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What is the Best Way to Build Credit for My Business?

By Marco Carbajo, Guest Blogger
Published: August 16, 2012

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.

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’.

When and How to Register Your Business as a “Small Business”

By Caron_Beesley, Contributor
Published: August 1, 2012 Updated: August 10, 2014

Own a small business? Perhaps you’ve heard about small business certification, but do you actually need to certify your business as small?

For most small businesses, the answer is no.

But if you want to take advantage of business opportunities such as selling to the government (a.k.a. “government contracting”), then you have to obtain some form of certification. Why? The federal government sets aside a variety of contracts for competition among small businesses, women-owned small businesses, service-disabled veteran-owned small businesses, and disadvantaged small businesses. To qualify for these “set-asides,” certification is a must.

So how do you go about certifying your small business to qualify to compete for the nearly $100 billion worth of goods and services that Uncle Sam buys from small businesses each year? Read on.

Does Your Business Qualify as a Small Business?

Your business isn’t small just because you think it is. The government maintains “size standards” that define the maximum size that a company (and its affiliates) can be to qualify as a small business.

A size standard, which is stated in either the number of employees or average annual receipts, represents the largest size that a business (including its subsidiaries and affiliates) may be to remain classified as a small business by SBA. Generally, most manufacturing companies with 500 employees or fewer and most non-manufacturing businesses with average annual receipts under $7 million will qualify as a small business. However, there are exceptions by industry. They’re listed here: Summary of Size Standards by Industry.

To help you assess whether you fall into the SBA’s definition of small business, check out SBA’s table of small business size standards.

These size standards also apply to service-disabled veteran-owned small businesses, women-owned small business and small disadvantaged businesses (such as Native Americans). However, it’s important to note that these businesses must also meet specific eligibility criteria in order to compete for exclusive government contracts that are set aside for these groups. Read more about these set-aside programs and eligibility requirements here:

Certifying Your Small Business

Now that you’ve figured out whether you qualify as a small business, you can get registered as a government contractor. This is a fairly simple process and involves applying for a D-U-N-S number and registering in the government’s System of Award Management (SAM) (SAM replaced what was formerly known as the Central Contractor Registration (CCR) database on July 29, 2012). SAM is a repository of all businesses that sell – or want to sell – to the government. Read more about this process here.

Certifying as a Disadvantaged, Women- or Veteran-Owned Business

Businesses that qualify for government contracting programs and contracts under these categories follow the same certification process as small businesses described above. When you register your business in SAM, you can self-identify yourself as belonging to one of these groups.

Other Government Contracting Set-Aside Programs to Know About

In addition to offering set-asides to disadvantaged businesses as well as service-disabled veteran- and women-owned businesses, the federal government also has programs that help small businesses in urban and rural communities compete for government business. One of these programs, known as HUBZone, has its own certification process. If you think this might benefit your business, read more about it here: SBA’s HUBZone Program- Helping Urban and Rural-Based Businesses Succeed.

More Information

For more information on how to sell your products or services to the government, visit the Government Contracting Guide and take advantage of the online courses in the SBA Government Contracting Classroom.

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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 A Plan

By FranchiseKing, Guest Blogger
Published: July 31, 2012

In my role as a franchise advisor, I’ve been able to work with a lot of really smart people over the years. I’m talking MBA’s, PhD’s-even a rocket scientist from NASA. I would guess that some of them were qualified to be members of MENSA.*

But, even smart people make mistakes, and I’ve seen some real whoppers take place at various stages of the franchise buying cycle. Some of them include:

·        Not calling 10-15 current and former franchisees to ask about their experiences as owners

·        Not visiting current franchisees in-person as part of the franchise research process

·        Not having enough money set aside for the start-up phase

·        Not using a lawyer who specializes in franchising

There’s one other thing that’s always baffled me about potential franchise owners, and it’s this:

How do some franchise buyers (after doing a lot of right things during the investigative process), manage to just about ruin their chances of ever becoming their own bosses towards the end of it?

I’m going to use a specific example that I’ve seen take place on more than one occasion, and my hope is by sharing it here, you won’t do the same.

 

The Business Plan

Some potential franchise owners don’t put enough time and energy into writing a powerful and convincing business plan for their new business.

Admittedly, it gets me a little aggravated when I learn that one of my clients isn’t taking their business plan very seriously. I won’t admit to losing sleep over it, but I know in my heart that my client’s chances of securing a small business loan diminish greatly if the business plan they submit to their bank is weak.

One person that may lose sleep over something like this is Tim Berry. He lives and breathes business plans. *

Here’s what Tim says about business plans:

When a bank asks for a business plan, the bank wants a document that’s a convenient summary of the key points of the business. That includes highlights like what you sell, into what markets, through what channels, with what sales and marketing strategies. Also who’s in charge of this business, and what experience the people in the team have. “

But, banks want a lot more, especially today. So, you just have to give them more.

Tim goes on:

Most of all, with a business plan that’s being submitted to a bank, they are looking for stability, reliability, and responsibility. They want to see a good credit history, both business and personal, and assets to cover loans and reduce risks.”

You’ll also need to tell your story by adding a human dimension to your business plan.

If you’ve never written a business plan, don’t sweat it; there’s plenty of help available:

1.      Business Plan Software

You can purchase software that provides step by step instructions and includes templates with blank fields that just need your numbers added to them.

2.      Small Business Development Centers

Administered by The US Small Business Association, SBDC’s provide no-cost services for future and up and running small businesses. Programs vary by location, but here’s an example of one that’s focused on helping entrepreneurs create solid business plans.* 

3.      SBA.Gov Online Tutorials

Watch a collection of useful how-to videos on business planning, including an introduction to the planning process, strategies, sales forecasting, and more. You can view them at your leisure, 24/7. 

 

You don’t have to be a rocket scientist to know that in today’s lending environment, you shouldn’t even think of going into a bank to apply for a small business loan without a strong, formal business plan in your hands. The lender is going to want to see your projections and read your story. Use one or all of the resources I shared with you to make your plan shine.

It’s a smart thing to do.

Have you ever written a business plan? Do you feel that’s it’s crucial to have one?  

* Non US Government links

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.

Projecting Your Business Cash Flow, Made Simple

By Caron_Beesley, Contributor
Published: July 30, 2012 Updated: September 28, 2016

Cash flow is king for small businesses and the self-employed. But planning cash flow is easier said than done, especially if you’re not a numbers person.

However, if you’re going to succeed in business, mastering basic cash flow projections is a must. After all, you can be a profitable business yet still have poor cash flow, simply because the cycle of cash in and out of your business isn’t synchronized.

So where do you start? The first thing to know is that your projections don’t have to be – and probably never will be – 100 percent accurate. It’s one of the reasons many business owners hesitate working through this process.  But it is possible to simplify the process. Here’s how:

Cash Flow is About Timing

It’s important to understand that the timing of cash income and cash outgo comes down to the operating cycle of your business. This cycle includes many moving parts, such as buying or selling with credit, your collection process, the costs of running your business (salaries, rent, marketing, etc.) and, of course, when you get paid.

Why Manage Cash Flow Through Projection?

Using a basic spreadsheet as your tool, cash flow projection gives you a clear look at when money comes in, when it goes out and what money you are left with at the end of each month after you have paid your expenses and recorded your income.

Knowing your numbers in terms of cash flow projection allows you to plan and anticipate for the coming months.  It also gives you enough information to see potential pitfalls within the cash-in and cash-out flow of your business. This might involve a short-term injection of cash from family, friends or a bank. Remember, you’ll need to share this kind of projection document if you want to secure a loan and prove your ability and timeline for making your loan repayments – another good reason to spend some time on this document.

What Does a Cash Flow Projection Spreadsheet Look Like?

SCORE offers small business owners a wide selection of free business templates for download, including a sample cash flow projection spreadsheet template (with formulas built in for those of us who are spreadsheet illiterate). Look for the download labeled Cash Flow Statement (12 months).

Try to think of cash flow projection as part of your ongoing business planning process. And although this document and the process itself is not a function of accounting, all your numbers and tracking categories should be in sync.

If you’re unsure how to forecast your sales or expenses, business planning pro Tim Berry has broken this down into a simple process, too. Read his blog – How to Project your Basic Business Numbers – for a step-by-step guide.

Lastly, if cash flow is a problem, it might be worth talking to your accountant. There are a number of options available before you dive into borrowing money. Read more about these in this article: 5 Things to talk to your Accountant About, by Barbara Weltman.

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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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