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How a Good Fico Score Impacts Business Fundability

By Marco Carbajo, Guest Blogger
Published: November 15, 2012 Updated: November 23, 2012

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Once you receive your scores and reports, you should look for any errors, inaccuracies or outdated information.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.

About the Author:

Marco Carbajo
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’.

Set Goals Before You Start Your Franchise Business Search

By FranchiseKing, Guest Blogger
Published: November 6, 2012 Updated: August 18, 2015

If you’re searching for the right franchise to buy, it’s important to set some goals. One reason that you’re going to want to have some specific goals set up is this: There are over 3,000 franchise opportunities to choose from! With that many choices, it’s way too easy to get lost and flounder around aimlessly, trying to find that perfect opportunity.

My aim is to make the franchise discovery process as seamless as possible. (Actually, it’s my goal.)

Goal #1- Budget

You need to decide how much you’re willing to write a check for. In other words, how much of your own money (before any business loans) are you willing to risk? For example, if you’re looking at a franchise that has a total cost of $200,000, how much of that $200,000 is going to come from the money you have on hand?

If you need help figuring out your finances, the SBA has 10 questions just for you. The goal here is to come up with a budget that you can live with.

Goal #2 - Time

Choosing, researching and buying a franchise can take a while. You need to come up with a time frame; otherwise your search for an opportunity to become your own boss may be never-ending. And before you say “Hold on, Joel; I’ll spend as much time as I need to find a franchise to buy. This is a major decision, and I want to be choosy,” hear me out.

I understand that you want to be careful. That’s what most of the articles I write here are designed to help you do. But if you go into your franchise search with no goals, in this case, no time-frame goal, you may end up in a never-ending circle of “looking.” And, looking…

In other words, having no time frame could mean making no decision. Six months from now, do you still want to be “looking?” Or, do you want to be “doing?”

Goal #3 - Use professionals

Make it your goal to use business professionals before you start searching for a franchise business opportunity. And yes, you’re going to have to invest some of your money to do this. Notice that I used the word “invest” instead of “spend.” That’s because using competent professionals is an investment in your future.

For example, most franchise agreements (contracts) are 10 years in length. That means that if you buy a franchise, you’re going to own it for 10 years. That’s a long time. And unless you’re an attorney, you’re going to discover that the legal documents that franchisors are required to send you (that you’ll be required to sign) are pretty complex.

There’s no reason to try to figure out the intricacies of these documents all by yourself. Hire a franchise attorney. They’re used to reading, and even writing, franchise documents. An accountant that’s familiar with small business-and small business taxation-should also be on your list of professionals to contact and hire.

Finally, there are several small business resources that are available at no-cost to you. Check out The Small Business Administration’s local resource page

If your goal is to someday become the owner of a franchise, have some goals set up before you start your search.

 

About the Author:

FranchiseKing
Joel Libava

Guest Blogger

The Franchise King®, Joel Libava, is the author of Become a Franchise Owner! and recently launched Franchise Business University.

6 Tips to Rein in Spending and Be a Lean Start-Up

By Caron_Beesley, Contributor
Published: November 5, 2012 Updated: September 29, 2016

The average cost of starting a business is $30,000, according to a 2009 study by the Kauffman Foundation. But whether your cash comes from savings or financing, watching how you spend your money is critical to the success of your venture. This means establishing boundaries and habits that ensure you spend your money wisely and operate as a lean start-up.

Here are six ways to rein in spending as you start and grow your business:

Work from Home, Co-Working Spaces or Serviced Office Space

This one may sound obvious, but not all new businesses need to jump into a commercial office lease right away. Setting up a home office is a low-cost alternative (and can save you tax dollars).  If you find you need a more social setting, consider a co-working space. These facilities are available in many cities and offer great opportunities for you to mingle with like-minded entrepreneurs. These workspaces are often also a lot cooler than any space a new start-up could ever afford. Talk to your local Small Business Development Center about co-working spaces in your area or hit up Google.

If you really do need your own office space, consider renting a serviced office or executive suite. Usually located in busy business districts, these premises are fully equipped and managed by a facility management firm. The rental agreements are often more flexible than commercial leases and give you the option of easily scaling up if you need to. Typically, a serviced office broker can help you locate the right space.

Buy Surplus and Barter

Save money by buying used equipment and office supplies. Check Craig’s List or eBay or buy government surplus equipment (a little-known but very cost-effective way to equip your business).

Bartering – exchanging goods and services directly with another party – is also an underutilized business practice among start-ups. Think about ways you could barter to reduce costs. For example, if you run a painting business and you need to purchase a business vehicle, could you barter a discounted price from the dealer in exchange for a new coat of paint in his showroom?  Read more about bartering from SBA guest blogger Barbara Weltman.

Don’t Hire Employees Until You Can Keep Them Busy

Offer interns work experience or hire independent contractors or even friends and family on an hourly or project basis to keep your costs low. If you need them to work alongside you in an office space, introduce a hot-desking policy so that your workers can share a space on a rotating basis without you needing to lease more space. For more tips, read “Chief Everything Officer” No More! – 6 Options for Staffing your Growing Business.

Be a Budget-Conscious Marketer

Invest in marketing and promotion thoughtfully and have a game plan. Think about low-cost tactics (you’ll find some here) and don’t overdo it on the glossy marketing materials – are they really necessary? If you and your staff have a clear elevator pitch and can engage and follow up enthusiastically with targeted prospects, there’s a good chance you’ll get a similar return on investment as the big guys with their glossy slicks and advertising budgets.

To help you stay on track, create a plan for the year or quarter and calendar it out. This way you’re more likely to follow through, stay on-budget and be less burdened by the need to come up with last minute marketing tactics. Don’t forget to monitor ROI to help you make informed decisions about what works and what doesn’t. This can be as simple as asking and tracking how customers heard about you.

Check these blogs for more tips:

Safeguard Your Personal Assets

If you think you are likely to incur debt during your start-up phase, consider forming a limited liability company (LLC) to protect your personal assets – your finances, car and house. Forming an LLC will ensure you are not personally liable for debts or judgments brought against your business as a result of a lawsuit.

Don’t Be Afraid to Negotiate

Whether it’s a contract with a supplier or a new customer, you should master the art of negotiation. Many new business owners skip this important best practice in their early years, but practicing negotiation early will help you establish relationships that save you money now and over the long haul. Just be sure not to nickel-and-dime the fair offers that come your way, and work to build relationships with these vendors through repeat business and referrals. Get more tips in 6 Tips for More Seamless and Fruitful Business Negotiations.

 

About the Author:

Caron_Beesley
Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

Top 10 Questions About Small Business Incorporation Answered

By Caron_Beesley, Contributor
Published: October 24, 2012 Updated: September 23, 2016

Thinking of incorporating your business? Have questions about which business entity is right for you – limited liability company (LLC), S Corporation, partnership, or sole proprietor? Maybe you’re moving out of state and aren’t sure what happens to your business entity? For answers to these and other important facts about business incorporation, check out these 10 frequently asked questions:

What’s the best option for small business owners, an LLC or an S Corporation?

LLCs and S Corporations are two very popular forms of incorporation, and both offer liability protection and pass-through income tax treatment for business owners, since taxes are reported on your personal income tax return, not by the entity. Which is best for you? Among the issues to consider are the number of owners involved, what you can and cannot write-off for tax purposes, the amount of employment tax you may be required to pay, and individual state tax laws. To help you decide, read The Better Choice for Entity Selection: LLC or S Corporation?

I’m a freelancer. Do I need to incorporate?

Legally, the answer is no. In fact, over 70 percent of U.S. businesses are owned by sole proprietors and operate successfully without incorporating. However if you need liability protection to protect personal assets if a client sues you, potential tax savings (at a price), or a loan to grow your business in the future, then incorporation might benefit you.

Which state should I incorporate in?

Typically, if you only operate in one state, you should incorporate in that state. If you operate in multiple states, you should determine which state is the friendliest to corporations and incorporate in that state. Read more in How to Choose the Best Location for your Business.  File your articles of incorporation in the state where you intend to incorporate – usually with the Secretary of State’s office and for a fee, depending on where you live. Check your state website for more information.

I’m forming an LLC. What documents do I need?

Each state has specific guidelines for forming an LLC, but they all adhere to the same general principles (explained on SBA.gov here). Whichever method you choose and no matter where your LLC is formed, you’ll need to complete two specific documents to legally form your LLC: your Articles of Organization and your Operating Agreement. Check this blog for a quick overview of what you need to know about these key documents. 

How do I form a legal business partnership?

Partnerships are unincorporated businesses and you don’t have to file any paperwork to create one, although it is a good idea to put a formal partnership agreement into writing and run it past an attorney. You’ll also need to register it with the IRS and your state and county for tax purposes, and you’ll want to register your “Doing Business As” name. Many partnerships formalize their business entity as an LLC. An LLC protects the partners by reducing their liability for business debts while still allowing profits to pass through to them.

What kind of legal entity should a married couple in business operate as?

Married couples in business may form any kind of legal entity they choose and many opt for an LLC. However, for federal tax purposes, an unincorporated business jointly owned by a married couple is classified as a partnership. This classification stands on the assumption that each spouse has an equal say and share of business affairs. However, eligible couples can file as sole proprietors for federal tax purposes. Under this provision, each spouse must separately report a share of all business income, gains, losses, deductions, and credits. Both will receive credit for Social Security and Medicare.

To be considered a “qualified joint venture,” your business must meet the following three conditions:

  • A husband and wife must be the only members of the joint venture and file a joint return
  • Each spouse materially participates in the business
  • Both spouses agree not to be treated as a partnership

I operate an LLC. What happens if I move to another state?

It’s always best to consult an attorney if you are moving your LLC to a new state because there are several options that require careful consideration, for both online and bricks and mortar businesses:

  1. Continue the LLC in your old state and register as a foreign (out of state) LLC in your new state. This will mean more paperwork (duplicate annual reports) and tax filing. Reporting for multi-member LLCs can get more complex.
  2. Liquidate the old LLC and form an LLC in your new state.
  3. Register a new LLC in the new state and have each member transfer membership interest (percent ownership) from the old LLC to the new LLC in the new state.
  4. Form a new LLC in your new state and merge the previous LLC into it. The IRS views this as a continuation of the old LLC and you can continue with your existing EIN. Assuming LLC members still have a 50 percent interest in the capital and profits of the new LLC, there are no tax consequences either.

How do I pay myself in an LLC structure?

It depends on the circumstances.  It's always recommended that you consult a tax professional. If you are a single-member LLC, the practicalities of payment and taxation are relatively straightforward because the IRS requires that your earnings are reported on your own personal tax return. Open a separate business and personal checking account (merging them just exposes your personal assets to liability), and pay yourself by writing a check from your business account to your personal account. Remember that all your business expenses should be paid from your business checking account. If you are a multi-member LLC, your situation is likely unique to your business, so your best advice is to talk to an accountant.

What happens if I change the name of my business?

All business types, except sole proprietors, should first notify their Secretary of State to change names in their articles of incorporation. States have online forms for this and usually charge a small fee. You’ll find out whether your new name is already in use in your state by another corporation or partnership. You can do this via online state databases of registered business names and fictitious names.

Where can I get more information online about business incorporation?

For more information check out SBA’s Small Business Guide to Business Incorporation or post your question below.

About the Author:

Caron_Beesley
Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

The Importance of Building Business Credit

By Marco Carbajo, Guest Blogger
Published: October 18, 2012

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.

About the Author:

Marco Carbajo
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’.

Which Employment Laws Apply to Your Business? There’s an E-Tool for That!

By Caron_Beesley, Contributor
Published: October 10, 2012

Hiring your first employee or building your business team opens whole new areas for compliance in employment and labor law. Laws are broad and far reaching and cover a broad range: preventing discrimination and harassment in the workplace, workplace poster requirements, wage and hour laws, workers compensation regulations, and more.

For small business owners short on time and resources, getting their arms around these laws can be tricky. The good news is that there are many online tools from both the SBA and the U.S. Department of Labor (DOL) to help you understand which laws apply to you and what you need to do to comply.

For example, SBA’s 10 Steps to Hiring your First Employee explains the tax, legal and regulatory steps you need to follow when you hire your first and even subsequent employees. SBA’s Business Law Advisor blog is also a useful reference point for all manner of small business law related topics.

Interact with an Online Employment Law Advisor

If you need to dig deeper into specific employment and labor laws, be sure to bookmark DOL’s elaws Advisors. These interactive e-tools give you easy-to-understand information about a number of federal employment laws such as wage laws, hiring foreign workers, workplace safety and health, as well as laws that apply to specific groups such as young employees, veterans and businesses that sell to the federal government.

Each Advisor simulates the interaction you might have with an employment law expert (based on typical questions you and your employees might have). Your employees can also refer to the tool for information about their rights.

Find Out Which Employment Laws Apply to Your Business

Which aspects of employment law apply to you? Do you know which workplace posters you must display or which health and safety regulations you need to comply with? Avoid navigating countless employment law guides by zoning in on exactly what applies to your business with DOL’s FirstStep Employment Law Advisor. The Advisor will ask you a series of questions about your business and then provide simple information about employment laws that impact you. You can print out the results or refer back to the elaws Advisors tools for a deeper dive.

Additional Resources

Related Blogs

About the Author:

Caron_Beesley
Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

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