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10 Can't-Miss Business Credit Profile Tips for Small Business Owners

By Marco Carbajo, Guest Blogger
Published: June 11, 2014

If you run a company, your business credit profile is related to your reputation. With a strong business credit profile, you have access to much greater financing opportunities with favorable terms and lower interest rates.

For lenders, a company with a creditworthy profile is considered a good risk. Whether you own a startup or existing business, managing and protecting your profile with all three major business credit reporting agencies is crucial.

Here are ten essential tips for establishing, maintaining and protecting your business credit profile:

  1. Keep all company data identical – Whether applying for a D-U-N-S Number, submitting a credit application or opening a business bank account, provide all the same information in order to avoid any potential issues. Inconsistent data can cause a denial of credit due to mismatched data or even cause your company to have a duplicate credit file.
  2. Leverage the good credit you already have – If your business has existing trade references not reporting on its file, then consider adding them to your report. Currently, only one business credit reporting agency enables you to add trade references to your file via a paid program.
  3. Make certain your profile represents a real business – The information you supply about your company, its background, banking history and operations plays an essential role in the credibility and creditworthiness of your business. With a complete profile, creditors will get an accurate portrayal of your business.
  4. Pay better than terms – By paying invoices 10, 15 or 20 days ahead of the due date you get a much greater impact to your overall business credit ratings. Paying better than terms shows creditors that you manage your financial obligations promptly and are a good credit risk.
  5. Have a diversity of credit accounts – The types of credit your company use are seen as a sign of stability and credit responsibility. Whether it’s short-term financing, installment loans, revolving lines of business credit or leases, each type of account plays a role in establishing a diversity of credit usage.
  6. Monitor your business credit profile regularly – While it’s crucial to build a strong business credit profile, it is equally important to protect what you have built. Each business credit agency offers its own monitoring services so you can be alerted to any recent changes, inquiries into your file or fluctuations in your scores.
  7. Correct any inaccurate or outdated information – If you identify any mistakes on your company’s profile, be sure to take the necessary steps to update and/or correct it. Each agency has its own procedures for submitting updates, corrections or disputes.
  8. Select the appropriate industry classification code – The SIC/NAICS Code you select for your business describes the principle activity of your business to creditors. Lenders use these codes to help identify the industry affiliation of a company so it is vital to select the code that best describes what you do.
  9. Improve your score by submitting financials – Financials that show an improvement in cash flow, current assets and net worth can have a significant impact to a company’s overall creditworthiness. You can upload financial statements to impact the strength of your reports by following the on-screen instructions available on the business credit agency’s site.
  10. Update and maintain your company’s internet presence – Information that goes into creating a business’ credit profile comes from primary and secondary sources such as web mining, news and media. It’s imperative that your company’s website and its contact information are consistent with the data collected from other primary and secondary sources.

Your business credit profile is a report card on your company’s finances. Your profile and business credit history can affect your day to day business operations – from how much you pay for a business loan, company credit card, lease or business insurance. Use these tips to build, manage and protect your company’s financial reputation.

About the Author:

Marco Carbajo

Guest Blogger

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in 'Fox Small Business','American Express Small Business', 'Business Week', 'The Washington Post', 'The New York Times', 'The San Francisco Tribune',‘Alltop’, and ‘Entrepreneur Connect’.

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5 Simple Steps for Better Management

By Tim Berry, Guest Blogger
Published: May 28, 2014

Good news: Here's a simple process, five easy steps, to improve your business. It's easy to do. And, if you're not doing something like this already, then this simple addition to your process offers you substantial business improvement.

Step 1: Visualize your main story

Take a step back for the business and visualize the main business story. Imagine the ideal customer, what they want from your business, how they find you, and how what you do matches your business' unique qualities and what that specific person wants.

Don't make this hard. Don't sweat the details. You don't even have to write it down, although writing down a few key bullet points can be really valuable for reminding yourself and others, later, about strategy.

Do make it strategic. Strategy is focus, so it's a lot about what you don't do and who isn't in your market. Real business strategy has three elements mixed together: identity, which is what's unique about your business; target market, which you want to define strategically; and business offering, which should also be strategic. Who isn't in your market is as important as who is. What you aren't doing is also important. For example, if your restaurant is about a quiet, leisurely, gourmet dining experience, don't offer take-out or drive-though, and don't have kids eat free.

Step 2: Identify your main assumptions

Don't make this one hard either. Take a step back from the business for a moment, and think about the assumptions you make all the time. Are you assuming a healthy economy, for example, or strong regional growth, or good weather for growing lemons? List these key assumptions. Don't go into too much detail; you'll run into diminishing returns. What you want is a good list to help with regular review and revision (my step 5 below).

Step 3: Set your milestones and performance metrics

Milestones have to do with dates, deadlines, and specific task responsibilities. You write these down for yourself and, if you have a team, for your team members. You don't really get accountability into the business without writing down and agreeing on what's supposed to happen, when, and who is supposed to do it.

Even if you're running your own business entirely by yourself, you still list milestones so you can track progress later. I've learned the hard way on this one, both in my one-person consulting business that I ran for 14 years, and for the 50-person product business it became. If we don't write our intentions down, we lie to ourselves later about what we thought we were going to do. I hope that's just me and not you; but I doubt it.

Performance metrics add backbone and accountability. Some are about basic business performance including sales, direct costs and expenses. But many others are also valuable. For example, leads, website visitors, traffic, meals served, trainings, trips, conversion rates, orders, presentations, incoming calls, minutes per call and so forth. These key performance metrics help you stay on top of the pulse of your business.

Step 4: You need to manage your business cash

Profits alone don't guarantee cash. For example, you can be profitable, but have too much cash tied up in accounts receivable, or inventory, so you end up without enough money to make payroll or cover necessary expenses. To manage cash, you need to project sales, direct costs, expenses, extra spending (for loan repayment or buying assets and such) and extra income (from borrowing, bringing in new investment, or selling assets and so forth).

On this one too, don't try to accurately predict the future. Instead, try to lay out how sales, costs and expenses relate to each other, so later when sales are different from expectations, you have an easy time of identifying the related changes you need to expect in direct costs and make in expenses. Think of what drives sales, such as pricing, marketing expenses, traffic, conversions, leads, pipelines and so forth. And don't go into too much detail because, as with assumptions above, you'll run into diminishing returns if you do. For example, a restaurant shouldn't project sales for every menu item, but summarize and aggregate for dinners, lunches, drinks and other. And a bookstore doesn't project sales by title or author or subject, normally, but rather hard over, soft cover, magazines and other. Keep your categories manageable.

Step 5: Review, revise, repeat

Set a specific day of the month, such as every third Thursday of the month, to review results and revise as necessary. If you're working with others, make sure they know about this regular monthly meeting and miss it only when they have to miss it for good business reasons.

Start your review meeting with your list of assumptions. Identify whether assumptions have changed, and how, and what that means for your business.

Include a review of milestones for the past month, including whether or not expected milestones were reached. Then look at milestones for the next month, to review expectations and compare the milestones with the underlying assumptions.

Finally, review performance metrics. Track and manage the difference between actual performance and established expectations.

And now, lo and behold, you have a business plan

I didn't use the words "business plan" in the title or first paragraph because I don't want you to dismiss it because of the myth of the formal business plan document. Too many business owners read the words "business plan" and dismiss the idea, thinking of some hard-to-do term-paper-like formal document that they don't need unless they are applying for commercial credit, seeking investment, or dealing with issues like selling the business or managing a divorce settlement.

The real business plan, however, is as simple as these five steps. You keep this business plan fresh and up to date and it optimizes management of your company. And when you do need a formal plan, you take this real business plan and dress it up with more description and explanations for outsiders, and print it as a formal business plan document.

About the Author:

Tim Berry

Guest Blogger

Founder and Chairman of Palo Alto Software and bplans.com, on twitter as Timberry, blogging at timberry.bplans.com. His collected posts are at blog.timberry.com. Stanford MBA. Married 44 years, father of 5. Author of business plan software Business Plan Pro and www.liveplan.com and books including The Plan As You Go Business Plan, published by Entrepreneur Press, 2008.

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Which Unsecured Business Lines of Credit are Best for Your Business?

By Marco Carbajo, Guest Blogger
Published: May 21, 2014

Whether you’ve been in business for a couple of weeks or five years, access to cash is a crucial element of survival for a business. When the going gets tough, a business can fail unless it has access to cash on demand.

For business owners, getting unsecured business lines of credit is by far the best choice for having that cash on demand. The fact is that business owners want access to funds – whenever they need it, at a competitive rate and with flexible payment options. The National Federation of Independent Businesses says, “Think of it as an insurance policy that never needs to be paid until you need it.”

It’s important to note there are two main types of unsecured business lines of credit one needs to consider: traditional and non-traditional.

So how do you determine which one is best for your business?

The traditional business line of credit issued by a bank calls for a substantial amount of documentation in order to qualify such as financials, personal tax returns, business tax returns, bank account information, business registration documents, etc.

In addition, once a line is issued an annual financial review is required to maintain the line of credit. While a traditional credit line offers various benefits such as check-writing privileges, it tends to be the most difficult line of credit to obtain and maintain.

In a recent survey conducted by the National Small Business Association, “29 percent of small business owners report having their lines of credit reduced in the last four years and nearly 1 in 10 had their line of credit called in early by the bank.”

In my opinion, a non-traditional line of credit in the form of business credit cards are the best unsecured business lines of credit a company can get. It provides the fast access to cash and payment flexibility associated with a traditional credit line but without all the drawbacks.

Qualifying for this type of revolving credit line is FICO® driven and doesn’t require the yearly reviews, excessive documentation and level of scrutiny that comes with a traditional credit line.

Some of the advantages of non-traditional business lines of credit are as follows:

1) Access to cash quickly – With unsecured business credit cards, you can utilize as much or as little credit from your line as you want to, anytime and anywhere

2) High credit limits – Business credit cards carry high credit limits, making it extremely convenient to finance larger business purchases. Many cards even offer 0% APR for the first 12 months.

2) Flexibility – With business credit cards you have flexible payment options compared to a fixed month-to-month payment that comes with a business loan. When you tap into your credit line, you have three options every month. You could pay the full amount due, pay at least a minimal portion of the balance or pay greater than the minimum amount due.

3) True separation – Business credit cards enable business owners to separate personal and business expenses while benefiting from business credit reporting. This makes it possible for business owners to establish the creditworthiness of the business itself.

4) Personal credit protection – Small business credit cards that report solely to the business credit agencies allow business owners to protect their personal credit ratings while building their business credit.

While a non-traditional business credit line provides all the convenience and flexibility a business needs, there are some negative aspects to consider. The major drawback is the ability for a business to accumulate debt. Without a fixed payment schedule, business owners may be tempted to simply pay the minimum monthly payment on its outstanding balances. By carrying debt, compound interest can really add up, especially if a company carries large balances.

No matter what type of unsecured business lines of credit you decide to obtain for your business, it’s crucial to manage any debt responsibly. Traditional and non-traditional business lines of credit are essential tools for any business to have in its financial arsenal.

About the Author:

Marco Carbajo

Guest Blogger

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in 'Fox Small Business','American Express Small Business', 'Business Week', 'The Washington Post', 'The New York Times', 'The San Francisco Tribune',‘Alltop’, and ‘Entrepreneur Connect’.

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Three Popular Start-Up Financing Options

By kmurray, Contributor and Moderator
Published: May 21, 2014

Thinking about starting a business? Recent studies and reports have shown that entrepreneurs are more optimistic than in recent years when it comes to the state of their businesses this year, and that’s great news! But always high on the list of concerns for starting a business – even in optimistic times – is financing. Here’s a roundup of some ways, aside from avenues such as SBA-backed loans, to finance your business.

Credit Cards

According to expert Marco Carbajo, credit cards are a major source of financing for small business owners, with statistics even showing that more than 65% of small businesses using them on a frequent basis. It’s a popular approach, but you should be sure to do your research to determine if it’s the right one for you. Here are some tips from Entrepreneur.com to help:

  • Unless your business is incorporated – so if yours is a sole proprietorship, for instance – you are guarantor of all debts. So if your sales are slow and you fall behind on payments, you risk your personal credit rating and ability to borrow.
  • It varies by state, but your credit-card issuer might still require that shareholders with significant ownership guarantee the line of credit – even if your business is incorporated.
  • Potentially bringing on partners? Make sure your agreement states that they’ll accept personal guarantees on all existing business debt. You need to address this specifically because in many states, new partners aren't automatically responsible for previous debts.
  • Read the fine print. Don’t accept an offer without checking into the details, understanding the terms of use and evaluating risks. Don’t hesitate to ask a professional for guidance.

Friends and Family

Asking friends and family to borrow funds to help finance your business sounds like it could get awkward, but it doesn’t have to. Treat the process just as professionally as you would an engagement with a bank. If you done right, you can potentially gain quicker access to the cash you need and jump through fewer hoops – after all, your friends or family already know you. Read more about borrowing from friends and family in our article here, but think about these highlights as you consider this option:

  • Think carefully about who you’ll approach and make sure they understand the risks (and rewards) of getting involved. Keep in mind if your business doesn’t work out and you can’t repay your obligations, relationships could suffer.
  • Be realistic about how much money you need. Instead of asking for the maximum, consider what you need to get you to a certain point in your business plan. Once you show you can repay that initial investment, you’ll be in a better position to ask for more money if you need it.
  • Write it down. You might think a verbal agreement with your friend or relative is sufficient given the personal relationship, but this is business. Consider this advice from Entrepreneur.com: "Any time you take money into a business, the law is very explicit: You must have all agreements written down and documented. If you don't, emotional and legal difficulties could result that end up in court. And if the loan isn't documented, you may find yourself with no legal recourse.”
  • Communicate. Show your business progress and share updates along the way, even if it’s correcting mistakes you’ve made with your business strategy. Checking in and sharing information shows that you’re taking seriously the role others are playing in your venture and demonstrates professionalism.

Crowdfunding

Increasingly, crowdfunding is becoming a popular way for people to get startup financing for their businesses. You’ve probably heard of Kickstarter campaigns – that’s crowdfunding. It works through a collective cooperation of people who network and pool their money and resources together, usually online, to support efforts initiated by others. So it gathers multiple, smaller investments as opposed to a single source of funding. You can read more about the details here, but here are three other key considerations from Entrepreneur.com:

  • You should begin working on your crowdfunding campaign six months before you want to launch your project. When your campaign starts, you should’ve already made a significant effort in letting people know about it collecting email addresses so you can really hit the ground running when you open the gates for your campaign.
  • Set your funding goal as low as you can manage because some crowdfunding platforms, like Kickstarter, are “all or nothing.” For instance, if you set a goal of $1,000 and you meet it, then you get the money. If you raise only $500, you won’t get anything. Read the fine print about the platform you choose so you can be strategic about your funding request.
  • Don’t forget to award your donors. You’re asking people to take a risk on your business venture – there are no guarantees. So thank them and show your appreciation by offering your product or service at a discount when the time comes.

You can also learn more from our online Learning Center course, “Introduction to Crowdfunding for Entrepreneurs.”

Beyond a “traditional” track of securing a loan from a bank, there are quite a few avenues to consider for financing your business. And with passion, professionalism and planning, you’ll establish a good foundation for success down any of these paths.

Related Resources

About the Author:

Katie Murray

Contributor and Moderator

I am an author and moderator for the the SBA.gov Community. I'll share useful information for your entrepreneurial endeavors and help point you in the right direction to find other resources for your small business needs. Thanks for joining our online community here at SBA.gov!

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