In order to be successful at your business it is important to develop funding options and not use all your own money. After all, every successful business never only uses their own money to grow their business. It is very important to understand the business credit profile of your business with the three business credit bureaus, Dun & Bradstreet®, Corporate Experian® and Corporate Equifax®. That puts your business in a position to access more funding. The best part is you do not have to do this on your own and make mistakes. Fast Business Credit has programs to help you with the process. Here are your options and what to expect depending upon the stage of your business operations.
Stage 1: Start-Up to First Year
As a new start up business, your funding options may be limited. As a new start-up, your company does not have any business revenue yet. If your personal credit score is strong (over 700) and your revolving debt is below 50% some banks may give you a business credit card in the name of the business under the EIN number. That is important because the debt will not show up under your personal credit. This will help protect your personal credit score. This is important because your personal credit score will come into play with many types of funding options for your business which we will cover shortly.
A popular area for a start-up is the topic of crowd funding. Here is a short review and some options for your business.
Crowd funding describes a collective cooperation, attention and trust by people who network and pool their money and other resources together, usually via the internet, to support efforts initiated by other people or organizations.
There are different types of crowd funding:
- Pier to pier. In this situation you will post your project and people from the community who like your project will lend you the money unsecured. One factor affecting the amount of money youreceive is your personal credit score. This money you do have to pay back. One such site prosper.com will allow you to fund up to $25,000, lendingclub.com will allow up to $35,000. Interest rates at the lendingclub.com are lower than a traditional bank. It is also a place to receive a personal loan.
- Project site. These crowd funding options has you select your project in which you need funding. You are asking the community to donate money. You do NOT have to pay them back. You do have to provide them with a reward or something of value. This might be one of your products once they are developed. The site will take a percentage of your funding. Kickstarter.com is one that is very popular and Indiegogo.com is another one that is more flexible with the type of projects and is an international funding platform.
- Investor site. This is a site where investors (they must be accredited) will fund great ideas. You can pay a $100 fee and submit your business plan. Microventures.com is a top site in this group.
Here are some other funding options available to a start-up:
Accounts Receivable Financing works like a line of credit on your accounts receivable. You receive an immediate cash advance when you invoice your customer for products or services. How would it help your business if all of your customers paid cash on delivery? This program unlocks the cash in your company and helps your business soar!
Benefits of Accounts Receivable Financing:
- Builds Business Credit.
- Quick financing that does NOT require a business plan or tax statements.
- Approval is based on your customer’s credit and not on your credit.
- Frees up Working Capital by not having money tied up in invoices.
- Focuses your resources on other more productive activities such as selling.
- Saves money and time by outsourcing your receivable collections to a seasoned professional.
This would apply to a janitorial business as an example where your clients might be a major corporation and you are cleaning the office building. The major corporation will expect terms and will not pay each time you finish. If there is a 30-day lag time, by the time you invoice and get paid, and you have employees, bills and overhead that can be very difficult. Because your client is a major corporation with good credit, it is very easy to obtain account receivable financing and receive cash sooner than later. If you had a small business with small business owners as clients with poor credit and this would not work.
Unsecured Business Financing
Unsecured Business Financing from $10,000 up to $150,000. The higher amount would only come into play with amazing personal credit and very low revolving debt and some length in business. Access cash for your business through an unsecured “bundle” of business credit lines and mini SBA 7a loans. This program does require that an owner or principle of the company provide a personal guarantee but these loans and lines only report on business credit.
Advantages of this Unsecured Business Financing Program:
- Quick application and approval process. Revolving lines or Cash-out option.
- Any Principle or Owner of the company can apply. Total credit results: $10,000 – $150,000.
- Reports to the business credit agencies under the name of the business only.
- Will only show on personal credit reports in the event of default.
What you should know before considering this program:
- Applicant needs at least a 640 FICO score with all 3 credit bureaus.
- Applicant’s debt to credit limits need to be under 50% (credit utilization on revolving debt).
- Applicant must have less than 4 inquiries on each bureau over the past 12 months.
- No bankruptcies, judgments, liens or open collection accounts showing.
Retirement Plan Business Financing
Your retirement accounts may be your best option for funding your business. Utilize funds from retirement accounts like IRAs, 401(k)s, 403(b)s, Keoghs, SEPs, etc., without incurring early distribution taxes or penalties to purchase or fund your business or franchise.
Advantages for this type of funding include:
- Launch your small business or franchise with minimal (if any) debt while securing significant tax benefits.
- Use up to 100% of your retirement funds, or use a portion as a down payment on an SBA, unsecured or home equity loan.
- Combine your retirement funds with the retirement funds of a business partner or spouse.
- Save thousands in interest fees and protect your personal credit.
- Invest profits tax-deferred back into your business or pension plan.
- Lower business overhead while aggressively growing your retirement account. Position yourself for faster success!
Always check with your CPA for any tax ramifications associated with using retirement money for your business. Another popular approach is to move your IRA into a self directed Qualified Retirement Plan. Michael Hawes, a CPA in California is a great resource for that program.
Equipment lease financing, as opposed to straight equipment purchasing, greatly conserves cash flow and provides a huge boost to building business credit. Brand new businesses are welcome…even restaurants! Typically, you have to be in business for about 6 months with revenue each month. You’ll be amazed at what qualifies as “equipment”. For example, even car-wrap signage and business signs can be financed from only $99/month and we will report this transaction as a business trade line.
Equipment lease financing advantages are:
- Builds Business Credit.
- With equipment leasing there is no down payment required; just first and last payment.
- The program is available to new businesses with a minimum 600 FICO scores.
- Expenses such as sales tax, installation, and maintenance contracts can be added.
- Lease payments, in many cases, are 100% tax deductible. Discuss with your CPA.
- Minimized obsolescence. At the end of the lease, you have the option to keep or return it.
- Funding as low as $1000 and high as $70,000 with fast approvals and limited documentation.
Vendor Credit. Vendor credit will help your cash flow and when your business is properly structured with the business credit bureaus will put your business in a position to secure more funding.
The key is to work with vendors that report to the business credit bureaus, Dun & Bradstreet®, Corporate Experian®, Corporate Equifax®. This only works once your company is in compliance to develop a clean profile with the bureaus. Here are some vendors that do report.
CAUTION: My concern is that you do not jump the gun with them until your company is in compliance-you can call us about separately.
A Printer 4U-They are a great source for graphic design, logo creation, full color printing, labels, banners and more. They report to D&B® and Corporate Equifax®. You must pay 50% up front on your first order. The balance is due after 30 days. Almost any business will be approved up to a $2500 credit line. Must provide business address, phone, bank account info, and be listed with 411. No personal guarantee required and reports to both D&B® and Experian®. For optimal business credit results, spend a minimum of $50/month for 6 months. It takes 30-60 days for your trade lines to show up on your credit report from the date of purchase. NEVER CONTACT THE CREDIT BUREAUS DIRECTLY REGARDING TRADELINE STATUS.
Payment Terms. Net 30
Radio Shack®. They are one of the nations most experienced and trusted consumer electronics specialty retailers providing computers, phones, radio, batteries, cables and connectors and much more.
Reports to D&B® and Corporate Experian®. An application must be faxed in. You must be in business for at least 9 months (1 year is ideal). They will pull a business credit report to see how your business has paid bills in the past. If there isn’t enough data on the business credit report, they will ask for bank and trade references. You must either call or go into a store for the application. D&B number required and credit references. No personal guarantee. Payment Terms: Net 30.
Staples® is an office products mega-retailer that sells: Office supplies and services, business machines, computers and related products, and office furniture. Online shopping and ordering available or visit a store location.
Reports to: D&B®, Corporate Experian® and Corporate Equifax®. They will check with D&B®, Corporate Experian® and Corporate Equifax® for your business credit history. The amount of money they will credit to your account is determined by credit history with the major credit agencies. If there is little credit history or no scores, you may be asked to provide a personal guarantee. Will verify with 411 directory while you are on hold. EIN required.
Payment Terms: Net 30
These are just a sample of dozens of vendors (and cash options) that are you will have full access to when you are a member of our Ultimate Business Credit Builder System. As you can see, there are several steps involved with each vendor and a sequence of which vendors to work with first.
Stage 2 1-2 year in business
Now that you have been in business for the year with revenues this opens up more possibilities for funding for your business.
Your vendor credit opportunities will continue to grow as long as you have established the foundation with the business credit bureaus covered earlier and the smaller vendor lines of credit. It is quite common that we have helped clients who have been in business for 4,5 or 6 years and longer who have never developed any business credit profiles with the business credit bureaus.
In fact, you can check out your company for free at two of the three business credit bureaus to determine if any vendors are reporting. If you have 2 or less vendors reporting and you have been in business for more than one year that is not a good sign.
Find out how many vendors are reporting to your business for free now. Simply type in your business name and address at the URLs below:
Corporate Experian®: Go to: http://budurl.com/BizCheck1 Corporate Equifax®: Go to: http://budurl.com/BizCheck2
Cash lines of credit. This is what is most common when clients call us about securing more funding for their business. The good news is that since you have passed the one year mark and with revenues here are some options that open up for you.
Business Credit Cards. There are important questions you want to ask your bank or company that is offering a business credit card to your business.
How long do you have to be in business before you will issue a business credit card? Many banks are 1-2 years. What type of business revenue is required to apply if any? Which personal credit bureau do they pull your personal credit from? What is the minimum personal credit score required from that bureau? What is the highest your personal revolving debt ratio can be (most banks prefer 50% or under)? Do they check your business credit score with any of the business credit bureaus? Is that debt reported to the personal credit bureaus (the answer should be no, if the account is under an entity and the EIN number, but it will be personal guaranteed). What is the interest rate on the business credit card?
Here is a resource for business credit cards that may apply in your situation http://www.creditcards.com/business.php (you may also want to start with your local business bank).
Business Revenue Lending. This is a popular program because you will receive an advance based upon your past revenue performance. Typically it may be 50% of your total monthly revenue. If your business generates $100K per month in revenue that is consistent, when qualified you may obtain $50,000 in an advance. Here are the other criteria for this type of a program.
Small Business Loan from $5,000 to $300,000
NO PERSONAL GUARANTEE REQUIRED!
- Must average at least $12,500 in gross monthly revenue.
- Any owner or officer with 540+ FICO can sign.
- No collateral required.
- Business plan not required.
- Unrestricted use of funds.
- No upfront fees.
- 48-72 hour approval in most instances.
- Simple application process.
- Repayment via daily ACH from business bank account.
- Excludes real estate investment and mortgage companies
The repayment is tied directly to your business bank account with a daily ACH. The amount is based upon a daily remit rate which may range from 7%-15% of your daily sales. If your sales are consistent, typically this advance will be paid off within 6-8 months. If your sales increase, it will be paid off sooner and if your sales slowdown it will take longer to pay it off. What is the interest rate? There is not an interest rate, but a factor rate. It may range from a 1.18 to 1.35. This means if you obtain an advance of $100K, you would be paying back $118K to $135K in that 6-8 month period of time. This works best if you are buying assets for a very discounted price or are investing in proven marketing strategies to grow your business (not ones that you hope that work). If you need the advance just to pay your business bills, and get caught up, that will be a big challenge unless you already know you have more revenue coming in the following months.
Merchant Account Cash Advance. This is the same concept as the business revenue lending except it is only based upon your MasterCard and VISA monthly revenue (not American Express®). You will be required to change your merchant account over to the company that provides this advance. The daily payment will be taken out of your daily MasterCard and VISA revenue. The other guidelines are the similar. This program is much more common than even the business revenue lending.
Stage 3 2 years plus
After 3 years plus you are open to all the options listed above plus all banks will look at your business for business lines of credit and business loans.
Business Lines of Credit and Business Loans. Most banks will make these tools available after two years in business, and sometimes three years. The criteria are similar. The business line of credit or loan will about 10-15% of the annual gross revenue of the business. If your business generates $1 million per year in revenue, that will equate to $100K to $150K. Other factors will include the profitability of the business, and your personal credit score, revolving debt level. A personal credit score of 720 or higher is ideal and revolving debt of 50% or less. If you have any major derogatories like a bankruptcy, foreclosure, more than two 60 day late payments your business will automatically get rejected.
Funding is a very important factor for your long term business success. If you need support in this area, give us a call at 1-888-313-6333.