Compound Profit Blog

Credibility in business has many aspects. For customers it may be your dependability, for other businesses it may be reliability, but when it comes to business fundability it is your financial credibility that is most important. You can make sure your business is credible by having the right associations, making sure your reputation is stable and you are adhering to your business plan.

Who Knows You?

It may be “who you know” that gets you ahead in the world, but it’s who knows you exist that makes you credible. Can people find you? Are you listed with the appropriate business associations in your field and in the business finance world? Your business should have a 411 listing, be in good standing with the BBB (also known as the Better Business Bureau), have the appropriate licensing for your city and state, have a Federal EIN number (the IRS Employer Identification Number) and a listing with Dun & Bradstreet.

To prove your business fundability, you also need to make sure your business credit rating is excellent, and public records do not show law suits or judgments against you. Some liens may be okay, but too many liens against your business will also make your credibility shakier with lenders. Find out what your bank rating is. This is a number that lenders will consider, and should be 5 or better to be considered credible.

Are You Following the Plan?

If you have a business, you should also have a business plan. That plan will have a detailed description of how you plan to make your business work. The longer you have been in business, the more credible that plan becomes if you are following it, and making your predicted goals. This will give lenders a reason to believe that future predictions you make concerning your ability to repay a loan are credible.

If you are just starting out, it is harder to prove your business fundability to lenders. However, a business plan that is not exaggerated and has reasonable expectations can still be an asset in negotiations for a loan.

Search for It

Yep, even banks use the Internet. It is very likely when you are looking for a loan, they are looking online to see who you are, and if your information stacks up. Make sure your business is searchable, and your online reputation is in good shape before applying for a loan.

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The five “Cs” of credit applications are as important when applying for a business credit card as they are when applying for personal credit. A credit card company’s main objective is to make sure you have the ability to repay any debit you amass. They are looking for:

• Character

• Capacity

• Capital

• Conditions

• Collateral

Some of the above criteria for applying for a business credit card are difficult to prove in a new business just starting up. In order to show character, capacity and capital you may have to start up without any credit and do business for long enough to create a reputation with vendors and have proven income.

Building a Business Plan

You might wonder why creating a business plan is so important when you’re just starting out, if you can’t use it to get credit at banks. The problem with a business plan when you are first beginning is that it is just a plan. It has no record of success. However, it still makes great sense to create that plan and follow it closely. Don’t make silly predictions or claim outrageously low expenses when you develop your plan. You need to be able to show that your plan up to the point when you are applying for a business credit card is working and on track.

That’s where the business plan comes in so handy. It shows you have a firm grasp on what you can expect, what has happened according to your plan, and then helps to prove your predictions for future growth based on the past. At that point, your business plan becomes a solid asset in applying for a business credit card or a business loan.

Valuable Vendors

Create vendor accounts as soon as you possibly can. Buying things from vendors on account even if it is only a 30 day billing period helps you develop your business credit and character. Apply for credit with vendors you will use regularly, and even if you only buy small items each month, keep your billing current so that you develop a strong reputation for reliable payments.

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President Obama’s 2010 tax break for small businesses was a real boon for both the economy and the individual worker. Of course, the unemployment situation in the country was, and still is a serious issue. It is one of the main dangers to people’s ability to maintain their personal credit ratings. 

The initial tax breaks made it possible for small businesses to do more without getting extra small business loans. It also helped when more money was needed. The fact that the incentives helped business owners keep their personal credit scores solid made getting small business loans easier.

The old tax credit was issued to small businesses for hiring new employees between February 2010 and January 2011. In August of 2011, Obama once again brought about changes to allow for tax breaks for all businesses that hire. This time he made it available to businesses that hired veterans. This will help the economy and those people who are entering the job force after serving the country.

The new bill is called the “Returning Heroes” credit, and is for the 2012 – 2013 term where businesses can earn a $2,400.00 tax incentive. As an added bonus, those businesses that hire veterans and keep them on the payroll for six months or more can get up to $4,800.00.

As a further incentive, there is a “Wounded Warriors” credit where businesses that hire veterans with disabilities from service can earn $4,800.00. This same incentive will allow for up to $9,600.00 for those employees kept on for six or more months.

There are some who complain about the cost of the bill if it passes Congress. It would end up meaning as much as $120 million dollars lost revenue for the government. President Obama countered the arguments against the bill with the need to recover from over 8 million jobs lost during the recent recession.

Veterans, especially wounded vets, have an even harder time fitting into the employment workforce, and they deserve to find some normalcy upon returning from duty. This tax incentive benefits everybody and is a great way for the country to find some stability, increase job rates and become more productive.

It certainly doesn’t hurt your financing appeal to hire veterans, and banks will also look favorably upon those efforts when you apply for small business loans.

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There is a lot more to a business credit card than simply providing available cash. It is very important to have credit cards in your business name in order to protect personal credit ratings. However, depending on your needs there are other things to consider when it comes to what makes the best business credit card for your business. 

There are things like frequent flier miles and hotel savings that the right business credit card can provide for those that have to travel often on business. These are just a couple of the incentives that business credit cards offer. If your business doesn’t require you to travel, however, those may not be the right business credit cards for you, but that doesn’t mean that there aren’t others that will give you the bonuses you can use.

Types of Incentives Available

• Cash Back: Many business credit cards give you a cash back bonus simply for using the card. These bonuses may be general cash back on all purchases, or they may stipulate certain types of purchases. In other cases there may be several types of cash back bonuses on a single business credit card. For instance, the bonus from “SimplyCash®” business card from American Express OPEN that offers 5% cash back on office supply purchases as well as on wireless services. It also gives 3% on gasoline purchases and 1% cash back on all other purchases.

• Bonus Miles: If you travel heavily for business, or just want to take a much needed vacation you can choose a card like Capitol One® Spark Miles for Business that gives you thousands of frequent flier miles with no limits. There are no blackout dates for traveling, or any airline restrictions and you can even use the miles for cash back or gift cards if you decide you aren’t going to travel. Capitol One® also has a Spark card for cash if you prefer bonuses rather than miles.

• Bonus Points: Another form of bonuses are given as “points” toward special purchases. InkBold with Ultimate Rewards gives you 50,000 bonus points if you spend $5,000 in 3 months. If you have a lot of large expenses, or use your credit card for regularly recurring expenses this can be a very beneficial type of bonus.

• Hotel Bonuses: If you travel on business or for pleasure this type of bonus can save you a lot of money. Marriott Rewards Business Card is one of these types of cards. It gives you 1 point for every $1.00 spent, plus 2 free nights at certain locations throughout the year, no limits on the amounts you can earn, plus if you use your card to pay for hotel accommodations at a Marriott you will get triple points for each dollar spent.

What You Should Consider when Choosing a Business Credit Card

Remember that along with helping you protect personal credit, your business credit card will help you build your company. However, it’s important to determine what you need your card for in order to pick a card properly. If you need a business credit card to finance big, long-term purchases look for a card with a lower interest rate rather than big bonuses. In the long-run, you will pay a lot less for the overall purchases even after you take bonuses into consideration.

If you are using your business credit card to finance monthly expenses and make accounting easier, you will be paying off the entire amount every month, so interest is not a concern. In those cases, get the most for your dollars by choosing a business credit card with the most useful bonuses for your needs.

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Invoice factoring is a form of financing where a business will essentially “sell” an invoice to a financing company for a slightly discounted rate, usually between 75 and 90 percent of the overall value of the account. The financing company than assumes full responsibility for the collection of the accounts payable, while the selling company receives a cash payment for the sale of the account. For many businesses, this is an ideal short-term solution to several issues.

Account Collection.

In the event of a delinquent or soon to be delinquent account, most businesses are not equipped to handle account collection through in-house channels. This necessitates the use of agencies and services designed to assist in the collection process. In the case of small businesses or start-up businesses, the loss of liquidity and time costs associated with the use of these services can be devastating. Invoice factoring allows troublesome accounts to be handled quickly and efficiently.

Growth Support.

Many new businesses are constrained, at least during the early stages of development, by the availability of capital to fund new projects. Invoice factoring ensures that growth and development is limited only by the overall volume and relative size of the projects being completed. Essentially, invoice factoring allows new business to grow at a rate directly proportional to production levels.

Time Sensitivity.

Financial investments are often defined significantly by the time sensitive nature of the specific investment. Invoice factoring allows business to take advantage of sudden and potentially profitable investment opportunities as they present themselves, regardless of current levels of liquidity.

Financial Records.

Unlike alternative forms of financing, invoice financing does not take into account the credit history or current financial status of the borrowing institution or business. When determining the terms and conditions of a specific account the finance company evaluates the value of the invoice account itself. This allows companies that may not have an extensive credit history, or even some amount of negative factors on their credit account, to obtain lines of credit. Additionally, the accounts can be evaluated much more quickly than a company wide evaluation can be conducted, speeding-up the overall process.

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The economy today is not doing so well, but this doesn't mean that you cannot obtain financing for your business. Here are ten ways your company can obtain the capital it needs.

1. Ask Someone In Your Family

If you are starting your own company, you could always ask a friend or relative who might have some extra cash laying around.

2. Use Your Social Network

Have you ever heard of social lending? It is like asking a friend for a loan, but doing so online and with millions of friends to choose from.

3. Put Up Your Own Assets

A bank might not be willing to lend your business money unless it has a solid track record, but you can put your own personal credit on the line. A house or car as collateral helps greatly.

4. Look For Angel Investors

Angel investors are people who are looking to invest in companies with potential. This isn't a loan, but the investment is an equity one, so they will obtain some percentage of ownership.

5. Sell Stock

The sale of stock will raise capital quickly for your company. Remember that you will be accountable to your shareholders if you go this route. They have the right to expect a profit, so make sure you can deliver.

6. Take Pre-Orders

Allow customers to pre-order and ask that they pay in full. This will raise capital before having to buy or ship goods. Think of it as a short-term loan.

7. Get those A/R To Your Bank Account ASAP

If a customer was delivered goods, but has not yet paid up, ask that the customer do so. You can even offer incentives to get that cash in a little quicker.

8. Micro Loans

A Micro Loan is a small loan that carries a smaller interest rate. A credit card could be as much as 22 percent APR for a small 1,000 loan, but a Micro Loan averages around 8 percent interest.

9. Sell Or Rent Assets

Renting an unused room could be a great way to raise cash. Selling your old copy machine could also be a great way to get some extra money quickly.

10. Credit Cards

If no other loan option is available, a credit card is a last resort. Beware of high APR's, but it could be a bailout when you are in desperate need of capital.

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Washington is constantly urging banks to increase lending. In spite of this, credit remains tight. Small business loan originations continue to lag and credit card issuers have significantly reduced lines of credit and canceled thousands of accounts. The American taxpayers bailed out the banks hoping that they would make loans and stimulate the economy. But given the current state of the economic mess, lending is probably the last thing the banks should be doing. Since the current recession was caused by an overextension of credit, making additional loans available doesn’t make sense.

Every loan carries the risk that it will not be repaid. Before making a loan, a lender must first accurately price the risk. If this isn’t possible, the lender reduces risk by lowering the total number of loans that it originates or the dollar amount of the loans. It has yet to be determined how costly new initiatives, such as cap and trade legislation and the healthcare proposal, will be on business. The unknown cost of these and other current regulations are interfering with the accurate pricing of risk. Therefore, lenders are reducing their risk exposure by reducing the number of loans they make.

Another hurdle for lenders is the risk-adverse nature of bank regulators. Although presidents and Congress have urged banks to make more loans, bank examiners have required just the opposite. Bank executives across the country have demonstrated that bank examiners have become extremely cautious in determining the value of a bank’s assets, thereby requiring an increase in bank reserves. This results in a reduction of lending.

 In an effort to control the money supply, the Federal Reserve began paying interest on bank reserves it held on deposit. Reserve balances immediately went up, and they have been rising ever since. Banks can borrow at low rates and place those funds on deposit with the Fed receiving a risk-free, guaranteed rate of return. This effort by the Fed to control the money supply and encourage lending has actually backfired.

In today’s tough economic environment, this risk of default is greater than it has been in years. High unemployment and the reduced value of collateral, such as housing, has required banks to tighten their lending standards to comply with more stringent bank regulations. As lending criteria becomes tighter, fewer companies and individuals qualify for loans.

Current economic conditions and levels of government oversight don’t support additional bank lending.

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The recent last minute agreement to raise the debt ceiling was only a temporary solution to our nation's biggest fiscal problem. No one really expected that the United States was going to default on its debt obligations, but the politicians certainly caused something of a world crisis in the financial markets.

While it is hard to say whether it is this administration's fault or the result of the previous administration's policies having to be addressed with an entirely different strategy, the fact remains that our country owes more than 14 trillion dollars.

The number is so big, it is hard to understand. Imagine 14 million attaché cases (18"x12"x4.5") each filled with a million dollars in hundred dollar bills. A trillion dollars would be more than enough to buy all of the homes that were foreclosed in 2007 and 2008. The 14.3 trillion dollars the United States is equivalent to being able to write a $2,000 check to every one of the roughly 7 billion people living on our planet.

Now that you have a clue as to the enormity of our debt, what does that actually mean? What impact does the current debt ceiling deal have on you and me? How does it affect small businesses?

When the powers that be finally came to some sort of agreement, the result was to add 2.4 trillion dollars to our nation's borrowing limit. As part of the deal, promises were made to cut spending by the same $2.4 trillion dollars. It is an attempt to stabilize our debt crisis and still allow the country to function normally and without having to go through a major financial disruption.

There is a price to pay for carrying so much debt. Standard and Poors, the financial rating agency recently downgraded the credit rating of the United States. The unprecedented move does not actually affect our ability to pay debt, but does create a question both at home and abroad about the financial stability of the world's greatest economy.

The Federal Reserve has promised to keep interest rates low over the next several years so not to cause a panic in the business community. While interest rates may go up on all types of consumer and business debt, they are unlikely to spike high enough to bring our slow economic recovery to a sudden halt.

Small businesses may suffer the brunt of the impact as not only may it be harder to borrow money, but the costs of running their businesses may increase. The fact remains that there is great uncertainty in what will be cut and if/when taxes will be raised.

Small businesses that are already struggling can be forced to close if taxes get any higher. The cost to hire an employee will rise. Government programs will be trimmed or completely eliminated. Who knows what will happen with Social Security and Medicare? Without doubt, everyone will be asked to cut back and sacrifice and that will mean additional hardship for the millions of small businesses in our country.

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Building commercial credit is a absolute must for many businesses to grease the wheels of commerce both inside and outside their industry. However, especially for those businesses just getting started on the road to commercial finance, building commercial credit can be a daunting task without the aid of a partner company specifically geared to help with that goal.

Here are some of the ways that a commercial credit building company can help to build the business credit of a company more quickly than a company could do on its own.

1. Combining accounts.

A commercial credit building company will combine the many smaller accounts of start up and small businesses into one large account to present to a financial institution, which is much more appropriately designed for loans of a large size. Presenting many loans as a group will alleviate much of the risk of the financial institution, as the credit company will often offer added incentives for principal repayment should one of the loans default.

What this does for the small company is get them loans that they simply could not get on their own, giving them the opportunity to build a credit history with even a small or short term loan.
 

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