Compound Profit Blog

All businesses have the same quandary when it comes to getting a loan. They have to prove their business fundability. However, small business owners face a steeper hurdle due to the fact that they usually do not have as much capital, as many assets or the connections that big corporations have.

Owners of all businesses, regardless of size, can get a great deal of help learning about business funding at www.businessfundability.com. In the meantime, there are a few things small business owners can do right now to get started creating the kind of business credit needed to prove their business fundability.

Create an Identity

This is usually the first step in starting a business, but many new business owners overlook it. It’s not too late. Get started creating your business’ individual identity now. 

The first step is a visit to the IRS. Don’t run away. You don’t have to go there in person, just go to their website and get your EIN number. The EIN is an “Employer Identification Number” and serves your business the way your social security number does you personally. It is tax identification, but also establishes your business as an entity.

The next step is to register with Dunn & Bradstreet. This organization has much to offer a business of any size. Along with being one of the biggest business credit reporting agencies, they also offer help for businesses in establishing credit, and a Dunn & Bradstreet number can be used to identify it on credit cards too.

Finally, get listed in your local 411 directory. Once you have established your business’ personality you are just beginning on the road to credibility.

Establish Vendor Relationships

Do you walk into your local office supply store, pick up your items and pay at the register before just walking out? Stop it! Talk to the management. Introduce yourself and ask for a vendor account. A vendor account is often a small business’ first credit. Vendor accounts differ in two important ways from major credit cards. First, a vendor account has a short term credit period. You can’t continue to carry a debt. You must pay the entire amount due within a certain period of time, usually either 30, 60 or 90 days. The second difference is you can’t use a vendor account anywhere except that store, or chain of stores.

Don’t just open one or two vendor accounts. Find several businesses you like working with and need products or services from and establish an account. Banks like to see at least 5 vendor accounts when determining business fundability. Once you have these accounts, keep them in good standing for several billing periods and you are well on your way to having the credibility you need to get a small business loan.

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The SBA, also known as the Small Business Association, provides a special service for the small entrepreneur. While they do not actually provide loans, they back your loans with banks to get you the money you need for certain purposes. There are many types of SBA loan:

• 7a loans that are special purpose loans for certain types of businesses such as the export loan program that helps small export businesses get the money to start or develop an existing business, rural business loans that give loans to small businesses in rural areas and others.

• Micro loans give short term money when needed for special projects or to bridge a financial gap for things like payroll or purchases.

• 504 loan program gives existing businesses that want to create a new subsidiary or branch a way to develop that new idea or product.

Preparing Your SBA Application

As with any bank, you will need to fill out the standard loan application with the Small Business Association to qualify for one of their loan programs. Along with that application you will need certain supporting materials to prove your loan worthiness.

The SBA is of great benefit to small businesses, but they are actually more strict than your local bank or a national financial institution. The SBA will require all of the same financial information a bank would such as income tax returns, proof of a business license or certificate, and financial information on your existing business if you are not a startup.

You’ll also have to provide the SBA with a loan application history, showing all places you have applied for a loan during the business life of your company. Each principal person in the company will also need to provide a resume to show they are capable of the job they are performing within your company. 

A good business plan is a must when applying for any business loan, including one from the Small Business Association.

Small Business Association Lines of Credit

You can also get a line of credit from the SBA. This lets you have access to the loaned amount when you need it, but not pay any interest on money you haven’t used yet. You only pay interest on the part of the money you have used at any given time.

Once you have provided all of the information needed for your loan or line of credit application and you are approved, that still does not get you the money. That just gives you the power to walk into a bank and say you want a loan for the approved amount and say you have the SBA’s backing.

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Getting a loan can be scary for new business owners. However, getting a small business loan is usually imperative when beginning any start up. If your new business idea requires a lot of equipment, office supplies and materials, you don’t have to foot the bill yourself. You just have to apply for a loan. 

Knowing how to make the most of your loan applications can improve your chances of success. Starting small is a good idea. That doesn’t mean small business plans. It means finding smaller, private banks. Small banks are much more flexible. At a local bank you also have a better chance of developing a relationship with your lender.

Another great place to start is the Small Business Association. They have many programs to help new businesses get started. Regardless of where you start, there are a couple of things that will help you get started on the right foot.

Make a Plan

Even a small business needs a plan. A business plan is more than just an idea; it is a blueprint of how to make the idea work. While having a business plan is important for business success, it is just as important as an aid to getting small business loans.

The bottom line is banks and other lenders want their money back. They also expect to make a few dollars extra in the process. That’s their business. When you ask for money, they are likely to want to know everything about your business. They want to know how it will work, what it does and how you expect to get paid for your work.

A business plan goes into everything in great detail, and will be an asset to your loan application. With a business plan, there are no questions left unanswered, and a lender can determine if your plan is realistic, and if they have a good chance of a return on their investment.

Dealing with Rejection

Rejection is a part of the process. You may not get the first loan you apply for. When starting out, understand that the process of obtaining small business loans may take several tries. You can learn from your mistakes and build on the experience from each loan application if you have the right outlook.

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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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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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Unsecured financing is an excellent option for a small business that needs to borrow money without a credit check. The loans must be paid back in a shorter time frame and do require a higher interest rate than secured loans. You have easy access to the money for emergency situations and do not need to use your home or business as collateral. There are very high interest rates on these loans because they are very risky to the lenders. Some lenders may not get their money back until after the liquidation sale of your business because there is no collateral required for the loan and you do not need to risk your home or business building with a lien on your property. You will however, have a financial obligation to repay the loan amount.

If your company is doing well, then an unsecured loan could allow you to improve your small business to a better level of profit. The unsecured loans are a handy tool if the banks will not extend you any more regular credit on your business. Many small businesses need to have more money, especially when they are growing. You may be able to service more customers, but simply not be able to finance the additional equipment that is needed for more production. The unsecured loans usually need to be paid back in a number of months or perhaps a very few years but if you believe that you will make more in profit during that time than you will spend on the unsecured loan, then the loans could be a good choice for you.

Even with a bad credit rating, you could receive unsecured financing that could protect your small business. You might not have the money that you need to repair a service truck that you use to replace gutters with your small business, so for you, having an unsecured loan would allow you to fix your truck and continue installing gutters. Without that truck, your business could be closed. Those unsecured loans do offer an option for the small business owner that may not be able to survive without getting the high risk loans but lenders do charge higher interest rates because there is a high risk of having to go to court for their money if the borrower can not repay the loan. However, with unsecured financing, you could stay in business and protect your investments.

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