Most small business owners need more money and time for their business. More money seems to be the popular choice as a solution to business woes.
More money…is that the real answer? To be honest, most small business owners if they had more money it would only delay the inevitable, which is going out of business a few months later. I find most do not have a good business model, a good marketing system or staff to follow up and produce results.
Let’s assume you have all those things working for you and you need more capital to grow your business. Perhaps, you are one that is gaining more market share as your competitors are dropping like flies all around you.
Let me give you some important updates on your odds to secure more financing and some solutions. First, have a separate legal entity for your business. That is step one in separating your personal and business credit. Second is to realize the coloration between vendor and cash lines of credit. Most want cash lines of credit, the immediate fix to their business problems. Yet, most do not realize it is a process to build up business credit, through vendor lines of credit first, to get your business in a better position to secure cash lines of credit (there are exceptions of course).
Here is an important outline of the rules of the game and updates to secure cash lines of credit:
- Your entity has to develop vendor lines of credit first. Here is a big problem. There are hundreds of thousands of companies that will grant vendor credit to businesses. Approximately 6,000 vendors actually report to D&B® and D&B® will NOT release the list of who does. It is important to work with those vendors who report to D&B® to help build the company’s business credit profile.
- Not only do you need to develop a business credit profile with D&B®, but you have to develop a profile with Corporate Experian® and Corporate Equifax®. The problem is that you cannot pay Corporate Experian® to do it; a report must be requested on your company. Some banks check the company’s credit profile with D&B®, some with Corporate Experian® and now some are even just using Corporate Equifax®. Corporate Experian® is NOW creating profiles on companies through the SOS’s database on new filings. This is very important because the SOS information must be more accurate with how you complete who the officers are, the address of the business and match with your local business licenses. In marketing today many ask, what tools do I need? Do I need direct response, emails, opt ins, social networking, seminars, teleseminars, webinars?…The answer is you need them all. You need ALL the tools to make it work. Same with getting access to business credit, especially, cash lines, you need all the tools in most cases.
- Need Cash? Are you losing sales people, do you have a weak business credit profile or none at all with D&B®? Did you know that for $40 to $130 someone can get a report on your company’s business credit report through D&B®? Do you have a profile with anything listed? A bad profile? Are you standing financially naked? What is the marketing perception you are giving to potential clients or joint venture partners that check you out? This alone, may be costing you $25K, $100K or more each year in lost business. Perhaps fixing this would solve your cash flow problem.
- Your personal credit situation. This is about 30-60% of the solution as to why your business may or may not receive cash from a bank. Your personal revolving debt will need to be about 30-40% or less. I know many of you may have maxed out personal credit cards. The goal is to first, have an 8 month personal emergency fund (if you live on $6K per month that is $48K saved up personally). Then start paying down your credit cards and other revolving debt (including department store credit card debt to 30% or lower on all cards. You will also need to have a personal credit score of 720 or higher for the banks (on average). Remember, 35% of your personal credit score is based upon your personal revolving debt levels. The ideal personal revolving debt level to increase your credit score the fastest is 5-20% on all your revolving debt. If you pay off all your credit cards each month, it would actually be better to leave a 5% balance and pay a little in interest to help your personal credit score. If you have any major derogatories like a bankruptcy or foreclosure the banks will not lend money to you. Are their exceptions? Of course, those include cash lines of credit and merchant account lines of credit after you have been in business for 6-9 months and have consistent cash flow.
- Your business will typically need to be in business for 1-2 years before it will be in a position to qualify for a business line of credit or business loan. You can apply for a business credit card after you form a corporation or LLC but it will be 95% based upon your personal credit. Your entity still should apply for a business credit card (if you qualify) because the debt will not appear in your personal credit bureau which will help protect your personal credit score. Unfortunately, there are almost no options for a new entity for cash lines of credit. The only option is really a business credit card (unless you are raising money through investors. That is a whole different animal). Again, there are exceptions from the 1-2 year rule based upon your cash flow and credit card sales of your business.
- A merchant account cash advance. This is the most common and easiest way to secure a cash advance for your business. The key is that you must have been in business for at least 9 months; many companies request one year. The companies will have you switch your merchant account service over to them (that is one way they make their fees). If you accept credit cards (have a merchant account) you will receive something in the mail that has an offer to get cash for your business within 72 hours…this is based upon your VISA/MASTERCARD sales only. For example, let’s say, your business is averaging $25K per month in VISA/MASTERCARD sales and you have been consistent for 9 months, your business may get a $15K cash advance within one week. The key is to understand what is called the cash advance ratio (how much you pay back) and the remit rate (what percentage will come out of your daily sales to pay it back). The key is to use this money to grow your business, not pay off your bills. This advance will be paid back in about 6-8 months if your sales are consistent, if slower it will take a little longer, if faster it will be paid off sooner.
Great resources for you:
- Is your business drowning in debt? Are you operating but 30-60 days behind paying vendors? Go to www.businessdefender.com or call 1-800.588.1330 for the best solutions to help negotiate your business vendor bills and keep you in business.
- Need more tools and information? Go to our blog at www.FastBusinessCreditSecrets.com and search the categories to find a lot of content to help your business to secure cash and capital for your business.
Get Started Today-Call Fast Business Credit, Inc. at 1-888-313-6333 to Get Your Free, No Obligation, Business Credit Builder Evaluation!