, Vendor Credit Lines

2. August 2017

Your business may have been operating for the last ten years and still not be its own entity. There are many small business types but not all types are entities. Being its own entity means that the business stands on its own, has its own Tax ID, and is in no way tied to you personally. 

Types of Small Businesses

Small businesses often start out as sole proprietorship. It is a very basic standing that simply states the owner of the business is making transactions and that you as the owner are acting on behalf of the business and are responsible for all of its assets and liabilities. It also makes you personally responsible and liable, not only for debt incurred by the company, but for all legal actions. There is very little tax or debt protection for your personal financial assets when your business operates as a sole proprietor. In fact, it is the most dangerous way to be in business, because while you are "in" business, you are not "a" business. A sole proprietorship is not a business entity.

Partnerships include more than one owner in a business, and also lay out the legal boundaries for each one and what is expected from all involved. Having everything planed out helps avoid confrontations and disputes while conducting business, and also allows for a more peaceful resolution should the business be dissolved, or sold, in the future. However in partnerships, just like sole proprietorships, the partners are all personally responsible and liable for all debts and legal actions of the business. Partnerships do not protect your personal assets and are not considered to be entities unto themselves. 

Business Entities

The next step up for most small businesses is an LLC. LLC stands for Limited Liability Corporation. An LLC can be operated and run by as few as one person, yourself with no employees, or have several people working for you to run the business. The biggest advantage of an LLC is the protection it gives you personally against legal actions taken by creditors or consumers. An LLC is considered to be a stand alone entity.

As businesses grow, so do the options for creating more powerful entities such as Corporations. 

The Legal Work

The simplest form of business type requires no specific paperwork. Becoming a sole proprietor simply requires stating you are the owner and doing business as such on tax forms, or when filing W2 forms with other businesses and filing a DBA or "Doing Business As" with your local County Court Reporter Office. However, to truly protect your personal interests and the business itself, creating an LLC or Corporation entity is the way to go. 

Many small business owners do not think they will benefit from the extra work required to obtain a business entity such as an LLC. Why spend the money and time it takes to create the entity when it can be done with a proverbial wave of the hand as a sole proprietor? Because an LLC or Corporation gives a business much more credibility, it provides tax incentives in the form of additional write offs, it limits your personal financial obligation to the business so you can protect yourself and your family, and as an entity it can develop its own business credit scores that can stand alone to obtain financing.

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