Fundability is like a huge ball of yarn, full of layers and twists and turns that all touch each other. At its core, it is how a lender views a business in relation to whether or not it will repay debt. If a lender views a business as one that is fundable, that means that they feel the business is willing and able to repay any debt that may be extended. However, the fundability of your business can affect so much more than your ability to get a business loan. It can affect your credibility with virtually everyone you do business with.
How Your Fundability Can Affect your Credibility with More than Just Lenders
It sounds unlikely on the surface because most people associate fundability with credit score. However, when you consider that credit score is only one small slice part of what makes a business fundable, your perspective will change.
There are literally hundreds of things that can affect fundability. Before you can understand how fundability affects credibility with more than just lenders, you have to understand how all the pieces of that makes a business fundable fit together and affect each other.
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A Fundable Foundation
Fundability starts with how your business is set up. It has to appear to be a fundable entity separate from you, the owner. This is necessary for a few reasons. First, it protects you personally. Second, it allows you to build separate business credit, which is also a huge part of fundability.
How do you accomplish this? Well, like any foundation, it is best to start at the beginning. It will be faster and easier if you do. However, if your business is already up and running, you may not have that option. It’s never too late to start, but start now. The longer you wait the harder it will be.
Contact Information
The first step in setting up your business to be fundable is to ensure your business has its own phone number, fax number, and address. That’s not to say you have to get a separate phone line, or even a separate location. You can have a dedicated number forwarded to your current phone. You can even still run your business from your home or on your computer. A fax machine is not even necessary. Find out more about how all of this works here.
EIN
The next thing you need to do is get an EIN. This is an identifying number for your business that works similar to how your SSN works for you personally. Some business owners use their SSN for their business transactions such as opening credit accounts. This is what a lot of sole proprietorships and partnerships do. However, it really doesn’t look professional to lenders, and it can cause your personal and business credit to get all mixed up. To be fundable, you need to apply for and use an EIN. You can get one for free from the IRS.
Incorporate
Incorporating is absolutely necessary to set up your business to be fundable. It lends credibility to your business as one that is legitimate. In addition, offers some protection from liability.
Which option you choose does not matter as much for being fundable as it does for you budget and needs for liability protection. The best thing to do is talk to your attorney or a tax professional. If you do not do this from the beginning, there will be some issues to work through. When you incorporate, you become a new entity. This means you lose any time in business you already have. You basically have to start over. You’ll also lose any positive payment history.
This is why you have to incorporate as soon as possible. Not only is it necessary for fundability and for building business credit, but so is time in business. The longer you have been in business the more fundable you appear to be. That starts on the date of incorporation, regardless of when you actually started doing business.
Business Bank Account
A separate, dedicated business bank account is also a must. There are a few reasons for this. First, it will help you keep business finances separate. This is good for a lot of reasons, but the big one is tax purposes.
However, there are also several types of funding you cannot get without a business bank account. Many lenders and credit cards want to see one with a minimum average balance. In addition, you cannot get a merchant account without a business account at a bank. That means, you cannot take credit cards payments. Studies show consumers spend more when they can pay by credit card.
Licenses
If anyone were to check to see if your business has all of the licenses is needs to operate and finds that you do not, it will cause a massive hit to your credibility with that person. For a business to be legitimate, it has to have all of the necessary licenses it needs to run. If it doesn’t, warning flags are going to start waving. Research what licenses you need to ensure you have all of those necessary to legitimately run your business at the federal, state, and local levels.
Website
I am sure you are wondering how a business website can affect your ability to get funding. Here’s the thing. These days, you do not exist if you do not have a website. However, having a poorly put together website can be even worse. It is the first impression you make on many, and if it appears to be unprofessional it will not bode well for you with consumers or potential lenders.
Spend the time and money necessary to ensure your website is professionally designed and works well. Pay for hosting too. Don’t use a free hosting service. Also, your business needs a business email address that is different from your personal one. Make sure it has the same URL as your website. A free service such as Yahoo or Gmail will not work as well.
Business Credit Reports
The next link is the fundability chain is business credit. Much like your consumer credit report details your personal credit history, this details the credit history of your business. It is a tool to help lenders determine how credit worthy your business is.
The main sources of business credit reports include Dun & Bradstreet, Experian, Equifax, and FICO SBSS. Since you have no way of knowing which one your lender will use, you need to make sure all of these reports are up to date and accurate.
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Other Business Data Agencies
Other agencies can also impact how fundable your business is. Two examples include LexisNexus and The Small Business Finance Exchange. They gather data from a variety of sources, including public records. This is where things can get a little sticky. These records include information on everything from arrest records to automobile accidents. You cannot access their data or change the information they have on you or your business. What you can do is ensure that any new information they receive is positive. Enough positive information can help negate any negative information from the past.
Identification Numbers: Another Piece of the Fundability Puzzle
In addition to the EIN, there are identifying numbers that go along with your business credit reports. You should be aware that these numbers exist. Some of them are simply assigned, but one of them you have to apply to get.
Dun & Bradstreet is the largest and most commonly used business credit reporting agency. To have a credit file in their database, you have to have a D-U-N-S number. Apply for one through the D&B website.
Business Credit History Matters When It Comes to Fundability
Your credit history has everything to do with all that is related to your credit score.
It consists of a number of things including:
- How many accounts are reporting payments?
- How long have you had each account?
- What type of accounts are they?
- How much credit are you using on each account versus how much is available?
- Are you making your payments on these accounts consistently on-time?
The more accounts you have reporting on-time payments, the stronger your credit score will be.
Consistency in Business Information Affects Fundability
Inconsistency in information across records can cause major problems with being fundable. It makes your business look bad. It’s unprofessional. When you start changing things up like adding a business phone number and address and incorporating, you may find that some things slip through the cracks.
Since a ton of loan applications are turned down each year due to fraud concerns simply because things do not match up, this is a problem. Maybe your business licenses have your personal address but now you have a business address. You have to change it. Maybe some of your credit accounts have a slightly different name or a different phone number listed than what is on your loan application. Is all of your information up to date with your insurance agencies?
The key to this piece of fundability is to stay on top you all of your reports, both business and personal. Save money on business credit monitoring here.
Fundability and Financial Statements
Both your personal and business tax returns need to be in order. Not only that, but you have to pay your taxes, both business and personal.
Business Financials
It is best to have an accounting professional prepare regular financial statements. Having an accountant’s name on financial statements helps your business look more legitimate. If you cannot afford this monthly or quarterly, then at least have professional statements prepared once a year.
Personal Financials
You need to be filing your personal taxes, and the information has to be consistent and legitimate. Lenders will want to see it, of course, but it can affect your credibility in other ways if they are not available or correct.
Bureaus
There are several other agencies that hold information related to your personal finances that you need to know about. Everyone knows about FICO. Your personal FICO score needs to be as strong as possible. It really can affect how fundable your business appears, and almost all traditional lenders will look at personal credit in addition to business credit.
Another bureau that many do not consider is ChexSystems. They keep up with bad check activity, and it makes a difference when it comes to your bank score. If you have too many bad checks, you will not be able to open a bank account. That will cause major fundability issues.
For this point, everything comes into play. Have you ever been convicted of a crime? Do you have a bankruptcy or short sell on your record? How about UCC filings or liens?
Personal Credit History
Your personal credit score from Experian, Equifax, and Transunion can also affect how fundable your business is. If you need to increase your personal credit score, now is the time. The number one way to do this is to start making payments on-time, consistently.
Also, make sure you monitor your personal credit regularly to ensure mistakes are corrected and that there are no fraudulent accounts being reported.
Fundability: The Application Process
This piece of the puzzle affects credibility the least. It mostly affects your ability to get funding, but it is still important to understanding the entire concept of fundability. So much plays into this that you may not even think about. First, consider the timing of the application. Is your business currently fundable? Are your business name, business address, and ownership status are all verifiable? This also includes choosing the right loan product for your specific business and needs.
How Fundability Affects Credibility
If a business is considered to not be credible, it will fail. It must be credible not only to lenders, but also to customer, grantors if applying for grants, and potential investors. If any of these sense that a business isn’t 100 percent on the up and up, it will not survive.
Fundability Affects Credibility with Customers
I know. You’re thinking that no customer checks a business credit score. It’s true. I wouldn’t check on the credit score of a restaurant before going to eat there. However, I might check online reviews. If I saw something negative, I might check to see if they have a business license. I might also check for a report from the Better Business Bureau.
If there is something off somewhere, it’s going to throw up a red flag to customers. While it may not deter them completely, it could certainly make them think before frequenting your business.
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Credibility with Grantors
The same is true of those awarding business grants. While they are likely not to check your credit score when you apply for a grant, there are other aspects of fundability that can make a difference. For example, it they take a look at the grant application and it your personal address, phone number, and social security number are on there, it may cause them to pause. If they compare with a business that, all other things equal, has an EIN and a separate business phone number, that business is going to appear more legitimate.
Credibility with Potential Investors
This can get tricky. If you are looking for investors for a new business, you may not have any of the foundation laid yet because you are first looking for investors. However, consider that investors can check on a number of the fundability pieces, though they may not yet be considering it as such, to determine whether or not they want to take a chance with your business.
Fundability: How it Really Works
In truth, it isn’t so much that fundability affects all of these things, as it is that some of the same things affect your credibility with these groups and as well as how fundable your business appears to be. It’s just further proof that the sooner you begin to make your business fundable, the better off you and your business will be.
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