Tag: Business

3 Surprising Ways Personal Financing Affects Business Funding

It makes sense that, if you do not separate your business credit from your personal credit, you could run into issues. Most get that if they fund their business with their personal credit, their personal finances could suffer. But, did you know that even if you have separated everything beautifully, the reverse can still be true? Here are 3 ways personal financing can affect your ability to get funding for your business.

How Does Personal Financing Impact Business Lending?

Some business funding options consider your personal credit score no matter what. For example, all traditional loans, SBA loans, and even the Credit Line Hybrid focus on personal credit score. Generally, they want to see a personal score above 650, though there are exceptions.  The issue goes beyond this however.

Factors that Affect Personal Credit

The number one factor that affects personal credit is paying on time.  However, some other factors that can affect your personal credit score include:

  • How many accounts are reporting payments?
  • How long have you had each account?
  • What type of accounts are they?
  • How much credit you are using on each account versus how much is available

This last point is important. It includes everything from credit card debt to personal financing for auto loans and mortgages. If you max out your limits on everything without paying it down significantly, your personal credit score will be negatively impacted. All of this means, you could be making all payments on time and still run into issues.

#1:Your Personal Credit Score Can Affect Your Business Credit Score With the Business Credit Reporting Bureaus

It’s true. Some business credit reporting agencies take your personal credit into account. They use your personal credit in the calculation of the business credit score they release to lenders. This means if your personal credit score is bad, your business credit score could suffer.

Experian Business Credit

Experian is different from the other two main business credit reporting agencies in one very important way. Of course, business credit is credit in a business’s name. It depends on how well a company can pay its bills. Yet, Experian uses both consumer and business credit information to gauge risk. They find a blended score is more accurate and predictive.

FICO SBSS

This score is becoming increasingly common and it’s a lot trickier. FICO SBSS stands for FICO Liquid Credit Small Business Scoring Service. Unlike your personal FICO, the SBSS reports on a scale of 0 to 300. The higher the score the better, and most lenders demand a score of at least 160.

The scoring model for this score is not the same as other business credit scoring models. It uses your business and personal credit scores, but it does so much differently than Experian.

The  formula for calculations is proprietary and well-guarded by FICO. They do not make the information public. Unlike the other business credit reporting agencies, you cannot request a copy of your report or see your score. Here’s why.  Surprisingly, this score can actually vary from lender to lender. That’s right,  two different lenders can get two different scores for your business from FICO SBSS at the same time.

FICO SBSS Calculation

Here’s how that works. Lenders can ask for certain factors in the score to carry more weight than others. Your score can vary depending on how a lender weighs each factor. One lender may put more weight on your personal credit score or your business credit. Meanwhile, another may choose to weigh annual revenue as more important than payment history. It is their choice.

FICO searches business credit information from business credit agencies. This includes D&B, Experian, and Equifax. They use this information  in the calculation of your score. So, your score with these bureaus affects your FICO SBSS.

The only way to ensure that your personal credit doesn’t impact your business credit in a negative way is to keep your personal credit in good order. This is because you really can never know which factors the lender is going to weigh more or less for that matter.

#2: You May Have to Use a Guarantor to Get Business Funding

Because some types of funding require a strong personal credit score, you may need to use a guarantor to get access. This includes some funding types that can help you build business credit, like the Credit Suite Credit Line Hybrid.

Credit Line Hybrid

A credit line hybrid is a form of unsecured funding. Our credit line hybrid even works for startups, and you can get a better interest rate than a secured loan. It reports to business CRAs, but you need a FICO score of at least 680 to qualify.

However, if your personal FICO isn’t that great, you can use a guarantor with good credit to get approval. It’s no-doc financing, meaning you do not have to turn in any financial documents. Using a guarantor could be worth it if you need funding quickly.

#3 Personal Financing Can Affect Overall Fundability

Business lending, at its core, is affected by the Fundability of your business. There are 4 core factors that affect business Fundability, and each of these factors is made up of a number of principles. Personal financial statements and other data bureaus are included in these factors.

Financial Statements

Some lenders will ask for personal financial information no matter what. Others may only look at them if the business is not considered creditworthy on its own. When it comes to personal financial statements, lenders are usually looking primarily at tax returns. It’s best to have a tax professional prepare them. Other information lenders may ask for include check stubs and bank statements, among other things.

Bureaus

There are other agencies that hold information related to your personal finances as well. ChexSystems is one example. They track bad check activity, and their report 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 business bank account. That, in turn, will cause serious fundability issues.

LexisNexis and the Small Business Finance Exchange also fall into this “other bureaus” category. They can have all sorts of information on you, like:

  • Have you ever been convicted of a crime?
  • Do you have a bankruptcy or short sale on your record?
  • How about liens or UCC filings?

While these bureaus do not directly generate credit reports, they do share information with certain credit agencies. They then use this information for their reporting.

This means personal finance information they hold can affect the fundability of your business, and thus your business lending options.

Personal Financing Can Affect Your Ability to Get Business Funding

Whether it’s credit card debt, a mortgage, or just how you handle your personal bank account, your personal finance management can affect your ability to fund your business.

You cannot change that entirely.  Still, you can limit the extent to which this is true. Separating your business from yourself and building a strong business credit score is the best way. Lenders will be able to depend less on the personal financing aspects of your creditworthiness, and focus more on the fundability of the business itself.

The post 3 Surprising Ways Personal Financing Affects Business Funding appeared first on Credit Suite.

How to Maximize Credit Score to Unlock the Full Power of Your Business Credit

Are you using your business credit score to its fullest potential? Are you getting the full amount of funding available to you through the power of your business credit? Here’s how to maximize credit score and unlock the power of your business credit.

Your Business Credit Score Makes All the Difference

While it is possible to fund your business with your personal credit, it doesn’t make much sense. Honestly, not only does that limit the amount of business funding you can get, but it also puts your personal finances in jeopardy.

As a result, you need to know how to maximize credit score.  Then, you can scale more effectively and efficiently, without sacrificing your personal credit.

Establishing and Building Business Credit

Most business owners assume that you build credit for a business the same way you build consumer credit. It seems to make sense, so it’s no wonder this is such a common misconception. With consumer credit, you just get credit accounts.  Once you use them, your payment history is reported to the credit bureaus. That happens regardless of whether it is positive or negative.

Consequently, it builds passively on its own, whether you want it to or not. The same is not true of business credit.

When it comes to business credit, you have to be more intentional. This means creating a Fundable foundation, including applying for a D-U-N-S number and opening a separate business bank account, among other things.

Getting Initial Accounts Reporting

Not all business credit accounts report payment history. This is one of the major differences between business credit and personal credit. Of course, pretty much all consumer credit accounts report payment history. As we already said, you do not have to do anything to make that happen, it just does. In contrast, you may not have a business credit score even if you do all the work.

That’s because the accounts you have may not be reporting your on-time payments.

How to Maximize Credit Score: Working with a Business Credit Specialist

Truly, it’s not easy to find accounts that will approve you before your business credit score is established. Even harder than that is finding accounts that will report your positive payment history to the business credit bureaus.

There are essentially two options. The first is to just apply for credit accounts and hope you get approved. Then, hope they are reporting payments. You can monitor your business credit to see if the accounts report payments. If they do, that’s great. If not, you have to start over.

Complicating matters even further is that you need more than one or two accounts reporting initially to build a score strong enough for approval from other accounts. As you can imagine, this trial and error method can take an extremely long time.

Alternatively, you can enlist the help of a business credit specialist. This is someone who can help you find the right accounts.  Those vendors that will both approve you without a credit check and report on-time payments. .

These are typically net accounts. That means they have to be paid in full completely at the end of the net term, usually 30, 60, or 90 days.

How to Maximize Credit Score with the Business Credit Builder

Initial accounts are great, but you need more than just a few accounts to maximize credit score. Beyond that, you cannot just start applying for any and all accounts at random.  You’ll be denied more often than not.

This puts you in the same predicament described above. You can use trial and error until you get enough accounts reporting.  On the other hand, you can save yourself considerable time and frustration by utilizing the Credit Suite Business Credit Builder. Not only will you get step-by-step instructions for setting up your business to be Fundable, but you’ll know which lenders you qualify for at each step.  Better yet, you’ll have the confidence of knowing you are not wasting time with vendors that do not report.

How to Maximize Credit Score Using Personal Guarantees

If you get a credit account with a personal guarantee, you are responsible for repayment. This could mean a hard pull on your personal credit, which can lower your personal credit score. However, in theory, if your business has an account in its own name and it is set up to be a separate entity from you, the owner, it is responsible for its own debt.

Still, many companies require a personal guarantee from the business owner before extending business credit. This is especially true for small businesses. It only makes sense.  Data from the Bureau of Labor statistics states that 20% of new businesses fail within the first year, 45% within the first 5 years, and 65% in the first 10 years. In fact, only 25% of new businesses make it 15 years or more.

No one likes risk. That’s why businesses require a personal guarantee and why business owners don’t love to give one. Still, if you have true business credit that requires a personal guarantee, the good thing is that the business will have to pay first. You will be personally liable for anything that the business funds/ liquidation cannot cover, but you will not be first in line for all of it.

A Personal Guarantee can Accelerate Your Business Growth

A better option is to realize that if your business is small and  young, you are likely going to need a personal guarantee for much of the funding. Yet, you can work to reduce your liability in a number of ways. The first way to do that is to incorporate your business as a corporation, S-corp, or LLC. Your business attorney or accounting professional can help you with that.

Using personal guarantees when necessary will allow you to increase the number of business credit accounts you have in your portfolio. When your business credit score is maximized, lenders may be willing to reduce reliance on personal guarantees.

How to Maximize Credit Score by Improving Your Reports

This process is ongoing. You need to continually have your finger on the pulse of your business credit reports.  This will help you ensure nothing is holding it back.

Whatever improves one report, is most likely going  to improve your reports at the other two of the big 3 credit bureaus. Paying off accounts always pays dividends, as does avoiding bankruptcies. Of course, you should ALWAYS make payments consistently on-time.

It’s also important to monitor reports to ensure you can catch mistakes and get them corrected. You can do this through each agency directly, but with Credit Suite business credit monitoring you can monitor all three for a fraction of the cost.

Business Credit is Your Superpower

Well, maybe not superpower, but it is powerful. Similar to a muscle, you have to keep working to build it and keep it strong if you want to maximize the potential power it holds. The business credit specialists and products at Credit Suite can help you just that. Call today!

The post How to Maximize Credit Score to Unlock the Full Power of Your Business Credit appeared first on Credit Suite.

Check Out These Tier 4 Business Credit Vendors That Can Help Strengthen Your Business Credit Score

At Credit Suite, we talk about building business credit by working through the vendor credit tiers. These tiers are how we classify vendors based on their ease of credit approval. Tier 1 vendors are likely to extend net terms based on meeting some basic Fundability guidelines. Meanwhile, Tier 4 vendors are likely to require a strong PAYDEX, among other things.

Are Tier 4 Business Credit Vendors Really Necessary?

First, not all vendors fall into tiers. Tiered vendors report payments to at least one business credit reporting agency. Vendors that do not report do not fall into a tier.  However, don’t discount them. They can still be very useful to your business.

Vendor credit as a whole is important to building a strong business credit portfolio. Still, we get questions from potential clients wondering if it is necessary to work the tiers in order.  Furthermore, is it necessary to have accounts from all the tiers?  Can you just get accounts in Tiers 1 and 2 and then stop?

It seems to some that if you have enough accounts in Tier 1 and Tier 2 to qualify for Tier 3 vendors, that should be enough. Enough for what though? Yes, you may have a decent business credit score at this point, but these accounts are not going to be enough to properly fund your business.  After all, that is the point of a strong business credit score. The goal is to qualify for as much funding as possible to run and grow your business.

Do You Have to Work Through the Business Credit Tiers in Order?

There are those out there that hold the idea that there is no need to work through the tiers. Some business owners will tell you they were able to skip straight to Tier 4 without applying for credit from vendors in tiers 1-3 first. Honestly, it’s possible.

If you have a large amount of income or want to use a personal guarantee, and if you have a long time in business, you MAY be able to get credit from Tier 4 vendors and even credit cards, without working through the other tiers.

So What’s the Point?

The whole point of the Credit Suite vendor tiers is to help our customers mix-up the “secret sauce” of business credit. Building business credit this way allows you to limit using a personal guarantee and protect your consumer credit.

It also allows for you to build your business credit portfolio and your business credit score at the same time. Even better, this way allows your business to scale and grow faster, because you can use the funding for things you need while you are building business credit.  Vendor accounts can help with a number of expenses including marketing, inventory, supplies, and more.

You do not have to incur large amounts of personal loans from the beginning.  There is no need to wait until you reach a certain point to start utilizing credit in the name of your business. Rather, you can work on building business credit and use business credit from the beginning. As you do so responsibly, you will begin to qualify for vendors that offer more money and better terms, hence the other tiers.

By continuing on with Tier 4 business credit vendors, you will have more access to what you need to run your business, expand your business credit portfolio, and continue building your business credit.

Tier 4 Business Credit Vendors

These vendors require a strong business credit score for approval, but they also report payment history to the business credit reporting agencies. Here are a few examples.

Ally Car Financing Through Credit Suite

Ally provides personal financing, but they will also report to business credit bureaus. If your business qualifies for financing without the owner’s guarantee, you can get financing in the business name only.  They  will report to Experian and Equifax.

Ally offers a Commercial Line of Credit. To qualify, you need:

  • To be an entity in good standing with the Secretary of State
  • An EIN
  • A business address- matching everywhere
  • A D-U-N-S number
  • All business licenses (if applicable)
  • A business bank account
  • Bank reference
  • Fleet financing references

If a personal guarantee is used Ally will not report to the personal credit bureaus unless the account defaults.

You can also get a lease or a loan through Ally.

To qualify, you need:

  • To be an entity in good standing with the Secretary of State
  • An EIN
  • A business address- matching everywhere
  • A D-U-N-S number
  • All business licenses (if applicable)
  • A business bank account

There is no minimum time in business requirement.

You can only apply in person, and the dealer will let you know if you are approved or if a Personal Guarantee (PG) is necessary.

Brex

Brex is a business money management system that integrates with your accounting software. It allows you to track expenses and, depending on the level of service you choose, can also help with paying bills and controlling spending.

The easiest way to use Brex for both managing finances and building business credit is to open a Brex Cash account. Brex is not a bank, but rather a banking alternative. They do have a partnership with the FDIC, so your funds are secure,

They have a couple of options, but the one that falls into Tier 4 is similar to a traditional business credit card when it comes to limits. Instead of checking your personal credit score, they base approval and credit limits on business financial information.  This may include available cash, spending patterns, and more.

If you qualify for this card, your entire balance will be paid monthly.  This makes it more like net financing, as you cannot carry a balance. Brex requires an average bank balance of $1M to qualify for net 30 terms.

Ford Commercial Vehicle Financing Through Credit Suite

Ford offers several commercial vehicle financing options. These include loans, lines, and leases to actual business entities. You can get a loan or a lease.

They may ask for a Personal Guarantee (PG) if you are not approved on the merit of your application. Ford will report to D&B, Experian, and Equifax. To qualify, you need:

  • To be an entity in good standing with Secretary of State
  • An EIN
  • A business address- matching everywhere
  • A D-U-N-S number
  • All needed business license(s)
  • A business bank account
  • Strong business credit history
  • A good Experian business credit score

Frost Bank Business Rewards Credit Card

Frost bank requires $5M annual revenue to avoid PG. Also, you have to apply in person. If you apply online a PG may be required regardless. They only offer financing to current customers, and there is no minimum time in business requirement.

Don’t Stop Building Business Credit

Business credit is something you continue to build upon and improve, not a path to a final destination. This is much like a business itself, and the two go hand in hand of course. You want your business to continue to grow and thrive indefinitely, and tier 4 business credit vendors can help with that.

The post Check Out These Tier 4 Business Credit Vendors That Can Help Strengthen Your Business Credit Score appeared first on Credit Suite.

6 Ways Applying for a Small Business Loan Can Affect Getting Approved

The 125 factors that affect the fundability can be broken down into 4 main categories. One of those categories is the Application Process.

Here are 6 ways applying for a small business loan can affect the fundability of your business.

# 1: Timing

When you apply for a loan makes a difference.  Consider your current circumstances. If you have recently paid off a lot of credit card debt, that’s great! But, the payoff will not show up on your credit report immediately. Lenders will see more debt than is actually there.

The same is true of any change on your reports.  UCC filings, liens, bankruptcy, and anything else that may be added or about to roll off can affect a credit provider’s decision.

You have to monitor your business credit and personal credit reports so you can get the timing right when applying for a small business loan.

#2: Lender Negotiations

Having a good relationship with a lender that is familiar with your business and its industry is priceless. It can allow you insight to understand if you have flexibility to negotiate. Maybe you apply for a loan and get initial approval for $10,000.  If you have a couple of other credit providers that are ready to extend substantially higher amounts, you might be able to use that to convince the lender to approve more.

 

#3: Application Format

It may seem like applying online is always the best option these days. It’s for sure faster and easier.  Yet, there can be substantial differences in what is available if you apply in person or with a paper application.

Some lenders may require a personal guarantee if you apply online, but have a paper application that does not require one. There are any number of possibilities, that’s just one example.

 

 

#4: Lending Product Selected

You have to choose the right lending product for your business.  A large project you want to complete may mean you need a business loan. However, if you simply have a lot of smaller expenses and want a way to manage cash flow, a credit card or line of credit may work better

#5: Lender Selection

Some lenders may loosen their belts and lend more around the end of the

year.  Eventually, they will tighten up again.  Then,  another group of lenders may decide it is time to increase lending. Knowing which lenders are lending more what you are applying for a small business loan greatly increases your chances for approval.

6: Verifiable Information

When you apply for credit, you have to include your business name and address on the application. Lenders will then search with the Secretary of State to make sure you are the owner.  They will also verify your business phone number and business address match what is on file with the Secretary of State.

Get Help Applying for a Small Business Loan

Lending trends, choosing the best lending product, and a number of other factors in this process are difficult to maneuver on your own.

This is where the business credit specialists at Credit Suite can really help. We are in a unique position to be able to see the big lending picture throughout the year. Our finger is always on the pulse of the industry, so we can help direct you toward lenders that are lending the most at the moment. We can see the big picture.

The post 6 Ways Applying for a Small Business Loan Can Affect Getting Approved appeared first on Credit Suite.

How to Choose a Business Partner

Are you interested in starting a business or growing your existing business? Bringing on a business partner can offer several advantages. These include expertise in different business areas, strategic connections and more capital.

But select the wrong partner and you could be setting yourself up for years of personality conflicts and lawsuits. And ultimately, the end of your business.

Before you even think of approaching a potential business partner, consider whether you really need one. Then, get clear on the type of person who will be a good match for your own skills, values and goals. It’s much harder to undo a business partnership than it is to create one. Here’s what you should know before taking on a business partner.

What does a business partnership entail?

A partnership is a relationship between two or more people who carry on a business together. For tax purposes, partnerships are known as pass-through businesses. This means the partnership doesn’t pay taxes. Rather, partnership income or losses are passed through to owners. The owners then pay taxes on their share of profits on their individual tax returns.

Partnerships are the second most common type of pass-through business in the U.S., just behind sole proprietorships. That popularity stems, at least in part, from the ease of creating a partnership.

According to SCORE, a nationwide network of volunteer business mentors, partnerships aren’t a legal business entity. In some cases, they don’t have to be registered with the state. This is unlike corporations and limited liability companies (LLCs) do. Essentially, if you go into business with another person without incorporating, you’re in a partnership by default.

Despite that informality, forming a business partnership isn’t a decision to take lightly. Even if you don’t have a formal agreement, you have basic legal responsibilities to other members of the partnership. Such as:

  • Sharing planning and decision-making rights
  • Maintaining appropriate financial records
  • Sharing business profits and losses based on each partner’s investment
  • Compensating partners for expenses they pay on behalf of the business
  • Getting your partner’s consent before bringing on extra partners
  • Returning your partner’s original capital contribution should they to leave the partnership

How to identify a solid business partner

Choosing a business partner is like choosing a spouse. You’re trusting this person with your financial investment and your future. That’s why it’s so important to choose your partner wisely.

So what kind of criteria should you look for? Consider these six questions.

What are your goals?

What happens if you want to grow your business internationally, but your partner wants to keep it small and local? Not being on the same page about target market, investments and long-term strategy can lead to a lot of unnecessary conflicts. You and your partner should have similar goals for the future of the business.

How are their finances?

Unless you already have an open relationship with your potential partner, you likely won’t know much oft their financial history. Going into business with someone with poor credit or shady financial dealings can get you into trouble. Consider having a potential partner submit to a background check and credit check.

Do they have complementary skills?

People tend to want to do business with other people who have similar temperaments, skill sets and backgrounds. While this can be a good basis for friendship, it’s not always the best for a business partnership.

Look for a partner who is better than you at certain things. For example, if you’re the whiz with numbers, you might need someone who is a great communicator or leader. But, if your focus is big, long-term strategies, you might need a partner with excellent attention to detail. Bringing complementary skills together makes your partnership greater than the sum of its parts.

Do you have a personal relationship?

Partnering with your spouse, sibling or best friend might seem like a great idea to start. But proceed with caution when forming a business with someone with whom you already have a personal relationship.

According to a PWC survey,  23% of owners and executives in a family-owned business say they’ve never had a disagreement with their family members. Meanwhile, disagreements are a regular occurrence for 7% of family-owned businesses.

Close relationships can suffer if the business fails due to conflict. Which many do — data shows 20% fail in the first year alone. This isn’t to say that you should never do business with friends and family. But if you do, make sure you have a written partnership agreement. Outline responsibilities and how you’ll resolve potential conflicts.

Have you considered a trial run?

Until you’re actually in business with someone, it can be tough to understand their work style or how they’ll react in difficult situations. If you don’t have any experience working with your potential partner, consider doing a trial run. You could work on a project together or hire them as a consultant.

This allows you to see how well they communicate. See if they pull their weight and work through challenges. If it goes well, you can formalize your business partnership. If it doesn’t go well, you have a chance to walk away sooner rather than later.

Do you have a written partnership agreement?

No matter whom you choose as your business partner, you need a written partnership agreement. This agreement spells out the rules for how the partners will manage their business. It includes responsibilities, investments, profits and losses, company management and conflict resolution. It can also address what happens when one partner wants to sell or leave the business.

Don’t skip the formal agreement because you’re starting a business with family or afraid of hurting someone’s feelings. A partnership agreement is always important. But it can be even more crucial when you’re starting a business with a friend or family member. Plus, a well-thought-out agreement can help lessen misunderstandings and preserve your relationship.

Each state has its own laws governing formal business partnerships. So it’s a good idea to work with an attorney who specializes in contract law. They can help you create a custom (and legally enforceable) partnership agreement. 

Of course, hiring an attorney costs more than downloading a partnership agreement template you might find online. But a well-drafted agreement can protect your investment, efficiently resolve disputes. And it saves you tens of thousands of dollars in legal fees later.

Janet Berry-Johnson, guest blogger and author of this post.

 

 

 

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How to Choose a Business Partner

Are you interested in starting a business or growing your existing business? Bringing on a business partner can offer several advantages. These include expertise in different business areas, strategic connections and more capital.

But select the wrong partner and you could be setting yourself up for years of personality conflicts and lawsuits. And ultimately, the end of your business.

Before you even think of approaching a potential business partner, consider whether you really need one. Then, get clear on the type of person who will be a good match for your own skills, values and goals. It’s much harder to undo a business partnership than it is to create one. Here’s what you should know before taking on a business partner.

What does a business partnership entail?

A partnership is a relationship between two or more people who carry on a business together. For tax purposes, partnerships are known as pass-through businesses. This means the partnership doesn’t pay taxes. Rather, partnership income or losses are passed through to owners. The owners then pay taxes on their share of profits on their individual tax returns.

Partnerships are the second most common type of pass-through business in the U.S., just behind sole proprietorships. That popularity stems, at least in part, from the ease of creating a partnership.

According to SCORE, a nationwide network of volunteer business mentors, partnerships aren’t a legal business entity. In some cases, they don’t have to be registered with the state. This is unlike corporations and limited liability companies (LLCs) do. Essentially, if you go into business with another person without incorporating, you’re in a partnership by default.

Despite that informality, forming a business partnership isn’t a decision to take lightly. Even if you don’t have a formal agreement, you have basic legal responsibilities to other members of the partnership. Such as:

  • Sharing planning and decision-making rights
  • Maintaining appropriate financial records
  • Sharing business profits and losses based on each partner’s investment
  • Compensating partners for expenses they pay on behalf of the business
  • Getting your partner’s consent before bringing on extra partners
  • Returning your partner’s original capital contribution should they to leave the partnership

How to identify a solid business partner

Choosing a business partner is like choosing a spouse. You’re trusting this person with your financial investment and your future. That’s why it’s so important to choose your partner wisely.

So what kind of criteria should you look for? Consider these six questions.

What are your goals?

What happens if you want to grow your business internationally, but your partner wants to keep it small and local? Not being on the same page about target market, investments and long-term strategy can lead to a lot of unnecessary conflicts. You and your partner should have similar goals for the future of the business.

How are their finances?

Unless you already have an open relationship with your potential partner, you likely won’t know much oft their financial history. Going into business with someone with poor credit or shady financial dealings can get you into trouble. Consider having a potential partner submit to a background check and credit check.

Do they have complementary skills?

People tend to want to do business with other people who have similar temperaments, skill sets and backgrounds. While this can be a good basis for friendship, it’s not always the best for a business partnership.

Look for a partner who is better than you at certain things. For example, if you’re the whiz with numbers, you might need someone who is a great communicator or leader. But, if your focus is big, long-term strategies, you might need a partner with excellent attention to detail. Bringing complementary skills together makes your partnership greater than the sum of its parts.

Do you have a personal relationship?

Partnering with your spouse, sibling or best friend might seem like a great idea to start. But proceed with caution when forming a business with someone with whom you already have a personal relationship.

According to a PWC survey,  23% of owners and executives in a family-owned business say they’ve never had a disagreement with their family members. Meanwhile, disagreements are a regular occurrence for 7% of family-owned businesses.

Close relationships can suffer if the business fails due to conflict. Which many do — data shows 20% fail in the first year alone. This isn’t to say that you should never do business with friends and family. But if you do, make sure you have a written partnership agreement. Outline responsibilities and how you’ll resolve potential conflicts.

Have you considered a trial run?

Until you’re actually in business with someone, it can be tough to understand their work style or how they’ll react in difficult situations. If you don’t have any experience working with your potential partner, consider doing a trial run. You could work on a project together or hire them as a consultant.

This allows you to see how well they communicate. See if they pull their weight and work through challenges. If it goes well, you can formalize your business partnership. If it doesn’t go well, you have a chance to walk away sooner rather than later.

Do you have a written partnership agreement?

No matter whom you choose as your business partner, you need a written partnership agreement. This agreement spells out the rules for how the partners will manage their business. It includes responsibilities, investments, profits and losses, company management and conflict resolution. It can also address what happens when one partner wants to sell or leave the business.

Don’t skip the formal agreement because you’re starting a business with family or afraid of hurting someone’s feelings. A partnership agreement is always important. But it can be even more crucial when you’re starting a business with a friend or family member. Plus, a well-thought-out agreement can help lessen misunderstandings and preserve your relationship.

Each state has its own laws governing formal business partnerships. So it’s a good idea to work with an attorney who specializes in contract law. They can help you create a custom (and legally enforceable) partnership agreement. 

Business Partner

Of course, hiring an attorney costs more than downloading a partnership agreement template you might find online. But a well-drafted agreement can protect your investment, efficiently resolve disputes. And it saves you tens of thousands of dollars in legal fees later.

Janet Berry-Johnson, guest blogger and author of this post.

 

 

 

The post How to Choose a Business Partner appeared first on Credit Suite.

Top Options for $20k Loans If Your Company Has Been In Business for 3 Years or More

When we talk about building business credit and fundability, we do so with an end in mind. If you start working the process from the beginning, by the time you have been in business for 3 years or more you will have access to all the business funding you’ll need. That includes $20k loans or even higher.

Options for $20k Loans

If you follow the steps in order and handle credit responsibly, by the time you have reached this point you will be eligible for the best rates and terms available.

What are these options available to companies that have been in business for 3 years or more?

Term Loans

Banks are often the first place we think of when we consider financing. Yet, big banks only sign off on about 25% of the small business loan applications that come their way. Term loans often have lower interest rates than many other funding options. They also tend to be for higher loan amounts.

Generally speaking, the companies banks end up funding have:

  • Very strong financials and
  • Near-perfect credit scores
  • Owners with good personal credit
  • Collateral

You are more likely to meet these qualifications if you have at least 3 years in business and have been working on fundability and building business credit during that time.

Bridge Loans

A bridge loan is a short-term loan that a business or individual can use until they secure more permanent financing or remove an existing obligation. It allows the user to meet current obligations by providing immediate cash flow. Bridge loans are short term, up to one year. They have relatively high interest rates. Collateral such as equipment or inventory is common as well.

SBA Loans

Three years or more time in business will help make SBA loans a real possibility. It’ll be easier to get an SBA loan the longer you’re in business. This is because you can more easily show your business is established and making money consistently.

If you can show profitability and responsible credit and bank account management, your chances of getting an approval for an SBA loan will improve drastically.

SBA loans have great terms, so it’s worth it to work toward building eligibility.

SBA 504

The SBA 504 loan program is an economic development loan program that offers small businesses an avenue for business financing, while promoting business growth, and job creation.

This program provides approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization. Use it to buy currently existing buildings, construct new buildings, and more.

For corporations, anyone with a 20% ownership stake (or more) must fill out the application. This includes swearing they are not under indictment for any criminal offense. In general, the SBA provides 40% of the total project costs,  a participating lender covers up to 50% of the total project costs and the borrower contributes 10% of the project costs.

Under certain circumstances, a borrower may have to contribute up to 20% of the total project costs.

SBA 7(a)

This is the SBA’s most popular loan. The SBA guarantees 85% for loans up to $150,000 and 75% for loans greater than $150,000. The SBA makes the lending decision, but qualified lenders may be given authority to make credit decisions without SBA review.

Businesses must provide Articles of Organization, business licenses, documentation of lawsuits, judgments, bankruptcy, or other pertinent documentation. Also, lenders do not have to take collateral for loans up to $25,000.

For loans in excess of $350,000, the SBA requires that the lender collateralize the loan to the maximum extent possible up to the loan amount.

Online Lending

Online lending works well for those with less time in business, or in situations where traditional lenders will not work. Still, they will offer better terms and rates to those companies in business longer and with strong fundability. That means, it is best to not discount them even after you reach this point.

Some of our favorite online lenders are listed here.

After 3 Years in Business, $20k Loans May Not Be An Issue

If you are here looking for options for $20k loans for your business, and you have been in business for 3 years or more, you are probably going to be okay.  This is especially true if you have been working to build strong fundability and business credit as part of that.

If you are struggling to find $20k loans, start now building fundability, including strong business credit, and you’ll get there in no time.

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How to Use Tier 3 Vendors to Build a Strong Business Credit Portfolio

Hitting the 5 year mark is a tremendous achievement when it comes to running a business. Especially considering that nearly half of all companies fail in their first 5 years, and about ⅔ fail in the first 10 years. Truly, your company has beaten the odds.

Tier 3 Vendors are a Gateway to a Strong Business Credit Portfolio

With half a decade under your belt, your business should be profitable. However, you may still be using your personal credit on occasion. Maybe you built initial business credit and then stopped, thinking that you were done.

For example, maybe you already have several vendors reporting from the first couple of vendor tiers. Vendors such as Uline, Quill, and Grainger are great to work with. They offer net terms with fewer requirements than most business credit cards.  Even better, they report your payment to the business credit CRAs. Working with them helps you build an initial business credit score. But you can’t stop there.

Not only do you want to keep building your business credit score, but you want to build a well-rounded business credit portfolio. This includes much more than Tier 1 and 2 vendors, and even more than business credit cards.

Here are some other factors that you need to consider when it comes to a strong business credit score and portfolio.

Tier 3 Vendors

If you stopped at tier 2, thinking you were done, you are missing out. There are a ton of tier 3 vendors that can help you run your business more smoothly and manage cash more efficiently.

These are vendors that require a longer time in business and an established business credit score. They typically like to see regular business revenue before they will offer net terms. Some even offer revolving credit similar to a credit card. They are an important part of a strong business credit profile, and they are essential to building the strongest business credit score possible.

By the time you get to Tier 3 vendors, you should have at least 6 trade accounts reporting. That’s enough to help you get approval with vendors in tier 3, but not enough to be finished. You need at least 3 of these vendors reporting, making for a total of 9 trade accounts on your business credit report.

Here are some examples.

Crown Office Supplies

You can get paper and other office supplies through Crown Office Supplies. They report payments to all three of the major business credit reporting agencies. These are Dun & Bradstreet, Experian, and Equifax. The major benefit here is that it can be hard to find vendors that report to Equifax.

To qualify, you will need:

  • To be an entity in good standing with Secretary of State
  • An EIN
  • A business address that matches everywhere
  • A D-U-N-S number
  • Business license (if applicable)
  • Business bank account

There is a membership fee of $99 annually upon approval, but payment of this fee is reported to the business credit bureaus as well.

Gempler’s

Gempler’s sells work supplies and products, such as:

  • Outdoor workwear and safety supplies
  • Pest management products
  • Tires, and footwear

They report to Dun and Bradstreet. You have to place your initial order for over $50 and select the “Invoice me” option. Then, they will pull your credit. If you’re not approved, make sure to pre-pay for your order, and keep purchasing and choosing the “invoice me” option until you’re approved for a Net 30 account.

Summa Office Supplies

Along with the large variety of office supplies, Summa also offers a number of downloadable products. They offer Net 30 terms with up to a $2000 limit. A minimum $80.00 purchase is required,for the first order only, for them to report.

To qualify a business needs:

  • To be an entity in good standing with the Secretary of State
  • An EIN
  • Business address- matching everywhere.
  • D-U-N-S number
  • Business license- if applicable
  • Business bank account

After Tier 3 Vendors, Consider Working with Nonreporting Trade Accounts

Even nonreporting trade accounts are important to a business credit portfolio. Do not neglect them. There is no need to put everything on a credit card.  Even vendors that do not report can help you get the things you need without dipping into cash reserves, while allowing you to save revolving credit for larger concerns or times when trade credit is not available.

Don’t Stop Building Your Business Credit Portfolio

What’s the goal of a strong business credit score? It’s to help you build a business credit portfolio for your business. Of course, with a strong score, you can add lines of credit and credit cards to that portfolio.  However, the vendors you use to build your score, along with other vendors, are very useful additions.  A well-rounded business credit portfolio is key to business success, and Tier 3 vendors are a bridge to get you there.

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