Most of us grew up hearing that we could do anything we wanted. That’s the beauty of capitalism. With American business lending, anyone can start a business. We are told all we need is a great idea, and with a lot of hard work and a business loan, we can turn that idea into a … Continue reading Business Fundraising: What You Didn’t Learn in Kindergarten
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Business Fundraising: What You Didn’t Learn in Kindergarten
Most of us grew up hearing that we could do anything we wanted. That’s the beauty of capitalism. With American business lending, anyone can start a business. We are told all we need is a great idea, and with a lot of hard work and a business loan, we can turn that idea into a thriving livelihood. The thing is, the business fundraising piece isn’t as easy as we may have thought.
Business Fundraising Hinges on Fundability
I mean, the majority of us are smart enough to know that not all new businesses see success. We also know getting investors and loans is not always easy. The thing is, no one tells us what to do if business fundraising turns out to not be as easy as we thought. No one really gives any options, which means when we hit that first brick wall of a lender turning us down for a loan or an investor saying no, we don’t know what our next move should be.
Get our business credit building checklist and build business credit the fast and easy way.
Business Fundraising: Why Loans Don’t Always Work
For starting up a small business, the first stop on the business fundraising train is typically the bank. You go in, fill out a business plan, and hope for the best. If your personal credit is stellar, you are golden. If not, you have a problem.
That’s why traditional loans do not always work. If your personal finances cannot handle the up-front expense of starting a business, and you do not have investors, you have to find another way. This is the part that no one tells you. How on earth do you start a business if you cannot get a business loan based on your personal credit.
Business Fundraising: Loans to Apply for When Traditional Loans Will Not Work
Okay, so, here’s the thing. You are going to have to get your business going a little at the time, on your own. Surprisingly, this strange economy created by the coronavirus is prime for this. Maybe you take on a few clients or sell to a few customers in your spare time. Who knows? You need to be in business for at least 6 months before you start applying for these types of loans. In fact, some require a year in business and a minimum revenue.
They key is, you get started, and you get started on your own. Then you figure out where you can turn for business fundraising to grow your business further. If you hit the one year in business mark, you may qualify for SBA loans.
Business Fundraising: SBA Loans
The Small Business Administration is designed specifically to help small businesses. Whether you need working capital or a natural disaster has struck, the SBA can help.
Overall, there’s a wide range of products offered through SBA programs. Typically, the SBA does not lend funds directly. Conversely, they work through lender partners to guarantee loans. This means, they are able to leave the administration of the loans and disbursement of funds to those who regularly handle that sort of this.
7(a) Loans
This is the Small Business Administration’s most popular loan program. It offers federally funded term loans of up to $5 million. Additionally, the funds can be used for expansion, purchasing equipment, working capital and more. Banks, credit unions, and other financial institutions, in partnership with the SBA, process these loans and distribute the funds.
A credit score of 680 is necessary to qualify. In addition, there is a required down payment of at least 10% for the purchase of a business, commercial real estate, or equipment. Lastly, the minimum time in business is 2 years. Business experience equivalent to two years will do the trick for startups, so this is one you don’t have to wait for if you have experience.
504 Loans
These loans are available up to $5 million. Funds can buy machinery, facilities, or land. Generally however, they are for expansion. Private sector lenders or nonprofits handle these loans. They especially work well for commercial real estate purchases.
Microloans
Microloans are available in smallter amounts. They go up to $50,000. Typically, they work well for starting a business, purchasing equipment, buying inventory, or for working capital. Community based non-profits administer microloan programs. Unlike the others, financing comes directly from the Small Business Administration.
Even though SBA loans have less stringent requirements, sometimes they still won’t do the trick. What then?
Business Fundraising: Private Loans to the Rescue
If you see that you do not qualify for SBA Loans, private loans could be an option. They should be the second option for business fundraising, after SBA loans. Here’s why. They typically have higher interest rates and less favorable terms than traditional and SBA loans. That’s the downside. The upside is that their eligibility requirements are even easier to meet than SBA loans, making them a viable option if you do not qualify for other types of financing.
There are lots of private lenders out there, but be careful. Do your research, check the Better Business Bureau, and read reviews so that you know what you are getting into. Some of them are fine, but there are a lot of bad seeds in this category as well. Proceed with caution. Here’s a list of lenders to get you started.
Fundation
Fundation offers an automated process that is super-fast. Originally, they only had invoice financing. Then they added the line of credit service. Repayments are automatic, meaning they draft them electronically. This happens on a weekly basis. One thing to remember is that you could have a repayment as high as 5 to 7% of the amount you have drawn, as the repayment period is comparatively short.
You can get loans for as little as $100 and as high as up to $100,000, but the max original draw is $50,000. They do have some products that go up to $500,000. There is no minimum credit score requirement, but they require at least 3 months in business. Also, $50,000 or more in annual revenue and a business checking account with a minimum balance of $500 are necessary.
Fundation reports to Dun & Bradstreet, Equifax, SBFE, PayNet, and Experian, making them a great option if you are looking to build or improve business credit.
BlueVine
The minimum amount available from BlueVine is $5,000 and loans go up to $100,000. You must have annual revenue of $120,000 or more. In addition, the borrower must be in business for at least 6 months. The personal credit score minimum is 600. It is also important to know that BlueVine does not offer a line of credit in all states.
They report to Experian. They are one of the few invoice factoring companies that will report to any business credit bureau.
Get our business credit building checklist and build business credit the fast and easy way.
OnDeck
With OnDeck, applying for financing is fast and simple. You apply online, and you will receive your decision once the application processing is done. Loan funds go directly to your bank account. The minimum loan amount is $5,000 and the maximum is $500,000.
The personal credit score requirement is 600 or more. Also, you must be in business for at least one year. The annual revenue requirement is at least $100,000. In addition, there can be no bankruptcy on file in the past 2 years and no unresolved liens or judgements.
OnDeck reports to the standard business credit bureaus.
Business Fundraising: How to Not Worry About It
Okay so, that’s how to make it work in the beginning. Still, wouldn’t it be great to not have to worry about it? How would it feel to know that, if you needed a business loan, you would have no trouble getting one? How does that even happen?
While there are no guarantees in life, the best chance you have at making this happen is to build strong business fundability. That is your ability to get funding for your business based on the merits of your business and not completely on your own personal finances. To do this, you have to understand exactly what it is that makes your business fundable. There are a lot more working pieces than you may imagine.
Business Fundraising: Fundability
The first step in building fundability has to do with how you set up your business. Regardless of whether you are just getting started or if you have been operating for ages, if these things are not done, do them now. The sooner the better. You cannot build business fundability if you do not establish your business as an entity separate from yourself, and that doesn’t just happen. You have to make it happen.
Don’t Share Contact Information with Your Business
Make sure your business has its own phone number, fax number, and address. That doesn’t mean you have to get a separate phone line, or even a separate location. You can still run your business from your home or on your computer. There are options for virtual business addresses and internet based phone numbers that will serve these purposes nicely.
Apply for an EIN
Next, get an EIN for your business. This is an identifying number for your business that works in a way similar to how your SSN works for you personally. It’s free from the IRS.
Incorporation is Non-Negotiable
You have to incorporate your business as an LLC, S-corp, or corporation. Which option you choose doesn’t really make a difference for fundability. However, it can make a difference for your budget and needs for liability protection. Talk to your attorney or a tax professional about which one will work best for your business.
You are going to lose any time in business that you already have. When you incorporate, you become a new entity. You basically have to start over. You’ll also lose any positive payment history. This is why you have to incorporate as soon as possible.
Separate Bank Accounts
Open a separate, dedicated business bank account. There are a lot of reasons for this, but the first one is that it creates the separation you need to start building business credit, which is necessary to fundability.
Licenses
A legitimate business should have all of the licenses it needs to run. If it doesn’t, red flags are going to go up all over. Research what you need to do to ensure you have all of the licenses necessary to legitimately run your business at all levels.
Website
Spend the time and money necessary to make sure your website is professionally designed and that it works. Also, splurge and pay for hosting. Don’t use a free hosting service. Along these same lines, your business needs a dedicated business email address. Make sure it has the same URL as your Website. Don’t use a free service such as Yahoo or Gmail.
What Else Affects Fundability?
While setting up your business in this way is vital, there are a host of other things that affect fundability. Here’s a brief rundown.
- Business Credit Reports
This is a cornerstone of fundability.
- Other Business Data Agencies
Two examples of this are LexisNexis and The Small Business Finance Exchange.
- Identification Numbers
Specifically a D-U-N-S number. Get one on the D&B website. You cannot have a business credit file with Dun & Bradstreet without one. Since they are the largest and most commonly used business credit agency, you have to get this number.
- Business Credit History
This includes how many accounts you have, what types of accounts, and whether or not you pay on time.
- Business Information
Not only do you have to have separate contact information for yourself and your business, you need to be consistent with when and where you use it. For example, if a business account has your personal address on it, it could cause problems. Be sure to keep everything up to date.
- Financial Statements
- Business Financials
- Personal Financials
- Bureaus
One example is ChexSystems, which keeps track of bad check information.
- Personal Credit History
- The Application Process
This is everything to do with the application from when you apply to which lending products you choose to apply for.
Get our business credit building checklist and build business credit the fast and easy way.
Business Fundraising: Don’t Let the Traditional Loan Brick Wall Stop You
If you hit a brick wall with traditional loans, don’t despair. Don’t let problems with business fundraising stop you. Just fix the problem. There are other options. In addition to these financing options and finding investors, you can explore grants and crowdfunding. While the fierce competition with each can make it hard, they are still viable options. However, you have to start working on fundability now, wherever you are in the life of your business. If you do, one day you will not have to worry about business fundraising. You will be able to access all you need.
The post Business Fundraising: What You Didn’t Learn in Kindergarten appeared first on Credit Suite.
Top 5 Things You Didn’t Know About Small Business Credit
There is so much about small business credit that is misunderstood. Many entrepreneurs do not even realize their company can have its own credit. Those that do realize it, often have a very skewed idea about how it works. Because we are so familiar with personal credit, we tend to assume business credit works the … Continue reading Top 5 Things You Didn’t Know About Small Business Credit
Top 5 Things You Didn’t Know About Small Business Credit
There is so much about small business credit that is misunderstood. Many entrepreneurs do not even realize their company can have its own credit. Those that do realize it, often have a very skewed idea about how it works. Because we are so familiar with personal credit, we tend to assume business credit works the same way. While some aspects of the two are similar, there are some very important differences that most entrepreneurs do not know.
Everything You Don’t Know that You Don’t Know About Small Business Credit
Some of the most common misconceptions about business credit are related to how you get it. Even more are about what affects business credit and where the information on the report comes from. It is such uncharted territory that most do not even know what they don’t know.
Once you understand all the differences between business credit and personal credit, you can begin the work of building a solid company foundation for your biz.
5 Things You Didn’t Know About Small Business Credit
Here are a few of the most common misconceptions about business credit.
You Have to Work for Small Business Credit
It doesn’t build on its own through the course of regular company financial transactions. This is different than how personal credit builds. With personal credit, your payment information is simply reported to the personal credit reporting agencies (CRAs.) With business credit, it isn’t so simple.
It takes intentional effort from the way you set up your biz to the accounts you apply for first. You have to go into it with the intention of building business credit. You have to work for it.
Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.
It’s About More than Payment History
Unless your company is set up with the intention of separating it from the owner, business transactions will report to the personal CRAs. This means your corporate transactions and your personal transactions will be reporting on your personal credit. Everything will be all mixed up.
Not only that, but if you do not set things up properly, you could end up not having a business credit score at all! Even if you have credit in your company name, if your firm is not properly set up as a fundable entity, those accounts will be on your personal credit report. You may not even have a business credit report!
Your Personal credit CAN affect it
By nature, the way a company must be set up to build business credit means that your company’s accounts will not affect your personal credit. That is, if everything is set up properly. However, the reverse is not necessarily true. When lenders look at your credit, not only might they pull a personal credit report, but they can use other sources as well. The information gleaned from those sources, even if not firm-related, can affect their decisions.
You are probably asking yourself the question then, why even bother? If your personal credit can still come into play, what’s the point? There are a few reasons biz credit is important. First, it protects your personal credit. Like I said before, if your set up your company properly, your operational finances should not affect your personal credit score. This will ensure that if your biz suffers, your personal finances can still stay intact.
In addition, if personal issues are coming into play when you are trying to get company funding, strong business credit can help. It can mitigate negative personal information lenders may consider in their decision making.
Finally, if you do not have business credit, you will have to fund your dream on your personal credit alone. Personal limits are typically much lower than business credit limits. Conversely, company credit expenses tend to be much higher than personal expenses. This means that even if you are paying off your expenses each month, you are likely to hover near your limits consistently.
That will increase your debt-to-credit ratio, which will in turn lower your personal credit score. So even if you do everything right, you could end up damaging your personal credit if you try to use it to fund your company.
The Information Comes from Places You May Not Expect
Like I said, it’s not all just payment history. There are so many other things the CRAs look at and can report on. They gather information from a number of sources, and not all of them are lenders. For example, the Small Business Finance Exchange, or SBFE, gathers information from a variety of places. These include, among other things, public records. That means every lien, every parking ticket, and every bounced check has the potential to bite you.
You do NOT Have to Have Business Credit to GET It
This is perhaps the most difficult thing for some entrepreneurs to understand. It can seem at the onset that you have to have business credit to get business credit. An entrepreneur is often shocked when they try to apply for funding with biz credit and they are denied, because they pay their bills on time. They cannot figure out what is going on.
They then find out they actually do not have business credit. That is why they are continually denied when they apply for corporate credit cards. Then they wonder how on earth they are supposed to get business credit if they are denied funding because they do not have company credit.
Here is the thing. Once you have your company set up properly as a separate, fundable entity, you need to start working with starter vendors. These are vendors that will extend net terms on invoices without a credit check. Not only that, but they will also report your payments on these invoices to the CRAs. This will be the beginning of your business credit score. You do not have to have business credit to get corporate credit, but you do have to start with starter vendors.
Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.
Now That You Know
Now that you know this information, you probably have a ton of questions. Questions like:
- How do I make my company a fundable entity separate from myself?
- What’s the next step after starter vendors?
- Where are lenders getting information about me?
- How do I know what is on my credit report?
We can answer these questions and more. The first step is already done. Now you know what you didn’t know before.
How to Separate Your Company as a Fundable Entity
This part is easiest taken care of on the front end. However, it’s never too late. If you are looking for funding, you likely already have an established biz. You can take these steps now to begin building your corporation credit.
How to Separate a Company from Its Owner to Build Small Business Credit
- Establish a separate phone number and address for the biz.
- Formally incorporate as an LLC, S-corp, or Corporation.
- Establish a separate company bank account.
- Have a professional corporate website.
- Have a separate corporation email address with the same URL as the website.
- Get and EIN and use it instead of your SSN to apply for business credit.
- Get a D-U-N-S number.
A few things to remember when it comes to these things are that you can get a virtual physical firm address pretty easily. Also, there are several ways to get a corporate phone number online that will simply forward to the phone number you already use. This means there is no need to get a separate phone.
Also, do not use a free hosting service. You need to pay for hosting. The same goes for email service. A free service such as Hotmail, Yahoo, or even Gmail will not work in this situation.
As for a D-U-N-S number, be careful. You really do need it because you cannot have a credit file with Dun & Bradstreet without it. Since they are the largest and most commonly used biz credit reporting agency, having a D-U-N-S number is a must. However, when you go to their website to get one, they will try to upsell you. The number is free, and you do not need anything else. Stay strong.
How to Use Starter Vendors to Build a Small Business Credit Score
Now, you know how to set up your company and you know you need to start with starter vendors, but where do you go from there? The business credit building process works in tiers. You start with the vendor credit tier, which is where the starter vendors are. Then, once you have 8 or 10 of those vendors reporting your positive payment history, you can move on to the retail tier.
The retail credit tier is where you find credit cards that can only be used at the retail stores that issue them. For example, an Office Depot credit card would be in this tier. After you have enough of these types of cards reporting your payment history to the CRAs, you can move on. Your small business credit should then be strong enough to apply for cards in the fleet tier.
The fleet credit tier is where you find the cards that you use specifically for fuel and auto repair and maintenance costs. These are cards from companies such as Shell and Fuelman. After you snag enough of these and have them reporting positive payment history, you can apply for cards in the top tier.
That is the cash credit tier. These are the cards that have higher limits, lower rates, and no exclusions on where you can use them or what you can use them for. If you use these cards responsibly, you will have access to all the funding you need to run and grow your business.
Small Business Credit and Company Loans
As you may have noticed, we didn’t mention biz loans much when talking about small business credit. That is because most traditional lenders are going to check your personal credit history even if you do have strong corporate credit. There is just no way around it. However, if you have strong company credit, it can only help you. It may mean the difference in approval for a $50,000 loan or a $100,000 loan, or 10% interest and 6% interest.
In addition, some non-traditional lenders will actually look at business credit and even report to the business CRAs such as Dun & Bradstreet, Experian, and Equifax.
Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.
Monitor Your Credit
This is important all the way through the process. First, you need to know which accounts are reporting to your small business credit. You also need to know how many. That’s how you will know it is time to start applying for cards in the next tier.
The problem is, you cannot get a free copy of your business credit report the same way you can with personal credit. You can purchase a copy of your report from the reporting agencies, but you have to pay each time you want to see what is on your report. At CreditSuite.com/monitoring, we can help you monitor your business credit on an ongoing basis for a fraction of the price. Not only will this help you to know when to move on to the next tier, but it will let you see if there are any mistakes or inaccuracies keeping your score from being the best it can be. If there is something there that shouldn’t be, or something not there that should be, you can get it corrected quickly.
Everything You Need to Know About Small Business Credit and Then Some
Now that you understand more about small business credit, what it is, and why you need it, you are likely to have more questions than just what we’ve covered. Here is one thing you can know without a doubt however. Strong small business credit it vital to running a healthy company. Our free guides, webinars, and dedicated staff are here to help you build and maintain small business credit every step of the way. Your business success and growth depend on it.
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