Business Financing with Bad Credit is Possible: 5 Business Loans You Can Get Even With Bad Credit

Bad credit business loans are kind of a mystery. You probably aren’t going to find them at a traditional bank. Rather, business financing with bad credit generally comes in the form of alternative types of financing and from alternative lending sources.

Is it Possible to Get Business Financing With Bad Credit?

If you have collateral, you may be able to get a loan, even with bad credit. Still, there has to be something to mitigate the risk to the lender. So, here are 5 options to consider.

#5 Business Financing with Bad Credit: Cash Flow Financing or Merchant Account Financing

To get cash flow financing, your cash flow must be positive and well managed. That means, you must spend it wisely and avoid taking on more debt than you can handle.

In essence, you are borrowing from part of future expected cash flows. Consequently, the payment schedule is based on projected cash flows and an analysis of historical cash flows. There may be a minimum credit score requirement. However, it will usually not be as limiting as with other types of funding.

Merchant Cash Advances

A merchant cash advance is like cash flow financing. Yet, the amount of funding and repayment is based on credit card sales. Therefore, the business needs steady credit card sales to qualify. Similarly, repayment is a percentage of daily credit card sales. Rates may be much higher than other types of funding, but credit score minimums are lower.

#4 Business Financing with Bad Credit: Equipment Financing

Equipment financing is a great option for purchasing hard assets for your business. The time in business should be at least one year, and there is no requirement to provide financial statements.

#3 Business Financing With Bad Credit: Other Collateral Financing

The amount available depends on the value of the asset being used as collateral. For this type of funding, open invoices and accounts receivable are considered assets that can be used to secure a loan.

Inventory Financing

The inventory itself serves as the collateral for the loan. There may be revenue requirements and a minimum FICO score. However, it will probably not be as limiting as with a traditional loan.

Invoice Factoring

This is an advance on open invoices, with lenders buying outstanding invoices for less than they are worth.

Honestly, the difference in what they are worth versus what the lender pays is the price you pay for getting the cash up front. It’s not technically interest, but similar. As a result, you do not get the full amount of the invoices, but you will get the cash faster. The lender will collect the full amount and keep it.

Account Receivable Financing

Accounts receivable financing is lending that uses unpaid invoices as collateral. Thankfully, there is no personal credit check. Instead, credit providers consider the payment history of your customer to determine the likelihood they will pay you.

#2 Business Financing with Bad Credit; Securities Based Financing

This is a type of collateral financing that can take many forms. The security is investments like stocks, bonds, and investment funds.

IRA Financing

In this scenario, the borrower invests part of retirement funds into the business. It allows more control over retirement plan assets as well as working capital for the business.

Stocks Financing

This type of financing uses securities as collateral, providing ready access to capital. The only restrictions are that you cannot use this for other securities-based transactions.

Bonds Financing

This type of funding is usually for a large business acquisition or real estate purchase. The value of the loan is based on the borrower’s investment portfolio. The best part is, if stocks or bonds have value over $25,000, you can get approval even with bad personal credit.

#1 Business Financing with Bad Credit: FinTech Lending

This is lending from alternative lenders. Generally, they operate online and offer less stringent lending requirements. As a result, they also have higher interest rates.

BlueVine

BlueVine offers invoice factoring and lines of credit. For invoice factoring, there are no reserves or minimums. There is a minimum personal credit score requirement of 530.

They also offer a revolving line of credit for up to $150,000. To get this, a business must have revenues of $10k or more per month, and the borrower must have a consumer credit score of 600+.

OnDeck

At OnDeck, you can get short-term loans and lines of credit. To do so, there must be annual revenue of at least $100,000. In addition, the time-in-business has to be at least 12 months, and you need a personal credit score of at least 600.

To get a line of credit the revenue and credit score requirements are the same, but the minimum time-in-business is 9 months.

Fundera

Fundera offers term loans to businesses with at least one year in business and $90k in annual revenue. The minimum credit score is 600.

They also offer business lines of credit if you have at least 6 months in business and $50k in annual revenue. Collateral may be necessary in some cases, and borrowers with lower credit scores will have higher interest rates.

To get invoice financing from Fundera, there must be at least 6 months in business and $50k in annual revenue.

Bonus: 401(k) Financing

This type of financing is not a loan. Rather, it is a 401(k) Rollover for Working Capital program. The IRS calls this type of program a Rollover for Business Startups (ROBS).

To qualify, the plan must have more than $35,000 in it, and it cannot be a plan you are currently contributing to or with a company where you are currently employed. Better yet, there are no credit score requirements.

Business Financing with Bad Credit Is Possible

It is possible to get business funding with bad credit, though it may not be the traditional type loan you are used to. These options can look different, but they all serve the purpose. If you have bad credit and need funding now, these are good options. However, to get the best rates and terms in the future, work on improving your personal credit score and building business credit. Want to know how to get started? Get a free Business Finance Assessment today!

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Is Alternative Lending from Industrial Banks Right for Your Business?

What are industrial banks? What makes them different from commercial banks? More importantly, are they a better source of lending for small businesses? Let’s find out.

Industrial Banks Are Not New

These banks are also called Industrial Lending Companies (ILCs). They have roots way back in the early 1900s. That’s when large companies sometimes offered banking services to their employees. Some of these later ventured into the commercial banking realm. In fact, you’ll probably recognize a few. For example all of the following crossed over from industrial bank to commercial.

Goldman Sachs
American Express
Merrill Lynch Bank USA
Morgan Stanley Bank
GE Capital Bank
And GMAC Bank

Industrial vs. Commercial Banks

The difference between industrial and commercial banks relates to services and structure.

Industrial	Commercial
Longer repayment periods, often for 15 or 20 years	Financing and repayment periods are typically shorter periods of time
Do not offer checking accounts. May focus on a single product line, such as auto loans or credit card payment processing	Customers can open savings, checking, or money market accounts and certificates of deposit
Offer limited services, usually installment loans for consumers and small businesses	Earn profits from interest-bearing loans they offer to customers, such as mortgages, personal loans, business loans, and more
Most are located in Utah	Located throughout the U.S.
Many do not have traditional branches	Traditionally offer a number of in-person branches
Limited to states that permit them	Exist in all U.S. states

Currently, only 7 states in the U.S. allow these institutions, and over 90% of these types of banks are in Utah.

Why Use These Banks for a Business Loan?

It’s simple really. Traditional banks often deny small business loan applications. Due to less regulation, other types of lenders can be less strict. They may be able to offer approval where traditional lenders cannot.

Are Industrial Banks Safe?

There is no oversight from the Federal Reserve. However, that does not mean these institutions are unregulated. In fact, deposits are FDIC insured. There is also oversight from the chartering state. Currently, only Utah, California, Colorado, Nevada, Hawaii, Indiana, and Minnesota charter these ILCs.

A Legit Funding Option?

They aren’t a bad option for small business funding. In fact, it may be easier to get approval. However, terms and rates may be higher. Still, to get the most out of all your business funding options, business credit is a must. Find out more about building business credit now. Schedule a free business finance assessment from one of our specialists.

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Surprise! Someone Decided to Check Your Business Credit

No one wants a surprise when they apply for a loan, whether it’s a personal loan or a business loan. Rather, the hope is that the process is smooth and ends with approval of funds. However, if you aren’t aware, a surprise is exactly what you might get when you apply for a loan and the lender decides to check your business credit.

Expect Lenders to Check Your Business Credit

Sadly, they don’t have to tell you they are going to do it either. So, the safest bet is to just assume they will. The Fair Credit Reporting Act protects you from this type of surprise when it comes to personal credit. Yet, it only applies to personal credit. In contrast, anyone can look at business credit reports.

In fact, it’s almost always part of the underwriting process for business loans. Frankly, it’s just one of the many ways lenders mitigate their risk and determine the creditworthiness of the business.

What Are Lenders Looking For When They Check Your Business Credit?

First, they need to see that your business is separate from you, the owner. Of course, they want to see that it can and will pay its obligations as well. Business credit reports are like a lender’s dirty little secret. They are made for bankers, not consumers. Actually, many business owners don’t even know they exist. Yet, credit providers want to know it all, and they will look everywhere they can think of to find all the information they can.

Impact on Funding

Unfortunately, some lenders will deny funding if you do not have business credit. To them, that makes it look like business isn’t legitimate. In contrast, a business credit profile helps build trust.

Also, even if a lack of business credit does not affect approval, it may affect how much you get. Furthermore, it can affect terms and rates.

What Can You Do?

At a minimum, you need to be sure your business has a Fundable Foundation. This includes:

Separate contact information
EIN
Business bank account
And more!

In addition, you’ll need to build business credit. To start, work with vendors that will report positive payment history after you build your FundableFoundation.

Credit Suite Business Credit Builder

The thing is, vendors that report are hard to find. Thankfully, as part of the Business Credit Builder, we offer an up to date list of vendors we know report. It is unfortunate, but not all of them do. Also, it can be hard to figure out who does. As a result, the list saves time.

Check Your Business Credit Report Yourself

If you want to avoid surprises, this is vital. I menan, you need to know what lenders will see on your reports. In fact, the Business Credit Builder program can help with this as well. As part of the program, you can get copies of the reports you need. Even better, an expert business credit specialist will go over them with you. They can help you understand where you are, guide you as to how to proceed.

Now, another option is stand alone monitoring. Of course, you can do this with each agency directly. But, with us you can monitor multiple business credit reports at a fraction of the cost.

Honestly, monitoring your business credit is the only way to know who’s reporting and when you can apply for more accounts.

Build a Business Credit Portfolio

A business credit portfolio is a cash flow pool of sorts. It includes all the different types of credit accounts you have. So, it is the total of all:

Vendor credit
Business credit cards
And business loans

In the end, a strong business credit portfolio allows you to even out cash flow, leverage business credit for growth, and keep going during tough times.

Don’t Neglect Personal Credit

Business credit doesn’t take personal credit out of the picture. Remember, lenders will look at everything. Personal credit can impact business credit.

Experian and FICO SBSS use personal credit in their business credit score calculation, and most traditional lenders will check both anyway. Still, if you have good business credit, they may not put as much weight on personal credit.

Be Prepared for Lenders to Check Your Business Credit

Lenders will likely check your business credit. Consequently, all you can do is be sure it is as strong as possible. Let us help. Find out more about building business credit now.

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Accounts Receivable Finance: How Can A Business Use Accounts Receivable As A Funding Source

Accounts receivable finance options can offer solutions to a number of business funding needs. They can help cover cash gaps or as working capital. In fact, they are a great way to get money for your business without worrying about credit score.

An Accounts Receivable Finance Option Can Be A Superior Solution for Cash Gaps

Many businesses find themselves cash strapped when their own customers are slow paying. Account receivable financing is a good solution. This is secured financing that uses your accounts receivable as security, or collateral.

Any business that carries receivables that turn over regularly can benefit. Old receivables aren’t worth as much. Think about it. If you have been waiting for payment for several months, you have a collection problem. Lenders aren’t as likely to lend against receivables that aren’t paid regularly.

Yet, if you regularly collect within 30 – 90 days, you only need cash to cover that gap. Accounts receivable financing from Credit Suite may be the perfect option.

An Accounts Receivables Finance Option Can Work Even With Bad Credit

Typically, monthly rates run between 1.25% and 5%. Loan amounts can go as high as $20,000,000. To qualify, you will not need financials or good credit.

You will need a time in business of at least 12 months. The lender will review existing receivables. Consequently, they will also consider the companies that your receivables are with. Hopefully, the companies who owe you have a good history of paying their debts. If so, your approval chances will increase substantially.

Why Credit Doesn’t Matter

Lenders are not looking for good credit from your business. Instead, they need to see that those who owe you will pay. Of course, that is because they get their money when your customer pays the invoice. Accounts receivable finance options typically offer up to 80% of the total of receivables. When your customer pays, you get the balance, usually 20%, less a fee.

Borrowers can be approved with a personal credit score as low as 500. That’s even with recent derogatory items or major collections on the credit report.

Fast Access to Cash

You can get initial approval in 3 weeks or less. Once approval is financial, you may have funds in as little as 24 hours.

You can operate your business as if you get payment much sooner than your customers actually pay. Better yet, you can do so even while offering net terms to your clients. Of course, that helps you grow and run your business more successfully

Required Documentation

Required documentations include:

Your application
3 Months of business bank statements
Your business debt schedule
And your accounts receivable report

Benefits of Accounts Receivable Finance Options

Your business gets money without having to rack up expensive debts. Furthermore, the process is easy and fast. With more cash on hand, your business will pay its own bills faster. In turn, your business credit score may improve.

Both you and your customers benefit. You collect the majority amount of outstanding invoices. In addition, you can offer your clients far more favorable payment terms directly from your business. It’s a win for everyone!

Start the Accounts Receivable Financing Process with Credit Suite

There is a 4-step process that is easy to complete. First, fill out the form for a one on one consultation with a representative. Then, submit your application. After that, there will be a soft pull on your credit report. Then, there is an easy account receivables review for approval. You can prequalify in as little as 24 hours. What are you waiting for? Get yours free Business Finance Assessment today!

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How Crucial is Business Cashflow Management to Surviving Inflation?

What is business cash flow? Is cash flow the same as profit? How crucial is business cashflow management? These are the questions on the minds of a lot of business owners. Keep reading. We have answers.

Managing Business Cashflow is Crucial

Let’s start here. You must manage business cash flow. There is no way around it. This is even more important during inflation, as you never know how far your cash will go by tomorrow. No, cash flow is not the same as profit, but it is just as vital. In fact, without business cashflow management, profit can become non-existent.

Here are some tips for managing cash flow so your business can be thriving and profitable.

Profit First

“Profit First” is a book by Mike Michalowicz. It’s a great read that lays out an innovative new way to manage cash in your business. The profit first mentality suggested that owners take their profit from cash deposits before expenses, rather than paying themselves with what’s leftover. Of course, that is a pretty severe break from what is historically normal. Typically, businesses pay expenses first and consider whatever is left to be profit. With the profit first approach, predetermined percentages of cash deposits transfer into various accounts before expenses are paid.

A Cash Pool Helps

Paying expenses last is scary for sure, especially when inflation is on the rise. However, reserves and a cash pool can help. The key is to have a business credit portfolio. This allows access to cash when you need it in the form of a cash pool, without damaging your personal credit. Access to cash is vital when you never know how far your cash might go from week-to-week. How do you create a cash pool with a business credit portfolio?

Using Business Credit to Build a Cash Pool

Using business credit to build a cash pool is key to cash flow management. There are 3 parts:

Cash on hand
Amount available to spend on vendor credit accounts
Amount available to spend on business credit cards

Vendor accounts allow your purchases on credit. Typically, they are net accounts rather than revolving. The total of all available credit on business credit cards goes toward this “pooled” amount as well. Credit cards can help protect your business, as they may limit exposure with online purchases. In addition, most have fraud protocols that can help protect you from having to pay for fraudulent charges. In contrast, using a debit card leaves very few options for recovery.

Money Management Tools

Managing funds can be overwhelming. There are a number of tools that can help streamline the process. These include companies like Brex, Divvy, Expensify, Ramp, and Lola.

Obviously, it is useful to choose a tool that also helps build business credit. There are not a lot that will do this, but some will.

Brex Business Money Management System

Brex integrates with your company’s existing accounting software. It allows for expense tracking, helps pay bills, and offers more control over spending.

The easiest way to use Brex is to open a Brex Cash account. Everyone with a Brex cash account gets a corporate card that works just like a debit card. It draws from your Brex Cash balance daily as you spend, then reports those draws as payments to Dun & Bradstreet, helping build your business credit score.

Since the Brex cash account balance is the security and the limit, there is no underwriting. They also offer a more traditional card with limits that can go up to 20x higher than that of typical corporate cards. They base approval and credit limits for this card on business financial information, including available cash, spending patterns, and more.

The entire balance will be paid monthly, so it is more like net financing than the cash card, but more flexible as well.

You can get cards for your team members and set individual spending limits, which helps manage spending. There are also virtual card options for online spending.

Divvy

Another option that helps build business credit is Divvy. It is similar to Brex with just a few differences. For example, Brex charges $5 per card for additional cards except premium accounts, which get unlimited cards. Divvy offers unlimited free cards. Other differences include:

Some software integration differences
Divvy has an offline mode
Divvy reports to the Small Business Finance Exchange

Other options for money management tools include Ramp, Lola, and Expensify. They each offer a number of benefits with various pricing options, but at this point they do not report to the business credit reporting agencies.

Business Cashflow Management is Vital, Especially When Inflation is Rising

If you do not manage cash flow, you are doomed from the start. Even if you have all the profit in the world, you cannot survive without cash. Having access to a cash pool is helpful when interest rates and prices are rising. Wondering how to start building a cash flow pool for your business. The answer is to sign up for a free business finance assessment with a Credit Suite expert today!

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Don’t Get Furious, Here Are the Fastest Business Loans to Ensure You Win the Race

The fastest business loans out there are typically the ones with the least risk to the lender. As a result, terms and rates may not be awesome, and security is often necessary. Still, if you need funds fast, there are options. You just have to figure out which ones will work best for you.

Fastest Business Loans: Why The Need for Speed?

Expenses cannot wait. This is true whether they are planned or unexpected. Unexpected cash flow issues require that you know about and have access to the fastest business loans out there.

Speed Comes at a Price

The cost of a fast business loan may include:

Higher interest rates
Shorter terms
And lower limits

What Fuels Speed?

Usually, it is not possible for traditional lenders to be speedy when it comes to lending money. However, some alternative lenders can sometimes make it happen. The process goes even faster if you meet qualifications, like good personal credit and a steady cash flow. Of course, having collateral available for security is even better.

Furthermore, the more Fundable your business the faster you can get funding. That all starts with building a Fundable foundation. The stronger the fundability of your business, the faster any loan process will go.

Fast Business Loans are Possible for Anyone

If you are a startup, have bad credit, or you have no collateral, you can still get fast business loans. Yet, it will cost more. Lower credit scores, less time in business, and lack of collateral equal higher interest rates, shorter terms, and lower limits.

Fast Loans with Alternative Lenders

Creditworthiness is not the only deciding factor when it comes to loans with alternative lenders. Other factors lenders might consider include assets, annual revenue, time in business, and more. Not only that, but the approval process is usually faster. In fact, some approve almost as soon as you hit “apply.”

They do not all have the same requirements, but generally you need to be in business for at least a year or two. Annual revenue requirements vary by lender.

Our Picks for Fastest Business Loans

Here are some of the fastest business loan options out there.

Fundbox

For Fundbox, you need at least 6 months in business and a FICO of at least 600. In addition, a minimum of $100,000 in annual revenue is necessary.

Merchant Cash Advance

This is a short-term loan from a bank, alternative lender, or credit card issuer. The Credit Suite Merchant Cash Advance program has no collateral requirements. Better yet, bad credit is not an issue. Rather, funding is based on cash flow, per review of the most recent 3 months of bank and merchant account statements. They are looking for consistent deposits showing revenue is $50,000 or higher annually.

Credit Suite Credit Line Hybrid

You can get up to $150,000 with the Credit Suite Credit Line Hybrid. This is unsecured, no-doc financing that has no collateral or cash flow requirements. Approval is based on personal credit only. However, if a borrower has bad credit they can use a guarantor that has good credit. Initially, rates can be as low as 0%.

Invoice Financing

Invoice financing can be a good option for businesses with irregular cash flow. It allows for immediate payment on invoices, covering cash flow gaps due to slow paying customers.

Equipment Financing

For the Credit Suite equipment financing program, you must have at least one year in business and a credit score of at least 680. There are no financials required, but you will need to provide details on equipment. You can get approval in as little as 24 hours.

SBA 7(a) Express Loan

For established businesses with good revenue and profitability, this is a great option. Large sums are available, and they are faster than standard 7(a) loans. In fact, it can take as little as 30 days instead of 45 to 60 days.

To Get the Fastest Business Loans You Have to Be Prepared

The more prepared you are the faster the process will be. Working now to build fundability is the best thing you can do. Find out more about how to start and these Credit Suite loans with a free business finance assessment today!

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Steps to Building Business Credit in 2022

Welcome to Your Guide to Steps to Building Business Credit in 2022

Do you want to know how to build business credit with EIN to get the financing you need to run your business? Your business setup is key. And records consistency matters. The steps to building business credit in 2022 are in this particular order for a good reason.

You Probably Need to Learn the Steps to Building Business Credit in 2022 if…

You’ve ever tried to get credit for your business but were turned down. Or you’ve heard of building business credit with EIN, but you don’t quite know where or how to start. Or you’re tired of bootstrapping your business and want it to start funding itself. And you’re ready to take your business to the next level.

Steps to Building Business Credit in 2022, Fundability, and Your Business

Business credit is credit in the name of a business. It relates to the company’s ability to pay its bills, and not the owner’s personal credit history. It is also a great way to start to get your business to pull its own weight and fund itself.

Your business’s bill-paying behavior is crucial to getting business financing at good terms, and if you can get business funding at all.

Steps to Building Business Credit in 2022 and Fundability

Fundability is the ability of a business to get funding. A lot of this power is in your hands. You can make life easier for your business and yourself, or not. Fundability is all about paying attention to details.

Continue the Steps to Building Business Credit in 2022 by Building For Fundability

A business starts with no credit profile. As a result, what’s on an application is all that’s reviewed for approvals. So your application must be strong. For businesses where the owners have poor personal credit, what’s on the application is also key. These businesses don’t seem Fundable to lenders, so build Fundability from the start. Laying a strong and proper foundation helps your business make it.

Business Name

We start with your steps to building business credit in 2022 with your business name. This is because it leads to so many other details. Check with your Secretary of State—a business name may have to be unique. Make sure your SOS has all necessary information for your company, and that it’s up to date and correct. You want to be in good standing with them, and your entity must be active. You must file annual reports and pay a fee each year to stay active.

Keep the name of a high-risk or restricted industry out of your business name. Your business can be Juan’s rather than Juan’s Consulting. There is nothing underhanded about this—it is open and honest. It can help prevent a denial from a lender.

Records Uniformity

A common reason for loan and credit card denials is the lender can’t find a business offline or online. So make it simple for lenders and credit issuers to find your business.

This means the business name on your application must match what’s online and in your Secretary of State listing. Yes, you’re going for a perfect match. Make sure it matches corporation papers, licenses, utility statements, and bank statements. Also make sure the business name and all other information is the same on every online listing you find.

This even includes using the word ‘and’ or an ampersand (&). Pick one and stick with it! Why? Lenders and credit issuers interpret differences as fraud. Keep records of where your business name is, to be sure you catch everything. And if you ever change your business name, make sure to change it everywhere.

Business Address

Your business address must be a real brick and mortar building. That is, it has got to be deliverable physical address. This can never be a UPS box or a PO Box. Some lenders don’t approve and fund unless this criterion is met.

If you want to look like a larger business than you are, use a virtual address. This can also be a good idea to hold meetings or interviews. It’s a lot more professional than doing this on your front stoop. We like Regus, Davinci, and Alliance Virtual Offices. But at least one credit issuer doesn’t accept virtual addresses.

EIN

Get a free EIN for your business at IRS.gov. Much like you have a Social Security Number, your business has an EIN. Use your EIN to open a bank account and to build a business credit profile. Take the time to verify all agencies, banks, and trade credit vendors list your business with the same Tax ID number.

Business Entity

To get financing or credit for your business you must have a business entity. Often, a corporation or LLC business entity gives you more credibility. And corporate entities by default reduce your personal liability. Other entities (like partnerships) don’t. This is because incorporating creates a separate legal entity. You must file this with the Secretary of State for your state. Make sure your entity is set up in the same state as your business address.

Industry and Risk

An early step to Fundability is setting the industry your business is in. Some industries are riskier than others. With traditional funding sources, added risk can mean stricter underwriting guidelines or even no funding at all. Risky industries tend to be where chances of personal injury or property damage are high. Or there are a lot of cash transactions, or the revenue stream is unstable. Or there’s a low barrier to entry (so owners may not be skilled or experienced). Weapons manufacturing, gas stations, and consulting all fill the bill.

Why Risk Matters

The biggest reason why risk matters has to do with funding. Lenders may hesitate to do business with high risk businesses. So, those businesses must find other solutions for financing. These can include crowdfunding, angel investors, venture capital, building credit for business and more. Still, a lot of businesses would rather work with lenders.

NAICS Codes

Choose NAICS codes for your business at the IRS website. Federal statistical agencies use these codes to classify business establishments. This is to collect, analyze, and publish data, on the American business economy. NAICS codes also identify businesses which are high risk. The IRS, lenders, banks, insurance companies, and business CRAs use them. Note: the NAICS list of high risk industries is old and there are no plans to update it.

Of course you want to be honest when choosing your NAICS code. But if more than one can apply, you need not choose the one that’s higher risk. So it pays to check and be careful when choosing. If only high risk codes work, you can change your business, to match a related but lower risk code. There is nothing underhanded or dishonest about doing this.

Business Phone and 411 Listing

Toll-free phone numbers are best. Lenders see them as a sign of business credibility. For a single owner with a home-based business, this makes the company seem bigger. It’s easy and inexpensive to set up a virtual local phone number or a toll free 800 number. Use VoIP (voice over internet protocol) to have the number ring on any cell phone or landline.

If you don’t want customers calling your home all day, don’t use a personal cell or residential phone as a business phone number. It also helps with Fundability to have a dedicated business phone number. Your phone number must have a listing with 411 for most credit issuers and lenders to approve you. Check if your record has a listing and make sure your info is accurate. No record? Then use ListYourself.net to get a listing.

Business Licenses

Contact state, county, and city government offices. See if there are any necessary licenses and permits to operate your type of business. Licensing requirements differ, depending on state, town, and industry. Being licensed builds credibility in your business. This can help you get more customers.

Web Domain and Professional Website

Lenders and credit issuers research your corporation on the internet. It is best if they learn everything straight from your corporate website. Not having a company website can hurt your chances of getting corporate credit. It should be professional, with helpful info for anyone finding your business online.

Buy web hosting from a hosting company. Your domain should be your business name, if possible. You need a company email address for your business. This email must be on the same domain as your website. Use a professional email address like yourname@yoursite.com. This is professional and helps your chances for approval from a credit issuer. Do not use Yahoo, AOL, Gmail, Hotmail, or similar kinds of email.

Business Bank Account in the Business’s Name

This is one of the more crucial steps to building business credit in 2022. You must have a bank account devoted to nothing but your business. The IRS does not want you commingling funds. Make accounting easier and reduce the risk of audit at tax time. Keep personal and business funds separate. A separate bank account makes it easy.

Being able to offer more bank account records helps you get larger business loans. It helps to increase your borrowing potential.

Business Merchant Account

Opening a business merchant account is a smart way to help your business. Now your business can accept credit and debit cards. Studies show that customers spend more if they can pay by card. This also increases your finance options. It tends to be more secure, too.

Get Set Up with Business Credit Reporting Agencies

To start really establishing business credit, go to D&B’s website and look for your business. If you can’t find it, get a free D-U-N-S number on the D&B site. A D-U-N-S number + 3 payment experiences leads to a PAYDEX score. You need a D-U-N-S number to start building business credit. Once in D&B’s system, search Experian and Equifax’s sites for your business. Now that your business is all set up, it’s time to start building business credit.

Steps to Building Business Credit in 2022 from the Ground Up

The steps to building business credit in 2022 lead directly here. Start with vendor accounts. This is a proven way to start building business credit. Each of these steps to establish business credit, and every credit issuer can help your business. It’s meant to help you qualify for business credit cards with EIN only that you’ll want to use. This isn’t building for the sake of building or to increase a number. These credit issuers have what your business needs to succeed. Keep building–your time in business helps.

Starter Vendor Credit

Starter vendors are open to working with most businesses, even startups. Make sure vendors report to the CRAs—many do not. Vendors that report do so within 60 days. They help you build your business credit profile and score.

Terms vary depending on the vendor, but they tend to be Net 30. This means you have 30 days to pay in full. At least one doesn’t accept virtual offices. And you often need a D-U-N-S and an EIN at least. But you don’t need collateral, good personal credit, or cash flow.

Business Credit Building with Vendor Accounts

One of the best things about vendor credit is that it’s often not from a bank. As a result, 31 CFR § 1010.230 (a 2018 federal regulation) does not apply. It requires that anyone in a business with at least a 25% stake or control must provide their Social Security number on a loan application. No Social Security Number means issuers must decide on your credit application with EIN instead of SSN. For any SSN field if you’re not including your SSN, don’t put ANY other number in there. That violates two federal laws!

Add payment experiences from three vendors. Once they report to business CRAs like Dun & Bradstreet, you start qualifying for more credit. But keep in mind, any cards issued by banks fall under federal regulations.

For starter vendors, check out our starter vendor research. And for the most up to date info, confirm on the vendors’ sites.

Business Credit Cards with No Personal Guarantee

As you build exceptional business credit and pay your bills on time, credit issuers trust you more. You get higher limits and better terms, and start to get business credit cards with no PG.

Retail Credit

Retail credit comes from major retailers like Staples. Buy everything from office supplies to power tools. Retailers check if business info is uniform everywhere and if your business has proper licensing.

There can be a time in business requirement. You may need to have at least a certain number of employees. You may have to meet a minimal annual sales amount. Terms can be revolving. You need at least 3 accounts reporting to business CRAs.

Fleet Credit

Use fleet credit to buy fuel, maintain vehicles of all sorts, and repair vehicles. Even businesses which don’t have big fleets can still benefit. These are often gas credit cards.

There may be a time in business requirement. But if your business doesn’t meet it, you may be able to instead offer a PG or give a deposit to secure the credit.

Business Credit Cards

Business credit cards are more universal-type credit cards, like MasterCard. Use them almost anywhere. These cards may even have rewards programs or offer other valuable perks.

Terms can be revolving. Often you need at least 14 accounts reporting to business CRAs. There can be longer time in business requirements. You may need to have at least a certain number of employees. Qualifying for bank credit cards means you can meet most if not all the requirements for other kinds of financing.

Beyond the Steps to Building Business Credit in 2022: A Quick Look at Business Financing

Incurring debt and then paying it back on time helps you build business credit. Startups tend to not qualify for bank loans or most SBA loans. But they may qualify for loans from alternative lenders. For startup owners with good personal credit, our Credit Line Hybrid is an excellent choice. You can build business credit and finance a business at the same time.

Our Credit Line Hybrid

A credit line hybrid is a form of unsecured funding. Our credit line hybrid has an even better interest rate than a secured loan. Get some of the highest loan amounts and credit lines for businesses. Get 0% business credit cards with stated income. Many report to business CRAs—build business credit at the same time.

You need a good credit score or a guarantor with good credit for approval (FICO score of at least 680). No financials necessary. Loans go up to $150,000. Note: some cards may report on your personal credit.

Monitor Your Business Credit at D&B, Experian, and Equifax

Yet another aspect of the steps to building business credit in 2022 is monitoring your business credit reports. Know what is going on to spot trends and put on the brakes if you must. If there are errors, you can dispute them. And you’ll stay focused on the process because business credit building never ends. But monitoring can get pricey fast.

Monitor Business Credit at D&B, Experian, and Equifax for Less

But there’s a solution! Did you know you can get business credit monitoring for all 3 of the big business CRAs, and all in one place—for less? Credit Suite offers monitoring through its Business Finance Suite (through Nav). See what credit issuers and lenders do. So you can improve your scores and get the business credit and funding you need.

Improving Your Reports

Paying off accounts on time always pays dividends, as does avoiding bankruptcies. Avoid lawsuits if possible. It’s always wise and helpful to be correcting errors as you spot them.

Use Your Business Credit History to Get Higher Credit Limits

Not every cardholder gets a credit limit increase if they ask for one. Credit issuers want to know you’ll pay them back. A good payment history assures a credit issuer that you’ll pay your debts. You’re less risky to them, so they feel they can extend more credit to you.

As you qualify for credit limit increases, you’ll get new offers for more credit. And as you continue to show how responsible you are in paying business debts, approvals will come easier. Credit issuers trust an ever-increasing business credit score.

Get the most favorable funding by paying all bills on time. This gets your business a PAYDEX score of 80. You’ll also get an Equifax Credit Risk Score of 90 or better. And you’ll get a good FICO SBSS score, driven (in part) by on-time payments and business credit history. For Experian, historical behavior (payment history) is 5—10% of the total score.

Steps to Building Business Credit in 2022: Takeaways

Business credit building is a process. Performing the steps in order saves time, money, and aggravation. Get the best scores by paying your bills on time, every time. And monitor your reports to spot errors and fix them ASAP.

The post Steps to Building Business Credit in 2022 appeared first on Credit Suite.

How to Maximize Your Business Loan Approvals

Do You Know How to Maximize Your Loan Approvals?

Did you know that you can maximize your loan approvals? It is actually possible to increase your chance of getting business loans? Fundability is a big part of it—and it helps you get more money when you get an approval. Paying attention to small details can make a BIG difference. Building business credit can also help.

You Can Get More and Better Loan Approvals, Even if…

You’ve been turned down when you’ve tried to get business loans, and you don’t know why. Or you got an approval but didn’t get as much as you wanted and needed. Or your business is getting to a point where you need more financing to get to the next level. Another possibility is that you’ve exhausted other sources of financing. Perhaps you’ve got an intriguing offer or opportunity to help and improve your business. But you can’t take advantage of it until you have more money.

If any of those apply, then this blog is for you.

Business Loans and Your Business

Of course, every business needs money. And a business loan may end up being your best option. But approvals aren’t guaranteed, and you might not be able to get an approval for as much as you want. What do you do?

The Three Cs

There are three Cs which lenders are looking for when determining if they should approve you for a loan:

Credit (business or personal)
Cash flow
Collateral

And there’s a fourth, character. It represents more of your willingness to pay back a loan if you have the means to do so.

Business Loans and Fundability

Lenders will also be looking at what’s called Fundability. This is the ability of your business to get funding. You have control over a lot of its nuances and details, and they will also help you get loans.

Start with a Practical Approach to Business Loans

You’ve got three missions when it comes to business loans. The first is to get an approval. And the second and third are to get as much money as you can, at the best terms you can get. Hence there are a few concepts to keep in mind as you apply for business loans.

Check requirements carefully and don’t apply if there’s no way you can get approval. Recognize short terms don’t have to be a deal breaker, particularly if you don’t have a lot of time in business. Consider how much money you need and be realistic about that. Even if you can get more money than you need, avoid scope creep and biting off more than you can chew.

Have a plan and try not to search for loans while under duress. Emergencies happen, but they should be rare exceptions, not the rule. Line up your ducks and prepare to apply for a loan before you need one. This will raise your success rate.

Making Collateral Work for You for Business Loan Approvals

Lenders are always trying to mitigate risk. As a result, they love collateral. Collateral gives lenders a recourse if your business defaults on the loan. Collateral can take several different forms.

Stock Financing

Many people are sitting on retirement funds or securities. Stocks and bonds make great collateral. Securities-based lending provides ready access to capital. Use it for almost any purpose, like buying real estate or investing in a business. But you can’t use it for other securities-based transactions like buying shares or repaying margin loans.

Terms and Qualifying

You continue to earn interest on stocks pledged as collateral. Closing and funding takes less than 3 weeks. Rates can be as low as 1.6%, but you will have challenged personal credit.

Bonds Financing

Get securities-based lending for bonds through large financial institutions and private banks. These kinds of loans are good if you want to make a large business acquisition. They are also good if you want to execute large transactions like real estate purchases.

Lenders determine the value of the loan based on the borrower’s investment portfolio. In some cases, the issuer of the loan may determine eligibility based on the underlying asset. It can end up approving a loan based on a portfolio of US Treasury notes rather than stocks.

Terms and Qualifying

You can use most investment-grade corporate, treasury, municipal, and government agency bonds. You keep all the interest and appreciation from your securities. To qualify all the lender will need is a copy of your two most recent securities statements. If your stocks or bonds are worth over $25,000, you can get approval. This works even with severely challenged personal credit.

You can also put up 401(k)s and IRAs can as collateral. In fact, the IRS ROBS (Roll Over for Business Startup) plan makes it easy to tap into an IRA or a 401(k). With ROBS, your retirement funds roll into a new plan, and that plan invests in your business!

401(k) Financing

It is not a loan. You need not pay an early withdrawal fee or a tax penalty. You put the money back by contributing, like with any 401(k) program. As a result, you won’t lose your retirement funds. This is a 401(k) Rollover for Working Capital program.

Per the IRS, a ROBS qualified plan is a separate entity with its own requirements. The plan, through its company stock investments, owns the trade or business. This is rather than the individual owning the plan. Hence some filing exceptions for individuals may not apply to such a plan. This type of financing isn’t a loan against, your 401(k), so there’s no interest to pay. This is a movement or change of custodian.

Terms and Qualifying

Low rates, often less than 5%. Your 401(k) must have more than $35,000 in it. Can usually get up to 100% of what’s “rollable” within your 401(k). The lender will want a copy of your two most recent 401(k) statements.

You can get 401(k) financing even with severely challenged personal credit. The 401(k) you use cannot be from a business where you are currently employed. You cannot be currently contributing to it.

IRA Financing

Like 401(k) financing. In as little as 3 weeks, you can invest some of your retirement funds into your business. This gives you more control over the performance of your retirement plan assets. And it gives you the working capital you need for business growth.

Terms and Qualifying

In general, you will work with a CPA. They will help you roll over a non-contributing and qualifying account. This allows for cash out of half, or $50,000, whichever is less. If applicable, the CPA will structure a self-directing IRA for the remaining funds.

Making Personal Credit Work for You When Seeking Business Loan Approvals

Lenders love good personal credit scores. A high FICO score is an assurance that you pay your bills. What if you don’t have such good personal credit? Then work with a guarantor or a credit partner who does.

Leverage Good Personal Credit and Apply for our Credit Line Hybrid

A credit line hybrid is a form of unsecured funding. Our credit line hybrid has an even better interest rate than a secured loan. Get some of the highest loan amounts and credit lines for businesses. And get 0% business credit cards with stated income. These report to business CRAs, so you can build business credit at the same time. This will get you access to even more cash.

Terms and Qualifying

You need a good credit score or a guarantor with good credit to get an approval (a FICO score of at least 680). No financials necessary. Loans go up to $150,000. You must have open revolving accounts now on your credit report. Balances must be below 40% of your limits.

Making Business Credit Work for You For Business Loan Approvals

Business credit is credit in the name of the business and not its owner. An owner with bad personal credit can still have good business credit. A good business credit score provides another assurance to a lender. And since it’s mostly based on repayments, it’s a very reliable indicator for lenders.

Business credit doesn’t come to you automatically; you must work to build it. As you plan for maximizing your loan approvals, it makes sense to build business credit. Vendors are a large part of the process

Vendor Credit

Starter vendors are open to working with most businesses, even startup ventures. Make sure vendors report to the CRAs—most don’t. Vendors tend to report to the business CRAs within 60 days. They help you build your business credit profile and score.

Terms and Qualifying

Terms will vary depending on the vendor, but they tend to be Net 30. Most will want your business to be set up right. This means an EIN, a business bank account, a separate business address, and more.

With vendor credit, you will not need collateral, good personal credit or even cash flow. Buy what you need on credit, pay the bill on time, and your business credit will improve. And, in turn, your chances for loans, and for higher amounts, will also improve.

Making Cash Flow Work for You for Easier Business Loan Approvals

Sometimes, the best loan isn’t a loan at all. Do you have as-yet unpaid invoices from credit card sales? Have you been in business for at least 6 months? Then your best financing product might be merchant cash advances.

Merchant Cash Advances

An MCA technically isn’t a loan. Rather, it is a cash advance based upon the credit card sales of a business. A small business can apply for an MCA, and have an advance deposited into its account quickly. So you can offer Net 30 terms but need not wait a month for payment.

This can be ideal if you accept credit cards and want fast and easy financing. Get funding, based on cash flow as verifiable per business bank statements—and no more. Hence lenders in general will not ask for any burdensome document requests.

Terms and Qualifying

A lender will review 3 months of bank and merchant account statements. They want consistent deposits. Deposits must show revenue is $50,000 or higher per year They will also verify time in business of 6 months or more.

You can’t have a lot of Non-Sufficient-Funds (NSFs) on your bank statements. And you can’t have a lot of chargebacks on your merchant statements. Plus, you need more than 10 deposits in a month going into your bank account. In essence, you have to show you can manage your bank and merchant accounts well. You need a decent number of consistent credit card transaction deposits each month.

Fundability and Business Loan Approvals

Fundability consists of over 100 separate factors. These factors help your business get loans and build business credit. And they can assure your customers and prospects. Let’s concentrate on aspects of Fundability relating to business loans and lending.

Fundability and the Application Process

The application process and application submission is a pillar of Fundability. Application submission consists of eight separate elements. Details like these can make a real difference in your chances of approval.

Verifiability

The first three details are all about verifiability. Can a lender verify these details? They are business ownership, company address, and business name.

You can help make these details readily verifiable. So make sure your business details are consistent everywhere. This means online places like your website. And it means offline places like the name and address on your business licenses (if necessary).

When details are consistent everywhere, lenders run a quick search for your business. They’ll find a match and that gets you further along in the process. Because if they don’t find a match, they’ll deny your application as fraud. This is regardless of your character and intentions.

Choosing a Better Lending Product

Some lending products may work better for your business than others. For example, a startup business with little consistent cash flow. Hence, it should concentrate on a product where cash flow is less of an issue if it’s an issue at all. Or you may find a loan isn’t your best choice—a line of credit might suit your needs better.

Choosing a Lender

With the internet, your lender doesn’t have to be around the corner anymore. The internet also means you can do some sleuthing. The lender where you have your business bank account should be one possible choice. But also take to Google and search for (your industry) business loans. E.g. cannabis business loans or nail salon business loans.

If you’ve never heard of a lender, check the Better Business Bureau and Yelp first. Look for complaints and lawsuits so you can assure you’re dealing with a reputable lender. A lender which specializes in your industry is a lot more likely to say ‘yes’. They know if your business has potential even if your balance sheet says otherwise.

Application Timing

Applying for a loan right after your business shows an uptick in profits, can help make a ‘yes’ a lot more possible. This is a lot harder to do if you’re reacting to a crisis, rather than proactively planning for the future.

Loan Negotiations

Did you know you can negotiate business loan terms? You can negotiate the interest rate, prepayment terms, and even if you must provide a personal guarantee. The means of delivering your application can also matter. This is because in person applications are much more conducive to negotiations.

Fundability Helps You Maximize Business Loan Approvals

The amount of money you can get often ties to a few more aspects of Fundability, as are the repayment terms you can get. These are details like how long you’ve been in business. Can produce all necessary business tax returns?

If your business is higher risk than others, that affects approvals. Your business name, industry, and/or NAICS and SIC codes can signal that. Also, if your business has UCC filings or liens against it. If your business has been through bankruptcy (or you have), it will affect your chances. As will are any judgments against it. If you have a criminal record and/or owe child support, those will also affect your chances.

Maximizing Your Business Loan Approvals: Takeaways

Maximizing your loan applications means increasing your chances of getting business loan approvals. Improve your chances with good personal and/or business credit. Provable cash flow and having valuable collateral to offer also help. You can also improve your chances, and maximize how much you can get, by building Fundability.

The post How to Maximize Your Business Loan Approvals appeared first on Credit Suite.

What the SBA Wants to See on Your Business Tax Returns

The Small Business Administrations, Your Business Tax Returns, and You

For businesses seeking financing from the SBA, understanding all your requirements is necessary. Here’s what the SBA wants. And here’s how the SBA educates entrepreneurs on how to file their business tax returns. Because what the SBA teaches business owners is what they want to see.

Your Business Tax Returns

Filling out your business tax returns right is Job One. The SBA suggests entrepreneurs work with accounting and/or tax professionals. Well-prepared, thorough forms do more than help you get an SBA loan. They also help keep your business from an audit.

Necessary Business Tax Returns Documents for an SBA Loan

You must complete and sign IRS Form 4506-T. Each principal owning 20% or more of the business must sign. Every general partner or managing member must sign. Any owner with more than a 50% ownership in an affiliate business must sign. Affiliates include business parent, subsidiaries, and/or businesses with common ownership or management. Provide complete copies, including all schedules, of the most recent Federal income tax returns for the business. Or provide an explanation if not available.

Potential Extra Tax Documents Needed for an SBA Loan

These include complete copies, with schedules, of the most recent Federal tax returns for each principal owning 20% or more of the business. You also must supply them from each general partner or managing member. And supply them from each affiliate if any owner has more than a 50% ownership in the affiliate business. Affiliates include, but are not limited to, business parents and subsidiaries. Plus other businesses with common ownership or management. If the most recent return is not filed, a year-end profit and loss statement and balance sheet for that tax year is acceptable.

For 2020/2021 PPP Loans

You did not have to file 2019 Taxes before applying for the loan. But businesses had to submit IRS form 4506-T. This gives the SBA access to historical business tax returns. Owners with more than a 50% stake in an affiliate business must sign the form. Principals owning 20% or more of the applicant business much also sign. Each partner or managing partner must sign.

Tax Forms that Partnerships Need to Fill Out for SBA Loans

Files Form 1065, US Partnership Return of Income – information only. Each partner gets a Schedule K-1 (Form 1065): Partner’s Share of Income Credit, Deductions, etc. (See page 1-13, Pub 1066). Partner completes Schedule E of Form 1040. Subject to Self-Employment Tax. Use Publication 541.

Partnerships must have a written partnership agreement. It’s best if an attorney drafts it, as accountants cannot give legal advice. The IRS advises partners to spend the money now for a proper set-up. This will save long and expensive battles in the future.

Tax Forms that Corporations Need to Fill Out for SBA Loans

S Corporation (S-Corp) – Files Form 1120S. You can elect to be taxed like a partnership. Use Form 2553 to make this election. You will need to file Form 2553 by the 15th day of the 3rd month for the year, to be treated as an S Corp. An S-Corp does not pay tax on income from daily operations.

S Corporations

All income, losses, deductions, and credits an S-Corp generates pass through to shareholder(s). Shareholder gets Schedule K-1 (Form 1120S): Shareholder’s Share of Income, Credits, Deductions, etc.

The shareholder completes Schedule E of Form 1040. An S Corporation is NOT Subject to self-employment tax (SE Tax). But wages are subject to FICA. Also check Form 1120S Instructions and Form 2553.

C Corporations

A C corporation files Form 1120 US Corporation Income Tax Return. The law treats corporations as legal entities, treated apart from their owners. This affords individual liability protection. Shareholders get dividends with a 1099-DIV form. Employees get Form W-2.

Employees of a C corporation are NOT subject to self-employment tax (SE Tax). But they will still have to pay income tax on their earnings. Corporate shareholders should check Publication 542. Note: there is possible double taxation with a C corporation

Tax Forms that Limited Liability Companies (LLCs) Need to Fill Out for SBA Loans

File a Certificate of Formation with SOS to form an LLC. This is not a federal tax entity (see Publication 3402). An LLC with more than one member is often considered a partnership. A single member LLC tends to be a “Disregarded Entity” and it files as Sole Proprietor.

An LLC can elect a C-Corporation treatment (using Form 8832), or an S-Corporation (using Form 2553). LLCs are popular. Owners have limited personal liability for the debts and actions of the LLC. This is without many of the formalities of a corporation.

Tax Forms that Sole Proprietorships Need to Fill Out for SBA Loans

This is the most common entity type. 23 million taxpayers filed as Schedule C in 2014. It is the simplest and cheapest form of business entity. You form it with one owner. You will need to file a Master License Application from the Dept. of Revenue (DOR) for your state.

In sole proprietorships, income flows to the individual via Schedule C.

One major drawback is the owner cannot be on the payroll. You will need to budget with care. The owner makes estimated tax payments. Per the IRS, anyone considering a sole proprietorship should talk to accounting and/or tax professionals. See if this setup is right.

Record Keeping Requirements for All Businesses

Records must support income and deductions that show amount, time, place, purpose. You must keep receipts, sales slips, invoices, bank deposit slips, and canceled checks. You must also keep other documents to substantiate income and deductions. Use a separate bank account for business.

Accounting Methods the IRS Accepts

The IRS accepts cash accounting and the accrual accounting methods.

With the cash accounting method, you report income when you get it. And you deduct expenses when they are actually paid. But it’s good for no more than $1 million in sales. This works for most businesses.

With the accrual accounting method, you report income when you earn it. This is regardless of when paid. And you deduct expenses when incurred regardless of when paid.

For both methods, see Publication 538.

The SBA and IRS Rules

The SBA of course insists that you fill out all forms right, report all income and losses. Take nothing but the deductions to which you’re entitled. The SBA provides detailed information on what it expects to see on your business tax returns. It’s identical to what the IRS expects to see on your business tax returns.

Taxes and Your Business Income

This includes all income your business gets unless excluded by law. This means income from sale of product or for your services. This includes bartering (Form 1099-B). You must include other types of income. The IRS advises business owners to keep good records.

Taxes and Your Business Expenses

To be deductible, expenses must pass certain tests. First, the expense must be ordinary. It must be necessary to your business. You must incur and/or pay it.

Amortizing Startup Costs

You can choose to amortize some startup costs for setting up your business over a period of 180 months (15 years). A start-up cost is amortizable if it meets both these tests. It is a cost you could deduct if you paid or incurred it to operate an existing trade or business (in the same field). And it must be a cost you pay or incur before the day your active trade or business begins. There is a $50,000 limit.

Car and Truck Expenses

If you use no more than four vehicles at the same time for business purposes, you may use the standard mileage rate. Use the standard mileage rate the first year. Otherwise, you can’t use the standard mileage rate on a vehicle after the first year of business use. In later years you can alternate between standard mileage and actual expenses. But if you used actual expenses in the first year you can NOT alternate. Publication 463: Travel, Entertainment, Gift and Car Expenses covers this.

But commuting expenses are not allowed. Deductible local transportation expenses may include getting from one place of work to another. They can also include visiting clients or customers; and going to a business meeting.

Depreciation

Depreciation is an annual deduction. The IRS allows it to recover the cost of your investment property beyond the current tax year. It is a decrease in the value of property over time. You must use the property in the business. It must have a determinable life longer than 1 year. Must be something that wears out, decays, gets used up, becomes obsolete or loses value from natural causes.

You cannot depreciate:

Land
Intangibles (like business good will)
Inventory
Leased property
Property outside the US
Property used for business less than 50% of the time

Travel Expenses

Ordinary and necessary expenses for travel away from the business, not your home. Travel expenses include:

Fares (air, taxis, etc.)
Baggage and shipping
50% of meals
Lodging

Entertainment Expenses

These must be ordinary and necessary. They must meet either the Directly Related or Associated Tests. No more than 50% deductible whether you use Per Diem or Actual. Must allocate business part. Keep receipts that show time, place, and purpose of entertainment (includes meals). See Publication 463: Travel, Entertainment, Gift and Car Expenses.

Business Use of Your Home on Your Business Tax Returns

Many businesses start out of homes these days. The SBA says the IRS puts limitations on deductions. Good recordkeeping, as always, is necessary. But some deductions are possible.

See Form 8829, Expenses of Business Use of Home, and Publication 587, Business Use of Home. Your business use of your home must pass certain tests for acceptance.

Exclusive use means you must use a specific area of home for trade or business and nothing else. But there is an exception for storage and day care facilities. Regular use means using an area on a regular basis. Trade or Business use means using an area in connection with a trade or business.

Business Use of Home Test

To declare part of your home as being for a business use, you must meet these criteria. You must use a part of your home exclusively on a regular basis as your principal place of business. Or it can be a place of business your patients, clients, or customers use to meet or deal in the normal course of your business. Or it can be a separate structure you use in connection with your business.

Self-Employment Tax

The self-employment tax is Social Security and Medicare taxes. Working for someone else they pay half, and you pay half. But working for yourself you pay it all. Sole proprietors and partners may be subject to the SE Tax. If your net profit from self-employment is $400 or more, you must file Form 1040, Schedule SE, Self-Employment Tax.

Avoiding Tax Penalties—and Doing the Right Thing with Your Business Tax Returns

File an accurate, on time, and correct return. There is a 20% accuracy related penalty if you understate tax liability due to:

Negligence
Substantial valuation misstatements
Substantial understatement of tax

There is a 75% civil fraud penalty. For felony criminal fraud it’s a combined penalty of 5%/month, and a 4.5% late filing and 0.5% late payment.

An accurate, on time, and correct return might not get you an SBA loan, by itself. But an inaccurate, late, and/or incorrect return will tank your application for an SBA loan. Not to mention having to pay penalties. So work with a tax or accounting professional. Get your business tax returns right the first time, every time.

Takeaways

In short, the SBA wants to see what the IRS wants to see. There are a variety of forms and schedules to cover a multitude of circumstances. Understand depreciation. Learn how to declare your home as your place of business. Both will help you prepare more accurate and complete business tax returns. And work with a tax or accounting professional to assure your business tax returns are as good as they can be. This helps you get SBA loans and avoid penalties.

The post What the SBA Wants to See on Your Business Tax Returns appeared first on Credit Suite.

How Tax Write Offs Can Impact Your Ability to Get Business Lending

The goal when filing business tax returns is to pay as little as possible. This is a worthy goal, and tax write offs help serve this purpose. However, it’s important to remember that lenders will ask for financials. If business financial statements are not available, they will look at business tax returns. If it looks like your business is not profitable, you will not be able to get funding, or you may get less funding.

Taxes, Tax Write Offs, and Fundability

To understand how tax write offs can affect your ability to get business funding, you need to understand the relationship between taxes and Fundability.

There are many factors that affect the overall Fundability of a business. Credit Suite identifies 23 core principles of Fundability. We break these down further into 125 Fundability factors, and one of these is “Business Financials.” Business tax returns, in turn, are one of the factors included in this principle.

Business Tax Returns

According to the IRS, except for partnerships, all businesses have to file an income tax return. There are different forms, and the one you need to use depends on the business structure you choose. This could be a sole proprietorship, corporation, S-corp, or LLC.

Business Tax Returns 101

Business taxes are not exactly the same as personal income tax. Here are the major differences you need to know.

Estimated Tax

Federal business income tax is pay-as-you-go. You have to pay the tax as you earn or receive income. Usually, this is done on a quarterly basis. Sole proprietors and S-corps that expect to owe tax of $1,000 or more when they file their business tax return, will generally need to make estimated payments. Corporations that expect to owe $500 or more will need to pay estimated taxes as well.

Documentation Differences

There are also differences in required documentation. For example, you have to track expenses, asset purchases, income and more. As a result, it’s best to hire a bookkeeper or bookkeeping agency. At least choose a great accounting software option. Then you can print reports at the end of each tax period and just hand them over to your tax preparer.

Tax Preparation

Don’t try to do this on your own. Splurge on a tax professional. The cost will be well worth the time and money you save, and you’ll reduce the chances of a mistake. They will have more in depth knowledge of the tax write offs you can take legally and how they will help you. They can also help if you end up in an audit.

Your tax preparer should not be the same person as your bookkeeper or accountant. With smaller businesses the same firm is ok, but it is not wise for the same person to do both. This helps deter and detect fraud. Even if you have an in-house bookkeeper or accountant, they can get ready everything the tax preparer needs. However, they should not complete the tax forms themselves.

Cash vs. Accrual

You will need to choose your method of accounting. You can choose either cash or accrual basis accounting. Cash basis includes income as revenue when it is collected. Expenses are deducted from revenue when they are paid.

With accrual basis accounting, you record income when you earn it. Consequently, you count expenses when you incur them.

For example:

Using cash basis accounting, you don’t necessarily count revenue as soon as an item sells. You count it when you get the cash for it. Unless the buyer pays cash on the spot, you do not record revenue until the customer pays the invoice. As a result, there are no receivables carried on the books.

With accrual basis accounting, you record revenue at the time of sale. Then, a receivable for the invoice goes on the books. New businesses may have more unpaid expenses and more uncollected income at the end of the year. Taking those outstanding expenses as a deduction can reduce tax liability. This accounts for many of the most common tax write offs.

Later, when your business is profitable, your outstanding receivables will likely be higher than outstanding expenses or payables. If you are using the accrual method, you will be recording more net income, and paying more in taxes versus the cash method. Be sure you consider this when making your decision.

The decision of which method to use is for the life of the business. However, there are some exceptions that allow for changes to be made. In contrast, businesses with larger revenues or that carry inventory don’t even have a choice. They must use the accrual method of accounting.

Depreciation Decisions

Depreciation is one of the most common tax write offs, but there are some decisions to be made. Discuss them thoroughly with your tax preparer to ensure you are doing what is best for your business.

The first choice will be about first year depreciation. Typically, depreciation on assets is written off over the course of five to seven years. But the IRS allows a first year deduction of up to $100,000 for equipment and most furniture instead. This is an election most business owners take. If you do not make a profit, you cannot take the $100,000 deduction. Yet, you can carry it forward to a year that you do make a profit.

In the beginning, a slower depreciation method may work better. You can save the deductions for later, when there will likely be more income and you will probably be in a higher tax bracket. Again, a tax professional can help you make that decision.

Tax Write Offs and Fundability

Now to the real question. How does all of this affect your ability to get business financing? For a business to be Fundable, it needs to be fully recognizable as an entity separate from its owner. There is a lot of crossover between Fundability and business taxes. Entity choice is one example.

Entity Choice

You can choose whichever entity you want for your taxes, but you do have to choose one. That choice will depend on your budget and needs for liability protection. Your tax advisor will be able to help you decide. However, it’s important to note that the decision you make affects Fundability as well.

For Fundability purposes, operating as a sole proprietorship or a partnership doesn’t work. Your business needs to operate as a completely separate entity from you as the owner. To do that, you need to choose to operate as either an S-corp, LLC, or corporation.

Fundability, Business Tax Returns, and the EIN vs. SSN Saga

If you are operating as a sole proprietor, it is possible to use your SSN to file your business tax return. You should not file a business tax return using your Social Security Number for maximum Fundability. You need to use an EIN, and you can get one for free at IRS.gov.

How Tax Write Offs Can Affect Fundability

Business lenders will not always request business tax returns, but what if they do? It’s not likely that they will if you have complete, professionally prepared financial statements. Still, if tax returns are the only financials you have for your business, that is what they will use. This poses a difficult dilemma.

This is a problem because you want to make it look like you made as little money as possible on a tax return to avoid paying any more than necessary in taxes.

Typically, even if tax returns are on a cash basis, financial statements are prepared on an accrual basis. If all the lender sees is your cash basis business tax return, and it looks like you didn’t make a profit, they are going to be less likely to approve funding. And you can imagine why they will be likely to approve less funding.

Personal Taxes Can Impact Your Ability to Get Business Funding As Well

Even if they do not look at business tax returns, most if not all traditional lenders will usually look at personal financials separately. This is because almost all of them require a personal guarantee.

When they do, they will note how you get money from the business. Do you pay yourself a salary? Do you just take funds as needed? This may, again, lead to questions that require them to look at your business tax returns.

Tax Write Offs Can Impact Your Ability to Get Financing

Tax write offs are a great way to save on taxes. They are totally legal and it would be ridiculous not to take advantage of them. However, be certain you have someone preparing professional financial statements at the same time. These documents serve two different purposes. Tax returns are to show the IRS how much taxable income you have. Financial statements are meant to show profit, and that is what lenders want to see.

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