Compound Profit Blog

All it really takes is a little preparation to get the money you need for your business. Lenders are in the business of loaning money. Even when the economy is tight, they have to continue doing so to stay in business. However, getting a loan is tougher. The more prepared you are the better your chances of getting the loan you are looking for.

Business Loans Require Business Information

While some of your business fundability will be determined by your personal credit-worthiness, you will also need to prove you have a real business. A lender will need to know the physical address of the business. Even if it is out of your home, you should provide them with the street address. Do not list a P.O. Box as your business address. Cell phones are popular ways of doing business, but a landline is a better identification item, so add an extra line to your home or have one installed in your business office.

You will need a well prepared business plan, all of your tax documents and proof of employer status with the IRS. To show your legal tax payer identification you will need an EIN, also known as an Employer Identification Number. You can get that number from the IRS right on their website. It doesn’t cost anything to obtain and will only take a few minutes.

Local licensing can take longer, but you will need all of the proof that you have it all in order. Check with your local Chamber of Commerce to find out what local laws apply to your business and have all of that paperwork finished and in-hand when applying for a loan.

What Will Happen if My Business isn’t Qualified for the Money I am Asking For?

In some cases, even when you have all of the information ready for your lender, your business fundability isn’t strong enough to get all of the money you want. Your lender may offer a lower amount. It is up to you to decide if you can subsidize the rest in other ways. Some ways to make up the difference may be to personally fund the rest of your business or ask family to help out.

Another way is to look for investors. Investors are slightly different than lenders, and may be willing to take larger risks to get you started on a good idea. You can find out more about different types of investors including venture capitalists at http://www.businessfundability.com.

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Starting a new business is so exciting. It is easy to miss a lot of important steps in the desire to get started and the dreams of success. It is great to be excited. However, skipping the vital steps can be a fatal flaw that will cause many frustrating moments in the future.

The beginning of your business venture will set the tone for the rest of your path. This is the time to create the cornerstone that will support your business as it grows, and provide you with a strong background that gives it business fundability in the eyes of lenders. Even if you do not need money now to start your business, you may in the future. Without the right setup you won’t be in a position to get help when you need it.

Questions to Ask

Start out by asking yourself these important questions:

• Why do I want to start this business?
• Is this business right for me?
• Is this business feasible?
• Do I have the experience to start a business or should I seek help?

Prepare a Business Plan

You can get help with the fundamentals of creating a strong business plan at www.businessfundability.com, but some of the features of a business plan include:

• Summary: An overview of your plan. This should be short and sweet, and explain the exact nature of your business and what you hope to accomplish.

• Business Concept: This is an in depth description of your business, what it sells and who your target market is.

• Financial Prospects: Don’t pad this area, but provide a reasonable outlook for sales, profits and return on investment.

• Expense Requirements: This is another area where padding will stand out easily. Investors and lenders know what it costs to run a business. Make sure you honestly research what all of the costs of running your business will be, and where you will get the funds to operate.

• Current Business Position: Whether you are just starting out or have been in business this area should give the reader a clear understanding of your standing at any given moment. This area should be updated whenever you submit your business plan for review.

• Business Achievements: Anytime you accomplish a goal, win an award or reach an important milestone such as getting patents, creating a prototype, secure a new location you should update this section.

A well executed business plan proves your business is stable and has the business fundability to make it a good risk for loans or other types of investments. When you need to expand or improve your cash flow. You will be happy you took the time to start right and create your business plan.

Final Steps to a Good Business Startup

Once you are truly prepared to start, get all of your financial and legal requirements together. You should obtain an EIN (this is the Employer Identification Number) from the IRS, open a business checking account with your bank, and make sure all of your licensing is in order. After you have all of the above you are ready to start on the exciting adventure of owning a business.

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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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For decades one of the easiest ways for new businesses without start up funds to get the money they needed was to ask family and friends. This is still a great way to get funding for a new business because family and friends can be a little more forgiving than banks when it comes to paying back the loan on a certain date. If you are a day or two late, mom and date will probably waive the late fee.

Money from family is a good way to increase your funding is that those types of loans are usually subordinate to more traditional types of loans. So if you have some startup capital from mom and dad, and you then want to go to a bank to expand your business later on, the bank will need to know about the loan, but won’t count it as heavily against your debt ratio because their loan will take precedence if you fail and assets are sold to recover the loan. At the same time, you should make sure that your friends or family report good payments on your part to the credit reporting agencies so you increase your business fundability over time.

Venture Capital

If you have a big idea, but not much money venture capital may be the best type of funding for a startup. Venture capital can be easier to get because they aren’t looking for a return on investment the same way a lender would. Venture capitalists usually take a percentage of the profit of your business rather than simple monthly payments. Before you strike out on this path, give a lot of consideration to the fact that you will, in essence, be selling part of your business to the VC in exchange for funding. There are many pros and cons to this method, but for a business with a lot of potential for profits it can make a lot of sense.

Traditional Bank Loan

Traditional bank loans are an excellent source of funding for established businesses that need a little extra money to make it through a tough patch or expand on their existing business. Once you have created all of the credibility a bank looks for getting a loan is fairly easy. You can find out how to create business credibility at www.businessfundability.com.

If you have no choice but to get a traditional bank loan right from the start you have to know it will be an uphill battle. As a startup you haven’t had the time to build your business fundability to the point that banks consider you a credible risk. 

Your only option is to take some time before starting out to create at least some of the credibility banks want to see. You won’t be able to show them a record of profits, but you can make sure you have all of the registrations in line, open some vendor accounts and possibly even get some business credit cards to build your credit rating. For the best chances of success getting a new business loan from a bank or other traditional lenders check out the Small Business Association.

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You wouldn’t go on a long road trip without a map, but you’d be surprised at how many people think they can start a business without knowing where they are going. A good idea is important, but having a goal and a well constructed path to achieve that goal is what makes the difference between success and frustration. That business road map is what a business plan is all about.

Start Up Funds

It takes money to make money, and it takes money to start a business. Unless you have quite a nest egg saved up that you are willing to risk in a new business venture you’ll probably be looking for a loan. To get a new business loan you will need to prove your business fundability. This is a difficult thing to do with brand new businesses, especially if you haven’t operated a business in the past. The lender will want to know if you have the correct outlook, have done enough homework to understand the prospects of your business and how to get to the point of profitability. A business plan is the best way to show loan officers that your business is a wise risk.

Future Limits

The beginning isn’t the only time you may need extra funds to run your business. As you go on, you may need extra money to get a special piece of equipment, replace worn out machines or expand stock to increase sales. A business plan can help you get those funds by showing lenders that your business has achieved what your predictions calculated, and it has further to go and can get there. The only thing that really counts with lenders is your ability to pay and your willingness to do so. That’s how they calculate your business fundability and decide whether to give you a loan. Having a business plan gives you the edge and proves your ability.

Clear Purpose and Understanding

Everything about business is about money. How much it will cost you to begin and continue doing business and how much profit you can expect. However, in order to make use of the financial aspects of your business you need to have a clear understanding of every aspect of operation. 

Sitting down to create a business plan forces you to see the steps of progression clearly so putting it into action is easier. Better yet, you won’t get lost along the way and end up stranded. You’ll get to your destination and enjoy the benefits of a successful business.

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Before you can begin to get business loans you have to be able to do two simple things. You have to be able to determine your business fundability accurately, and determine what your immediate needs and future needs will be.

Is Your Business Fundable?

There are several aspects that go into determining your businesses fundability when it comes to getting financing. The first thing banks look at is your businesses credit and then they will need to see some record of income and profits from that business if it has been in operation for any length of time.

If you are just starting out, those two aspects of business fundability are not always present. Some lenders may suggest using your personal credit to give your business credibility, but that is a dangerous game and one that should be avoided whenever possible. You can develop some business credit by opening vendor accounts and purchasing supplies on account, paying them back within the stipulated timeframe. Most vendor accounts are payable within 30 to 90 days. Make sure you completely understand the terms you are agreeing to and always meet your obligations so you create a separate credit rating for your business.

Income and profits from a startup are not available for a lender to determine your ability to repay a loan. If you have a solid business plan that is well thought out and does not suggest exaggerated expectations, a lender may use that to determine your businesses ability to repay a loan.

What are Your Needs?

It may be tempting to get a loan for as much money as you are eligible for, but that isn’t necessarily a good idea when applying for a business loan. First, if you ask for the maximum amount you can get it may make your debt ratio so high your business credit score actually goes down.

Another reason not to overburden your business with an exceedingly high loan is that you will be paying interest on money that you don’t actually need. Why pay more if you don’t have to? It can be tricky to determine exactly how much money you need, both now and in the future and you don’t want to cut yourself short. That’s another area where a very thorough business plan can help you understand your needs and give you the tools you need to make the right decisions for your business.

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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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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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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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