How To Use Business Credit Wisely to Help With Sound Cash Flow Management … So Your Cash Flow is Always Strong and Never a Headache

Cash flow management is essential to running a successful business.  This is true for a number of reasons. Some of the reasons are obvious, and some are more subtle.  

5 Steps to Building a Cash Pool for Better Cash Flow Management 

First, you need to understand exactly what cash flow is. Investopedia says:

Cash flow is the net amount of cash and cash equivalents being transferred into and out of a business.”

But what does that mean practically for your business? Basically, cash flow relates to the actual, liquid cash flowing in and out of your business. Strong, positive cash flow allows you to have the funds you need ready and available. You can use them at any given time to do the things you need to do to run your business effectively and efficiently.  Why is this important? Because you need cash to: 

  • Pay the bills
  • Pay salaries
  • Buy supplies and stock 
  • To be able to take advantage of growth opportunities

None of these things are possible without cash.  You need a cash flow management strategy.

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit. 

Step 1: Understand Profit is Not the Same as Cash

This is one of the most common misconceptions when it comes to cash flow management. Many think  if you have a strong bottom line, you have cash.  Some business owners are surprised when they find their business can be doing quite well, but they still struggle to pay the bills.  This is because sales do not automatically convert to cash. It can take time to collect payments from customers. Also, if you run a seasonal business, certain times of the year are going to find your business shorter on cash than others. Even non-seasonal businesses have times when they aren’t making as much money.

Step 2: Knowing Why Just Enough is Not Enough

It’s possible that you may have all the cash you need for day to day business operations, but you still need more. For example, if you  have an investment opportunity, like a bulk wholesale deal on inventory, or a growth opportunity, you need to be able to act fast. The more cash you have immediately available, the faster you can act on these opportunities with confidence. A sensible cash flow management system will take this into account. 

Step 3: Develop a Plan for Building a Cash Pool for Cash Flow Management

A cash pool can help you manage your cash flow effectively. It’s a way to make sure you have access to the cash you need, when you need it. A cash pool is an aggregate collection of three different types of cash.  

It includes cash on hand, cash available to spend on vendor accounts, and cash available to spend on business credit cards. How do you build a cash pool for your business? How do you do so and keep business expenses off your personal credit accounts? You need to build business credit. Using business credit to build a cash pool is key to cash flow management.

Cash Reserves and Vendor Accounts

Cash reserve is simply cash on hand. This is the money you have in your business bank accounts that you can spend. Vendor accounts are accounts that you have with vendors that allow your purchases on credit. These are typically net accounts rather than revolving. Net accounts have to be paid off completely within 30, 60, or 90 days, depending on what terms you get with that lender.

Cash Available on Business Credit Cards

This is the total of all available credit you have on business credit cards. Business credit cards can serve your business well in a number of ways. First, they can help protect your business by limiting exposure when making purchases online. This is because most credit card companies have fraud protocols. These protect you from having to pay for fraudulent charges on your account. 

In contrast, if you use a debit card connected to your business bank account and it gets hacked, you could easily lose all of your available cash with potentially very few options for recovery. 

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.

Step 4: Start the Process by Building a Fundable Foundation

It sounds easy, and essentially it is. However, you can’t just go out and apply for vendor accounts and business credit cards and expect to get credit that is only related to your business and does not affect your personal credit report. 

This is the tricky part. There are specific steps that you have to take in a specific order to build a separate business credit profile and score. It starts with how your business is set up. It has to have a foundation of fundability. Then, you have to get accounts reporting initially, which can get interesting. 

If your business isn’t set up right and you don’t apply for the right types of accounts in the beginning, you will be denied every time. 

How to Build a Fundable Foundation

The first step is to make sure your business has a fundable foundation. The includes a number of things such as:

  • Having a physical business address where you get mail
  • A P.O. Box or something similar will not work
  • You need to incorporate as an LLC, S-corp, or corporation
  • An EIN is essential  (get yours from the IRS)
  • A D-U-N-S number from Dun & Bradstreet
  • You need a separate, dedicated business bank account

This is only the beginning, but it is a good start. 

5: Get Accounts That Report

Once you have a fundable foundation, you can start applying for business accounts. The key is, you have to start small by applying with starter vendors first. These are vendors that will not do a personal or business credit check. Rather, they will extend net terms to your business based on other factors.

These factors may include:

  • Time in business
  • Revenue
  • Average balance in business bank account
  • And a lot of other things

Vendors may look at one, all, or any combination of these factors to verify the creditworthiness of your business. Then, they will report your payment on these accounts to the business credit reporting agencies

This brings up another issue. Unlike personal credit accounts where pretty much all creditors report your payment to your personal credit profile, only about 7% of business credit accounts actually report payments.  Of course, the other 93% will not hesitate to report defaulting payments. 

As a result, it can be difficult to find vendors that will both extend credit without a credit check and report payments. They do not make this information easy to find. Still, having accounts that report is vital to building a strong business credit score. Without that, you will not be able to get the accounts you need to build your cash flow pool.

Getting Started

We have a list of vendors that we know do both of these things. They include vendors like Uline and Grainger, among many more. Start building your credit pool with these and other starter vendors by applying for accounts, and buy things like packaging, cleaning products, and office supplies that you will use in the course of your business anyway. 

Once you get enough of these accounts reporting, you will be able to apply for more vendor accounts and business credit cards and get approval.

Of course, you need more than just a few vendor accounts to build a strong business credit score.  The next steps include applying for credit with increasingly harder to meet requirements. If you do things in the right order, you will have no problem getting approval.  That is, assuming you handle all accounts responsibly.

You can apply for accounts like Quill and Office Depot that are a little harder to get, but apply with starter vendors first.  That way, you’ll be closer to meeting their requirements. 

Keep the Ball Rolling

After that, you just have to keep the ball rolling.  You should be well on your way to building your cash flow pool. You can apply for higher limit cards with more rewards. Remember to keep using all of your accounts responsibly, as It does no good to build a cash flow pool if you have no cash available on any of your accounts. 

Bonus: A Top Secret Tip to Help You Get Started

It is not easy to start the ball rolling on your own. It is much faster, cheaper, and easier in the long run to get expert help to build your cash flow pool. A business credit expert can help you evaluate your current fundability. Then, they can get you on the right path to building and improving fundability if necessary. Furthermore, they can point you toward those initial business credit accounts that will open the door to many more, 

With a business credit expert, you will not waste time applying for accounts you do not qualify for. You won’t waste time and money on accounts that do not report to the business credit reporting agencies. You will know exactly what step you are on and what needs to be done to move on to the next step in the process, so you can build your cash flow pool effectively and efficiently.

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.

Once your business credit is strong, a business credit expert can guide you toward even more accounts that may be great additions to your specific credit pool.  These may not be accounts that report, but rather may be more suitable for the type of business you run. Once your business credit profile is strong, you can use non-reporting accounts to continue to grow your business long into the future. 

What Does This Mean for Cash Flow Management? 

It means you can run your business without worrying about cash flow gaps. You can take advantage of wholesale deals when they come along.  It will be possible to apply for larger jobs, knowing you can get the tools and equipment you need to get the job done without depleting cash reserves.

You will be able to quickly take advantage of investment and growth opportunities with confidence, knowing you have the cash available to do what you need to do.  In addition, you can limit your exposure to fraudulent charges when making online purchases. That is sensible cash flow management.

The post How To Use Business Credit Wisely to Help With Sound Cash Flow Management … So Your Cash Flow is Always Strong and Never a Headache appeared first on Credit Suite.

The PPP Loan Extension Offers the Gift of Time: Use it Wisely

On March 30, 2021 President Biden extended  the PPP loan application deadline for the Paycheck Protection Program.  The extension pushes the deadline from March 31, 2021 to May 31, 2021.  It includes PPP loans for nonprofits as well. In addition to the PPP loan extension, this also allows for an extension of the SBA PPP processing time to June 30, 2021. 

This is a major win for small businesses, as the program’s PPP loan forgiveness provides businesses a way to keep going despite the ongoing economic fallout from the pandemic. 

The PPP Loan Extension is a Major Win For Small Businesses in More Ways than One

This serves two purposes. First, it allows more small businesses time to get their PPP loan application completed and turned in. At the same time, it gives the Small Business Administration more time to deal with any technical issues that may pop up with SBA PPP loans funding and processing. 

Why Is a PPP Loan Extension Needed?  

An extension is necessary to provide more support for businesses while the U.S. population is getting vaccinated for COVID-19 over the coming months.

It will give businesses more time to apply loans.  This includes both first-time loans, and even a second draw PPP loan if applicable.  The second draw is a second PPP loan available to some businesses that have already received one Paycheck Protection Program loan.  Those who have issues with the application process will also be able to spend more time working through those problems.

Other PPP Loan Changes

Other recent changes will help even more applicants.  This includes the smallest of small businesses, as well as minority-owned businesses and those located in rural communities. A two-week period in March was set aside only for businesses with fewer than 20 employees to apply.

That time is over, but still helpful is the fact that the administration is also now calculating the loan formula for sole proprietors, independent contractors and self-employed individuals differently.  Furthermore,  gone are the restrictions that prevent business owners with prior felony convictions not related to fraud, or those who have been delinquent on federal student loans, from receiving assistance. 

Learn more here and get started with building business credit with your company’s EIN and not your SSN.

What Can You Do In the Meantime? 

There is no question that the PPP loan program is a savior for many small businesses.  Still, the money doesn’t come automatically. What if you need money right now? What if you can’t wait for the sometimes long PPP loan application process? Maybe the PPP loan won’t be enough. How can you supplement it? 

Here are some ideas to either bridge the gap or take the place of a PPP loan.  

Credit Line Hybrid

The credit line hybrid is business financing that does not require security.  It is available to pretty much anyone for any type of business expense. You can use it for real estate, equipment, working capital, and even startup expenses.  Furthermore, there is no down payment, and you do not have to provide income documentation. It is completely no-doc financing. 

You need to have personal credit of 680 or above, but keep reading if you don’t because there are still options. .  Also, there cannot be any late payments in the past 12 months, there can be no open collections or bankruptcies, and there should be less than 4 inquiries in the past 6 months on your consumer credit report.  There also have to be at least 2 open credit cards with a $2,000 limit or higher with 2 years of good payment history. 

If you do not meet these requirements, including the minimum credit score, you can take on a credit partner who does meet them. 

You can get up to $150,000, and often interest rates are as low as 0% for the first 6 to 18 months.

401(k) Financing 

The 401K financing program offered by Credit Suite is a flexible and powerful way for a new or existing business or franchise  to leverage assets that are in a 401(k) plan or IRA. These are assets which are tied up in stocks. 

It doesn’t take long either.  In as little as 3 weeks you can actually invest a portion of these funds into your own business. Then, you not only have more control over the performance of your retirement plan assets, but you also have the working capital you need.

This type of program even has the blessing of the IRS. In fact, they  have their own name for it. It’s called a Rollover for Business Startups (ROBS). 

Do You Qualify for a ROBS? 

Surprisingly, this type of financing is pretty easy to get. You do not have to submit financials or have good credit to get approval. In fact, all the lender will ask for is a copy of your two most recent 401(k) statements.

If the plan has a value of more than $35,000,  you can get approval. This is true even if you have really bad personal credit. You can get however much of your 401(k) is “rollable.” Sometimes, you can secure a low-interest credit line or loan for 100% of your current 401(k) value.

The plan you use cannot be from a business where you currently work. It will have to be from previous employment. Also, you can’t still be contributing to it. 

Learn more here and get started with building business credit with your company’s EIN and not your SSN.

Business Revenue Lending

If your business has consistent revenue of $120,000 per year or more, you may qualify for business revenue lending. Lenders verify revenue using bank statements.  There can be no recent bankruptcies, but the minimum credit score to qualify is as low as 500.  

A business must also be in operation for a year or more, and they must do more than 5 small transactions each month to get business revenue financing. 

Merchant Cash Advance

If your business accepts credit card payments and you have at least a 500 FICO, you could get up to $750,000 in a merchant cash advance. Credit rates are usually lower compared to traditional financing as well.  

There must be $100,000 or more per year in credit card sales, and typically you can get approval equal to one months credit card financing volume. 

Account Receivable Financing

Outstanding account receivables can also be a source of funding for your business. Get as much as 80% of receivables advanced in less than 24 hours. You get the rest of the accounts receivable amount once you collect full payment for the invoice. Closing takes 2 weeks or less. 

Receivables should be with the government or another business. Getting financing with receivables from individuals is not as easy. If you also have purchase orders, then you can get financing to have those filled. You won’t need to use your cash flow to do so.

Enterprise SBA Loans

For these loans you have to have collateral worth up to at least 50% of the loan amount, but you only need a FICO of 620.  There also can be no bankruptcies in the past 4 years.  Only for profit companies qualify, and they must have positive trends in sales growth. Generally amounts are available of up to $12 million with terms up to 25-years. 

Credit Suite can help you get funding with these options and show some other possibilities.

Use the Time Allowed By the PPP Loan Extension Wisely

Getting funding for your business is not always easy.  There is more to it than just applying for a loan. Business credit can get sticky.  Having expert help can save you a lot of time and money.  While you are waiting for your Paycheck Protection Program loan, consider working with a business credit expert to help you better position your business to access the funding it needs quicker and easier in the future.  

A business credit expert can help make the most of the PPP loan extension time.  They can work with you to evaluate the fundability of your business. The stronger your fundability, the more likely you are to get funding with the best rates and terms available. You can get a free consultation to help ensure your business is set up properly to build fundability

An expert can help you evaluate the many factors that affect fundability.  There are over 100.  With so many factors, it can be hard to figure out where you stand without an expert. They can work with you to figure out where your business falls short and help you improve.  Fundability is a tangled web affected by many things, and the time and money saved having an expert walk you through it is extremely valuable. 

Learn more here and get started with building business credit with your company’s EIN and not your SSN.

What Else Can a Business Credit Expert Help With?

They can also walk you through the steps to establishing a business credit profile separate from your personal credit profile. Once that is done, they can help you find accounts that will report to that business credit profile.  

This is key, because many vendors do not report.  Those that do report, do not make it easy to find out that they do.  A business credit expert has relationships with a number of vendors.  They can help you find the ones that will successfully help you build your business credit score. 

PPP Loan Extension: You Still Have Time

Thanks to the PPP Loan extension that President Biden signed, you still have time to get your PPP loan application in.  No matter how fast you act however, some things never change. Especially with the PPP extension on the SBA side, you will likely be waiting a bit for your approval and to actually receive PPP funds.  

If you need money right now, try one of these funding options.  Then, put to good use the time the Paycheck Protection Program extension allows you.  Use it to get in touch with a business credit expert.  It’s a great time to start the process of building strong business fundability. The stronger your fundability, the easier it is to fund your business whatever the world throws your way, even a global pandemic. 

The post The PPP Loan Extension Offers the Gift of Time: Use it Wisely appeared first on Credit Suite.