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How to Determine the Fundability of Your Business
Marco Carbajo
Post date: 12/12/2012 - 21:07

The definition of fundable is the capability of being funded or being bankable. A company’s fundability is crucial to obtaining the necessary funds needed to operate, develop and grow a business.

Unfortunately, the most common mistake business owners make is applying for financing before their company is even ready.

Why not know in advance if you qualify for funding before actually applying?

Instead of relying on personal credit, why not establish a fundable company that can get the financing it needs based on its own creditworthiness.

There are several different areas that contribute to how fundable a business will be for short-term or long-term financing.  The three main areas that impact a company’s fundability include:

1. Compliance – Lenders have specific guidelines that credit applicants must adhere to as part of the underwriting process. Meeting these standards is mandatory if you expect to qualify for credit. This includes, but is not limited to: corporate structure, business listing, commercial address, state filings, licenses, etc.

2. Business Credit Reports – Getting listed with the major business credit agencies such as Dun and Bradstreet, Experian and Small Business Equifax allows lenders to review your company’s credit profiles. Creditors rely on these particular agencies to assess the credit worthiness of a company. If you apply for credit with a lender or supplier and your company is not listed, then you may get denied credit or be required to allow a personal credit check and/or personal guarantee.

3. Business Bank Account – Another factor is a company’s bank account history. Bank credit consists of three main components a business owner should familiarize him or herself with prior to applying for funding. This includes, but is not limited to: account age, account history, balance rating, etc. In some instances, a lender may contact a business owner for bank references, so maintaining a positive banking relationship is vital to a company’s fundability.

4. Company Assets – Turning paper into cash is not a new strategy, but it is definitely an option worth considering if you have access to the types of paper that can be converted. This includes, but is not limited to: letters of credit, financial contracts, accounts receivable, inventory, real estate, promissory notes, etc.

All of these factors play an integral part in determining how fundable a business is. Lenders also take into consideration the age of a business and the type of industry involved.

These are just a few of the items that are regularly used by lenders, credit providers and even insurers to approve or decline an application. Now is the time to find out where your business stands.

How a Good Fico Score Impacts Business Fundability
Marco Carbajo
Post date: 11/15/2012 - 23:27

One of the benefits to building a creditworthy company is that lenders, creditors and suppliers will determine the level of credit risk based on the company’s creditworthiness rather than that of the owners.

However, there are instances where a lender will require a personal credit check as part of the overall risk assessment. In these cases, it is in the best interest of you, the business owner, to have a positive credit rating with the consumer credit agencies.

If credit scores currently fall below 680, then focus on taking positive steps to improving those numbers.

With good fico scores, you have a much greater selection of funding options to choose from. Even if a lender is allowed to check a credit rating, once approved, the creditor may only report the debt and payment history to the company’s credit files – not the files of the owners.

If you decide to apply for business credit with a lender who requires a personal credit check, you should know what the scores are beforehand.

FICO is the most widely used credit scoring system in the world. The majority of lenders will use this system to obtain scores to determine the credit risk of an individual. Each score is based on the information that each consumer credit agency keeps on record.

First, you should visit the MyFico website and determine his Transunion and Equifax credit scores. They will provide a detailed explanation on the positive and negative factors affecting the scores.

Secondly, order the credit score from Experian at the main website. Currently, Experian offers a credit report and credit score that includes a breakdown of factors that raise and lower scores.

Once you receive your scores and reports, you should look for any errors, inaccuracies or outdated information. If any questionable items are uncovered with any of the reports, then initiate a dispute n immediately with the agency containing the errors.

  • For Equifax – Go to Equifax.com and click on the “Dispute Errors on My Report” text link. You can initiate a dispute online, but you will need to supply a confirmation number that can be found on your Equifax credit report.
  • For Transunion - Go to Transunion.com and click on the “Credit Disputes, Alerts & Freezes” tab. You will need to create an account first, but once you log in you will be able to initiate a dispute, check your dispute status and trigger a credit freeze if needed.
  • For Experian – Go to Experian.com and click on the “Disputes” text link located at the bottom of the page. You will need a report number that can be found on your Experian credit report. On this site, you can start a new dispute, check the status of an existing dispute and view results of a completed dispute.

It is vital to monitor personal credit and ensure all information being reported is accurate and up to date. Just one mistake can impact credit scores and cost hundreds, if not thousands, of dollars in additional payments and interest that a business owner should not be paying.

The Importance of Building Business Credit
Marco Carbajo
Post date: 10/18/2012 - 11:31

According to Wikipedia an asset can be defined as a resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Many startups rely on the use of personal assets to secure funding for the business. Although money is often tight during the early stages, the goal of a small business owner should be to not only increase sales revenues but to build the company’s creditworthiness.

In particular, business credit is an asset and considered an economic resource that make up the financial foundation of a company.

Here are two important questions that you should be able to answer:

What is a tangible business asset?

What is an intangible business asset?

A tangible business asset is when you purchase vehicles, real estate, computers, office furniture and other fixtures exclusively for business use.

Intangible business asset are nonphysical resources and rights that have value to a business. Some examples are copyrights, trademarks, patents, accounts receivables and you guessed it - business credit.

In this particular article we will be discussing the importance of building business credit. You don’t really hear about business credit being an asset but it is. Business credit has value to a company’s financing ability and credit capacity.

By building business credit with all the National business credit bureaus a company increases its finance capacity. This creates an asset that can be used to acquire financing for the business based on its own creditworthiness rather than that of its owners.

Here are three major benefits of building business credit:

  1. Large Credit Capacity – Businesses have 10 to 100 times greater credit capacity compared to personal credit. As a creditworthy business your company will be in a position to qualify for financing based on factors strictly related to the business. Without building business credit you will have to continue to rely on your personal credit.
  2. Increase Company Value – A creditworthy business has a powerful advantage in financing ability. Because this asset is fully transferable with the business it makes it very attractive for a potential buyer or investor.
  3. Protect Personal Credit – A business owner will be able to limit if not eliminate the use of personal credit checks since the company has its own credit ratings. This prevents a business owner from having to co-mingle personal credit, personal debts, and personal assets with his company.

Building business credit truly provides remarkable benefits for a business and gives unique financial advantages in the market place. With this asset a business can secure lines of credit, lease equipment, finance a company vehicle, and obtain business loans and credit cards without putting personal credit at risk.

Finally, it’s important to remember, the greater the business credit, the greater the worth and potential return you will receive if you choose to sell the business in the future.

 

About the author

Marco Carbajo is CEO of the Business Credit Insiders Circle (http://www.businesscreditblogger.com), a step-by-step business credit building system providing credit recovery, lines of credit, business credit cards, trade credit, and funding sources.

Should I Apply For A Small Business Credit Card?
Marco Carbajo
Post date: 09/20/2012 - 12:38

A small business credit card should always be the credit card you use when making business purchases. Transactions such as paying for gas in a company car, buying office supplies or taking clients out for lunch are all acceptable ways to use a small business credit card.

When it comes to personal credit cards, you should not use them for business expenses. This can potentially jeopardize the protection of the corporate veil because you are co-mingling funds. Did you know corporate veil piercing is the top litigated issue in corporate law today?

That’s a scary thought because statistics show that of the 65% of small businesses using credit cards, only 50% of those cards are actually in the company’s name.

In addition, each type of small business credit card serves a unique purpose and offers its own array of features, perks and benefits.

A common mistake is applying for a card without first identifying the needs of the business. Will the card be used primarily for air travel, automotive or daily purchases? Do you prefer the option to pay off purchases each month or carry a balance? Will the company be issuing cards to employees or will there be a single cardholder?

These are important questions that give you an indication of the importance in defining purpose. Without purpose you can end up obtaining a small business credit card that costs more and benefits you less.

Some of the benefits of a small business credit card include:

  • Easy financing: Rather than waiting for an approval for a loan, lease, or line of credit, a business credit card lets you purchase items immediately. No explanations are required and there are no limitations on what you can purchase with your card. As long as you make the minimum payment each month and don’t exceed your limits, it’s a great option for quick cash.
  • Fast Access to Cash: If your company needs cash fast, then a small business credit card can be a life saver. Typically, the cash advance limit on a business credit card is lower than the spending limit, but the ability to access cash immediately is extremely convenient.
  • Track Expenses: Managing your company’s expenses becomes much easier when you completely separate your personal and business expenses. With a small business credit card, all your purchases are recorded, making it much easier for your bookkeeper during tax time. Also, most business credit cards will issue year-end statements that categorize your annual expenses into specific categories.
  • Control and Manage Employee Spending: Issuing small business credit cards to employees can offer many tax advantages. However, it is important to select a card that offers you the ability to control spending and set limits.
  • Business Perks: Business credit cards offer a variety of benefits for companies such as travel assistance, purchase protection, cash back rewards and insurance protection.

Many business owners have multiple cards with each one designated for certain purposes. For example, one card for employee expenses, another for business necessities, etc. Either way, it is helpful to have two or three small business credit cards available. Take the time to research, compare cards and reap all the benefits a business credit card has to offer.

About the author

Marco Carbajo is CEO of the Business Credit Insiders Circle (http://www.businesscreditblogger.com), a step-by-step business credit building system providing credit recovery, lines of credit, business credit cards, trade credit, and funding sources.

What is the Best Way to Build Credit for My Business?
Marco Carbajo
Post date: 08/16/2012 - 14:20

Once you have completed all the steps necessary for your business to be lender compliant, you can begin establishing credit.

You may have jumped ahead of yourself and already applied for one or two business credit cards using your personal credit. Not to worry-the purpose of this article is to share with you the best way to build credit for your company so you can stop relying on your personal credit to secure the financing for your company.

During the early stages of the business credit building process, you probably heard about applying for credit with vendors and suppliers because they are more willing to extend credit to companies with little to no credit. However, what you do not hear about is how to properly use the credit once you have it.

Simply getting approved for vendor credit does not establish positive payment history for your business. It takes usage and payment behavior patterns for creditors to determine how responsible your company is at meeting its financial obligations.

When it comes to the best way to build credit for your business, there are three key things to take into consideration.

  1. Credit usage –Make ongoing purchases using your existing credit lines. This will establish a payment trend which ultimately helps you appear as a good risk. The longer the payment history, the greater the impact it has on your business credit scores.
  2. Debt to credit limit ratio – The amount of debt to credit available plays a major role in credit scoring. A maxed out credit line shows that your company is overextended and may be experiencing financial challenges. Keep your debt to credit ratios at no more than 50%.
  3. Pay better than terms – With vendor credit the invoices you receive will have due dates ranging from net 10, net 30 to net 60 days depending on the supplier. Paying ahead of the due date can have a big impact to your credit scores. For example, when you make a purchase pay the invoice in full at least 15 to 20 days ahead of the due date. Paying 10-20 days ahead will show potential creditors that you pay better than terms.

After three to six months of positive payment history, request a credit limit increase. Large credit limits show potential creditors that your company can handle the credit exposure. In addition, large credit limits show potential lenders that other creditors believe your company is a good credit risk. Don’t expect a lender to extend $50k of credit to your business when the most your business has ever been approved for is $10k. 

Your future credit approvals will be based upon many factors, including, but not limited to your business credit scores, credit limit recommendation, payment history, debt to credit ratios, and credit limit amounts.

Getting approved for credit is simply an opportunity; the best way to build credit is really how you use it.

About the author

Marco Carbajo is CEO of the Business Credit Insiders Circle (http://www.businesscreditblogger.com), a step-by-step business credit building system providing credit recovery, lines of credit, business credit cards, trade credit, and funding sources.