Author: Kay Roper

10 Steps for Creating a Fundable Business Setup in 2022

It’s a new year. Whether you have a new business or you have been running your business for a while, these tips will help make sure you have a business setup for success in 2022 and beyond.

Why Does Your Business Setup Matter?

The way you set your business up affects its fundability. It cannot be fundable if it is not built on a foundation of fundability. What is fundability, and what are the building blocks of a fundable foundation?

Fundability is a business’s current ability to get funding. Of course, there are things you cannot control related to fundability.  Yet, there are plenty of factors you can control.  These are what you need to focus on.  They include setting your business up with a fundable foundation, and more.

Business Setup: a Fundable Foundation

Follow these steps to build a fundable foundation for your business.

Step 1: Don’t Neglect Your Business Name

This is more important than you may think. It includes a lot more than just choosing a name. First, check with your Secretary of State to find out if they require that a business name be unique.

Then, keep any indication of a high-risk or restricted industry out of your business name. Your business can be Rachel’s rather than Rachel’s Gas Station. This can help prevent an automatic or nearly automatic denial from a lender just because of the type of business. It can increase the chances that your business actually gets a chance at funding.

If your business is perceived as high risk from the beginning, the application may not even get to the underwriting process.

Step 2: Address Your Business Address

A fundable business setup includes a physical address where you can receive mail. Never use an UPS box or a P.O. Box. In fact, some lenders will not approve and fund unless this is the case. If you don’t want to use your home address, you can use a virtual address. In fact, it’s not a bad idea if you need to hold a meeting or an interview. Regus, Davinci, and Alliance Virtual Offices are all good options.  Still, keep in mind that there are credit providers that will not accept virtual addresses.

Step 3: Make the Right Call With Your Business Phone Number

Not surprisingly, toll-free phone numbers are best.  Lenders see them as a sign of business credibility. It’s very easy and inexpensive to set up a virtual local phone or a toll free number. If you want to avoid a separate phone, just have your business number forwarded to your personal phone.

Additionally, your business number needs to be listed with 411 for most credit issuers and lenders to approve you. Check for your record to see if you’re listed.  While you’re at it, make sure your information is accurate. No record? Then use ListYourself.net to get a listing.

Step 4: Jump in With An EIN

Now, get a free EIN for your business at IRS.gov. This is an identifying number for your business. It’s similar to your personal Social Security Number. You’ll use it on all of your business documents.

Step 5: Set Up an Incorporated Business Entity

Incorporating gives you more credibility in many cases.  It sets up your business as separate from you, its owner. Of course, by default incorporating reduces your personal liability. Other entities, like sole proprietorships and partnerships, do neither.

Step 6: Get Licensed

Contact State, County, and City Government offices to see if there are any required licenses and permits to operate your type of business. Licensing requirements differ depending on state, town, and industry. Always make sure you have the proper licensing for your corporation. Often, your Secretary of State will have this information.

Step 7: Open a Business Bank Account in the Business’s Name

You must have a separate, dedicated business bank account. Keep in mind, you have to keep business and personal funds separate for the IRS anyway. Having a separate business account makes that process easier and reduces the risk of audit at tax time.

More than that, many credit issuers require a business bank account before they will approve you for an account. In addition, the date you open your business bank account is the day that lenders consider your business to have started.

As a result, it doesn’t matter if you incorporated your business 10 years ago.  If you just opened the business bank account yesterday, then in the eyes of credit issuers your business started yesterday. Since there is a minimum time in business requirement on almost all business credit accounts, the sooner you open your business bank account, the better.

A business bank account is also required for getting a merchant account, so your business can accept credit cards. For years, studies have shown that customers spend more with plastic than with cash.

Step 8: Do Not Underestimate the Importance of a Business Web Domain and Professional Website

It’s highly likely that lenders and credit providers will research your business online. As you can imagine, it is best if they learn everything directly from your business website. Not having a company website can hurt your chances of getting business credit. Keep in mind though, an unprofessional website can do just as much damage.

You need it to be a professional website. That means it’s got to have helpful information for anyone who finds your company online. Additionally, it should be hosted professionally. Buy web hosting from a hosting company like GoDaddy or HostGator.  Try to avoid a free version of a hosting service like Weebly or Wix.

Your domain should be your business name, if possible. A free Wix or Weebly domain does not look professional. For example, www.yourbusiness.com appears much more professional than www.yourbusiness.wix.com.

Furthermore, you need a company email address for your business.  Guess what? It needs to be on the same domain as your website. It often comes with a website domain provider such as GoDaddy. Do not use Yahoo, AOL, Gmail, Hotmail, or other free email services. Again, owner@yourbusiness.com appears much more professional than yourbusiness@yahoo.com.

Beyond the Foundation

After you set your business up with a fundable foundation, the next business setup consideration is risk. For some businesses this isn’t an issue at all when it comes to funding.  Yet, for others, it can be tricky.

Step 9: Choose NAICS Codes Wisely

The North American Industry Classification System (NAICS) is the standard used by Federal statistical agencies. You choose your NAICS code on the IRS website.

There are inherent issues in every single industry.  However, those listed under certain NAICS codes are considered riskier than others. It doesn’t matter if the business is prospering, they are still considered a risky business. Usually higher risk comes from chances of injury or frequently engaging in cash transactions, or a low barrier to entry.

The IRS, lenders, banks, insurance companies, and business CRAs use NAICS codes. They are trying to determine if your business is in a high-risk industry classification. The NAICS puts out a list of high-risk and high-cash industries. Higher risk industries include casinos, pawn shops, and liquor stores but the NAICS list is old and has not been updated in years.

Why Risk Matters

When it comes to funding, risk matters big time. There are several industries where lending institutions are hesitant to do business. In those particular cases, there are stricter underwriting guidelines. In contrast, some industries are considered so risky they are automatically denied.

Those businesses are left looking for other business funding solutions.

These can include:

Using a Different NAICS Code

Of course you want to be impeccably honest when it comes to selecting your NAICS code. Still, if more than one can apply, you don’t have to choose the one that’s higher risk. It pays to check and be careful when making your selection.

If only high risk codes apply, there’s nothing at all wrong with changing your business to match a related but lower risk code.

Step 10: Be Consistent!

A big reason for many credit and loan denials is inconsistent business information.  This makes it hard for the  lender to locate a business offline or online. It also sets off fraud alarms in the minds of those making lending decisions.

To avoid this, make certain your business name and other information is the same everywhere. That includes incorporation papers, licenses, utility statements, and bank statements among other things.

If you change your business name, be sure to change it everywhere.

This means you change it in these places, among others:

  • Your website
  • 411 listing
  • Your records with the business CRAs (D&B, Experian, and Equifax)

Minor details such as using an ampersand in your name in one place and the word “and” in another can cause a lot of problems. Be careful and consistent with all business information.

First Funding Options

While you are working on setting up your business, you are going to need funding. If your business setup is not yet conducive to fundability, you’ll need to pursue some alternative options. One great possibility is the Credit Suite Credit Line Hybrid.

Credit Line Hybrid

A credit line hybrid is a form of unsecured funding. Our credit line hybrid has an even better interest rate than a secured loan. You can get 0% business credit cards with stated income, and many of these report to business CRAs.  That means you can build business credit at the same time.

This will get you access to even more cash with no personal guarantee.

Credit Line Hybrid: Terms and Qualifying

You need a credit score or a guarantor with a credit score of at least 680.  There is no requirement for financials, and you can often get up to $150,000.  Be aware, some cards may report on your personal credit.

Business Setup for Fundability

Honestly, you cannot build a fundable business without first having a fundable foundation. This is what the business setup is all about. All other aspects of fundability hinge on the foundation, so don’t neglect it. Don’t skip it. If your business is already operating and you need to backtrack to make this happen, do it now. The sooner the better.

The post 10 Steps for Creating a Fundable Business Setup in 2022 appeared first on Credit Suite.

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Top 10 Brilliant Ways to Find Recession Startup Funding

The COVID-19 pandemic caught the world by surprise and turned the economy on its head.  If you are a business trying to stay afloat during this time, we can help.  The Federal government has approved funding through  The CARES Act, including the Paycheck Protection Plan.  In addition, many states and local organizations are offering their own unique funding options.  If you are thinking of starting a business during this time, keep reading for recession startup funding options.

It is Possible to Find Recession Startup Funding, but You Have to Get Creative

During a recession, prices go up, employment goes down, and lenders tend to hold on to funds much tighter. This can make funding a startup very difficult.  The truth is, startup funding during a recession is not easy to come by.  In fact, many of the traditional option will not work for the majority.  Recession startup funding takes a little more creativity.

You may even wonder why anyone would start a new business during a recession.  It’s all in your perspective.  The fact is, a recession could be the perfect opportunity to start your own business.

For example, if you are one of the many who find themselves unemployed during a recession, you are no longer tied down.  You have nothing to lose, and you can use that freedom to start brainstorming ways to find startup funding. The recession can actually be a catalyst! 

Despite the fact that there are many, many ways to get startup funding, it is still one of the greatest roadblocks to business ownership. It the first stumbling block most come across, and a recession makes it even bigger.  Recession startup funding can even seem like a mirage to some, but it is a real thing.  It just takes a little creativity to bring it out of hiding.

Some sources of funding for your startup will not work during a recession.  You need to know what your options are, what works for startup funding, and what will work best in your situation.  Then you can start looking.

Why Small Business Loans Do Not Always Work, Especially for Recession Startup Funding

With this startup funding source, recession is a huge issue.  It can work for some, but the traditional lenders tend to really hold on to their funds tighter during an economic downturn.  Since this is the source that most people immediately look to when they want to start a business, you can see why they get discouraged early on. They get turned down for traditional financing and just give up.  It can look like that is the end of the line.

Note as well: business lending tends to reduce if not dry up altogether during economic downturns.

There is more than one place to get a business loan however, and some people do not realize that.

SBA loans

These loans are still offered through traditional lenders such as banks and credit unions, but the federal government guarantees them. Since they are not completely reliant on the credit score of the borrower to reduce risk, the required credit score is slightly lower to qualify.

There is a lot of red tape related to applying for SBA loans however, and it does take a significant amount of time. If you do not qualify for traditional loans and do qualify for SBA loans however, it is definitely worth the time it takes.

If you are looking to traditional lenders for small business loans as recession startup funding, you will most likely need to consider SBA Loans. 

Learn business loan secrets with our free, sure-fire guide. We can help you get money, even during a recession.

Alternative Lenders: The Super Heroes of Recession Startup Funding

These are lenders that, as a general rule, operate online. Most of the time borrowers can apply online or over the phone and know about approval within minutes. Funds usually only take 24 to 48 hours to hit their account. Though this timeline does vary among lenders, the point is the process is fast and easy.

They also will sometimes take other factors into consideration if the credit score isn’t fabulous. Length of time in business and annual revenue can play a role as well. This makes it a more accessible source of funding for startups than traditional lenders for many. In addition, repayment terms are often more flexible and manageable.

These types of lenders are easier to work with even during a recession, though an economic downturn may slow them down some, recession startup funds from these lenders will still be more accessible to most than those from traditional banks and credit unions.

Downfall of Small Business Loans for Small Business Funding

Any small business loan is going to require strict repayment and interest.  This is harder to manage for anyone during a recession, so keep that in mind when forming your plan of action.

Credit Line Hybrid

A credit line hybrid is basically revolving, unsecured financing.  It allows you to fund your business without putting up collateral, and you only pay back what you use.

What are the Qualifications?

How hard is it to qualify?  Not as hard as you may think.  You do need good personal credit.  That is, your personal credit score should be at least 685.  In addition, you can’t have any liens, judgments, bankruptcies or late payments.  Also, in the past 6 months, you should have less than 5 credit inquiries, and you should have less than a 45% balance on all business and personal credit cards.  It’s also preferred that you have established business credit as well as personal credit.

If you do not meet all of the requirements, all is not lost. You can take on a credit partner that meets each of these requirements.  Many business owners work with a friend or relative to fund their business. If a relative or a friend meets all of these requirements, they can partner with you to allow you to tap into their credit to access funding.

The Downside?

If you don’t have a decent personal credit score, you’ll need to take on a credit partner.

Bootstrapping: The Ultimate in Recession Startup Funding

You know what bootstrapping is right? Pulling yourself up by your bootstraps and all of that. Basically, it’s when you figure out how to use what you already have as startup funding. This could include a number of options:

  • · Savings
  • · Retirement
  • · Credit cards
  • · Additional mortgage on a home
  • · Home equity line of credit

If you use retirement or savings, then you can rest easy knowing you don’t have to pay anyone back but yourself.  

The Downside to Using Your Own Funds for Recession Startup Funding

The downside to this option is either the loss of retirement or savings, or significant personal debt. If your business is successful, it is not a problem.  However, if your business does not do well, you could find yourself with some pretty major financial issues.

If you happen to have access to the amount of personal funds it would take to fund a startup during a recession, you are likely going to struggle with letting go of those funds.  It is a definite risk, especially in economically tough times.  However, it may be less of a risk than extensive debt.  It could also be the only option available.

Learn business loan secrets with our free, sure-fire guide. We can help you get money, even during a recession.

Crowdfunding

Crowdfunding is a much more viable option during economically stable times.  People that do not normally have disposable income may find that they have a little, and would like to help support a startup in return for a piece of the action.

This is still a possible source of recession startup funding, but much less likely.  There is simply less “extra” money in the pockets of consumers.  It is still worth a shot however.  

Popular Crowdfunding Platforms

There are a lot of crowdfunding platforms, but the two most popular are Kickstarter and Indiegogo. While they are very similar in most ways, they do differ in one major way.

For each, you have to set a funding goal. Kickstarter requires the campaign to reach the goal before you can access any of the funds. Indiegogo allows you to choose whether you want to receive funds as they come in, or wait until you reach the goal.

Indiegogo also offers an option to keep accepting funds on the same campaign even after you reach the original goal, rather than having to launch a new campaign to raise more funds.

The Downside of Crowdfunding

A very small percentage of crowdfunding campaigns are successful during the best of times. This shouldn’t deter anyone from trying, but there needs to be a realistic realization that a backup plan may be necessary, especially during a recession.

Small Business Grants

There are small business grants available if you qualify. Most often these are available to certain demographics including:

  • · Women
  • · Minorities
  • · Veterans
  • · Businesses in low-income areas

If you fall into one of these categories, a quick search could be very fruitful. There are grants available to those that do not fall into these categories, but they are not as common.

There are some grants offered by the government, but most often they are not awarded directly to businesses. Rather local governments and nonprofits disburse the funds. This may involve nothing more than accepting applications and awarding funds based on eligibility until money is gone.

Corporations and professional organizations also sometimes offer private grants as well based on their own application criteria and eligibility requirements.

During a recession there may actually be more options like this available, as the government is looking to help shore up the economy and increase circulation.

The Downside

Grants are an awesome source of recession startup funding if you can get one. However, they are highly competitive and therefore not guaranteed.

Do the Hustle: A Side Hustle Could Be the Answer to Recession Startup Funding

This one is a personal favorite. It could fall under bootstrapping, but in my opinion, it deserves its own category. While you are technically self-funding, this option requires you to work to raise funds rather than using funds you already have available or taking on more debt.

It also, in most cases, requires keeping your day job. When you use a side-hustle to create your own recession startup funding, the process is pretty slow. This is why most do not care to use this option. There are many benefits however.

Benefits of the Side Hustle

The first is that you can gauge the market a little. If you use your business idea as your side hustle, you can get a feel for what kind of demand might be out there. For example, if you want to open a bakery, you could bake breads, cookies, cupcakes, or whatever your specialty may be on the side and sell it. As you do so, you can save any funds you earn to go toward growing your business, and in the meantime, you are gaining a following and making a name for yourself and your product.

Your side hustle does not have to be your business idea at all. It can be as simple as cleaning or babysitting around your day job hours. The point is that you put every penny you earn back for funding your startup.

The Downside

This is a slower option, and some people do not want to wait that long. In addition, with unemployment down during a recession, it may be hard to find one job, let alone a second to use as a side hustle. Even simply things like cleaning houses and cutting grass may be hard, because a lot of people will be trying to save money by doing these things themselves.

Investors: One of the Oldest Forms of Startup Funding

One of the most obvious options, other than small business loans, is to find investors. This would be significant investment from one or a few different people, rather than small investments from a large number of people like in crowdfunding. In addition, investors most definitely invest in exchange for profit sharing, usually in proportion to their investment or a percentage they agree upon from the beginning.

The Downside

You give up some of your earnings. That’s not fun, but it could be worth it for the right investor.  Also, during a recession, investors tend to hold on to funds similar to the way lenders do.  It is a much greater risk to invest during a recession because of the economic uncertainty that exists.

Learn business loan secrets with our free, sure-fire guide. We can help you get money, even during a recession.

Partner Up: Two Heads are Better Than One 

You could also take on a partner. Sometimes the power of two is way stronger when it comes to startup funding. Where your credit score lacks, your partner’s may be strong. In most cases in life in general, two are better than one.

The Downside

Depending on how the partnership is structured, you may give up some of the managerial control.  Just like with investors, you will definitely give up a portion of the profits.

Contests: The Longest Shot Option for Recession Startup Funding

There are contests out there that offer startup funding as a prize. Think “Shark Tank.” You could try to get in on that specific contest, but there are smaller scale contests out there also. Similar to crowdfunding and grants, they are not guaranteed. They are certainly worth a shot however.

Some of them simply award prize money, while others, like “Shark Tank,” award investment funds. Either way, it is money you can use for startup funding that you do not have to pay back.

The Downside

Like grants and crowdfunding, winning a contest is not guaranteed.  It could end up being a lot of work for little to no payoff. During a recession, it is likely even fewer contests are available.  If you find one however, definitely take advantage.

Bartering

 It is difficult to fund a whole business by bartering, but in conjunction with one or more other sources of startup funding, it could be just the burst of energy you need to get you over the hurdle. Basically, it can make the funds you already have from other sources go further.  

What does this look like? Maybe you are great at keeping books, and you have a friend that is great at social media. You may offer to do his books in exchange for his creating and managing your online presence.

Maybe your buddy is adept at designing websites, or has a space that will work as a location for your business. You could offer equity in the business in exchange for a website or use of the space.

This is one source of recession startup funding that may actually help be more of a possibility during a recession than in a booming economy.  With people holding to funds tightly, they may be more likely to help you out for something in return other than money, as it will help them keep more money in their own pockets as well.

The Downside

There isn’t really a downside to this.  It may not fully fund a business, but it could definitely reduce the financial need and help you stretch the funds you do have further.  If you can find someone willing, this is a great option.

You Might Have to Get Creative, but You Can Find Recession Startup Funding

Sometimes the traditional ways work, and sometimes they do not. In a recession, the traditional ideas are sometimes even less useful. Creativity can be your best friend. You may have to use a few different sources of startup funding, recession or not. It can take longer than you originally anticipated, but slow and steady wins the race as they say.

If you work on winning grants or running a side hustle, it may feel like you will never finish the race, let alone win. Maybe you applied for loans but could not get approval. Now you are shaking yourself off and wondering if it is worth it. It is. Just keep trying. Consider the recession, though a challenge, to be an opportunity to do something not only different, but bigger and better in the long term.  The rain doesn’t last forever, and neither does a recession.  By starting your business now, you can be positioned for ultimate growth when the clouds finally roll away.

The post Top 10 Brilliant Ways to Find Recession Startup Funding appeared first on Credit Suite.