30% of your score is credit utilization: how much of your credit limit is used up by your balance? On each revolving account, you need to keep your balance below 30% of your credit limit, or you will hurt your FICO score. For example, if you have a $200 credit limit, you must not have a balance higher than $60, which is 30% of $200. Do NOT close a paid off credit card account….

They also look at total utilization: they total up all your balances, and all your credit limits. That total percentage utilization must be kept below 30% of total credit limits. Close that paid off account, and you’ll take away $0 in total balance, but you’ll take away $$$ in credit limit, and up goes your total utilization.

15% of your FICO score is for length of credit history. The average credit user has an oldest open account
that has been open for 14 years. They also score you on the average length of time all your open accounts have been open. So if you close that paid off account, you’ll hurt your score because (1) you lose an old account and (2) the average age of your accounts could go down.

So consider sacrificing for a few months by taking a second job, and paying your extra earnings toward reducing your balances

How much will my scores increase when negative items are removed? 

It depends on the type of debt. 

• Collections average 20-30 points
• Tax Liens approx 100
• Bankruptcies approx 100
• judgements approx 50
• late payments 5-10 points
• 40% LTV on credit card – -10
• 50% LTV on credit card -20
• 60% LTV+ on credit card -30  

Many time entrepreneurs turn to angel investors, private equity lenders and what is commonly known as “hard money lenders” to fund new ventures.  Unlike traditional lenders or banks, many of these lenders ask for a deposit or  upfront cost that can range from $2,000 on up.   This has become the cause of much controversy and debate in the small business community. 

Unfortunately, there are lenders that are unethical and dishonest. However, in all fairness, you have to separate what is unethical from what is a common industry practice. The key is to know what the upfront costs will cover.

Here are a few questions that you should ask before paying upfront fees.

1) Are the fees for additional services that must be rendered before the application can be processes.

EXAMPLES –

• If the loan will be secured by real estate, a commercial appraisal wil be required. The fees start at $2,500 and up. 
• Does the lender require a business plan? The cost to have a professional (not template based shabby work that is available anywhere on the internet) plan prepared will range between $3,000 – $10,000. 
• For a new business, do you have to provide proof of licensing, permits or industry approvals? This is called “soft costs” and lenders will not approve funding until they are sure that the project / business will be permitted by regulatory authorities. 
• Are there any blueprints, drawings, or plans that have to be prepared, lenders require proof that the project is feasible and that all costs have been considered. This means that architectural or engineering costs have to be expended before funding.

2) If you are asked to pay for these costs, take the lead. Do you have the option of either choosing the service providers or giving final approval on one that has been recommended by the lender. Ask if the contract with each of these service providers is with your company or with the lender. This will ensure that you have ownership of the product.

3) Before spending money, find out who gets the original and /or copies of the finished product

4) If the upfront costs are strictly for the lenders fees, keep in mind that processing large loan applications require a substantial investment of time and there is no guaranty that you will be funded. There are subjective factors that can cause your application to be denied that neither they nor you have any control over. Before you sign any agreement, discuss the anticipated workload involved with processing your application. Only you can decide if the fee is reasonable.

5) The last thing that you should know is that not all lenders are “really lenders” some are brokers that match lenders with applications and charge a fee for the matching service, processing the application and completing all of the tasks needed to package the loan for the lender. Ask —- and then decide if you are comfortable with his/her fees.

The bottom line is that not all lenders require an upfront fee, if the fees are for legitimate costs that is the cost of doing business. If the fees are for broker’s services renders, you have to decide if the value offered by the broker is worth your investment.

 Let me be very clear in correcting a myth that is floating around the small business circuit.  Business credit is not a substitute for personal credit.   While a poor personal credit score will not stop youfrom establishing a business credit score, it will hinder you from being approved for larger lines of credit.  

Even when lenders agree to consider granting larger lines of credit based on the business credit score, often, the personal credit score of the company’s owners will be researched to determine the character of the borrowers.   

If your personal credit suggests that you don’t honor your financial commitments and obligations, a lender can very well conclude that you will not honor your business commitments and thus deny your application. 

In an earlier post you learned that lenders grant business credit to properly structured businesses not people.  Ironically, it is people who are responsible for ensuring that the borrowed funds are paid in a timely manner.  The same lenders who will not approve your loan application if your business entity is not properly structured, will be the same lender that will require  assurances that the owners of the company conduct financial affairs with integrity.  

Again,  it is possible to build a high business credit score with poor personal credit.   So why is having bad personal credit a problem?  The answer is that even when you establish a strong business credit score, your personal credit score may be a factor under the following circumstances. 

1)   A vendor purchases a comprehensive report on your company  Dunn & Brad Street and it includes a  profile of the company’s principals including their personal credit score;

2)      Often the managing members of a new limited liability company or the officers of a new corporation may still be asked by certain banks or lenders to be guarantors of business loans if there is not sufficient collateral for the loan;

3)      Even when a business loan is granted based on business credit, having a good personal credit score demonstrates responsible fiscal management and adds credibility to loan applications.  

4)      Demonstrating both a business and personal history of sound financial practices, positions you to receive the best interest rates and lower loan fees. 

5)   It is  not likely that you will obtain large loans without having to at least use your good personal credit as a point of reference for your character when applying for large loans.

If your credit report has blemishes or your score is below 650, there steps that you can take to quickly get on the right track.   Start by utilizing the 4-6 month time frame while you are building your business credit score to resolve personal credit issues. 

The company My Fico offers great tools to help you quickly increase your score. 

Every principal with 10% or greater interest in the company should order their personal tri-merge credit report with credit scores from  Fico Scores/Reports.    Here you’ll receive all three credit reports, all three of your FICO credit scores and 12 of your negative reason codes which can be used to begin immediately increasing your score.The goal should be to maintain a personal credit score of at least 670 or better.  

Remember, you can build a business credit score despite having bad personal credit, but it is always in your best interest to have a high  business and personal credit score.

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Start building business credit today

Dear Friend,

Are you making the same mistakes that 97% of all entrepreneurs make when trying to build business credit?  If you want a simple to follow plan for establishing business credit and obtaining the funds that you need for startup or working capital, then read on…………. 

******************************************************************************************

CLICK HERE FOR ADDITIONAL INFORMATION &  TO ORDER YOUR COPY TODAY

http://rhemafundingsolutions.com/Business_Credit_Xpress_-_Do.html

________________________________________________________________ 

You see, one of the first things that lenders evaluate is whether your business is structured as a “true business”. 

________________________________________________________________

What does that mean?  Let’s look at a case study.  This is the story of Jim Jones, a local businessman.  

          Jim has become well known in the community as an excellent computer technician.  He  repairs printers, upgrades older computers and has built quite an inventory of hard to find parts, fun accessories and software.  He didn’t mind working late into the night to finish jobs for his family, friends and neighbors.  You can imagine how excited he was when he was informed by the school board that he had been awarded an annual contract to upgrade and repair the systems in their administrative offices.  

He spent an entire afternoon  making calls to his closest friends and colleagues to share the good news.  After the furor died down, the preparations begin.  He organized his daily schedule; hired his sister-in law to work part time as his bookkeeper and hired three technicians to work on an as needed basis.  

He knew that he needed to purchase additional equipment so he made an appointment to visit his local bank and applied for a small loan.  Having very good credit, he was approved and within two weeks, he had the $15,000 that he needed to purchase new equipment. 

Did Jim build business credit?   The answer is a resounding NO!.     Many would beg to differ, after all he explained to the lender how he would use the funds and he paid his loan note every month on time.  What did Jim do wrong?
________________________________________________________________________________
In the next few posts, we’ll examine each of the blunders that Jim and 97% of all entrepreneurs are makings.

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For now lets start with the first blunder. 

Jim failed to properly structure his company.  In all of his planning and excitement, Jim didn’t even consider the importance of changing his legal structure.   Jim was a sole proprietor.  Not only was this the easiest way to operate a business, Jim’s best friend, a local accountant advised him to wait until the business made a certain amount of revenue before incorporating.  After all, why bother with all of that paperwork until you are sure the business is going to be successful.  This advice is common. 

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As a sole proprietor, your personal assets and credit are combined with your business assets and credit.

_______________________________________________________________ 

Though you have less paperwork, you have not established your business as a separate entity and therefore, it can not be granted credit on  it’s own without your personal guaranty.  Well how did Jim get approved for his loan?

The banker pulled Jim’s personal credit report and made a decision based solely on his personal credit score.   When Jim makes his timely payments every month, they are reported on his consumers credit report, not a business credit report.  Jim gets the credit, not the business.  In the eyes of the bank, they are doing business with Jim, not his business. 

What should Jim do? First, he should click the link in the right column and download our Guide to Choosing a Legal Structure.    This will give him an understanding of the pros and cons of each legal structure.  Next, he should contact the secretary of state in his home state and request a copy of the Articles of Incorporation if he has chosen to become a corporation.  If he has chosen to become a limited liability company, he should request the Articles of Organization. 

Being wise, Jim understood that filing Articles with your Secretary of State is only one of several tasks that have to be completed to successfully establish a new legal structure.   He heard someone mention that he needed to prepare bylaws, choose a board of directors, prepare meeting minutes, stock ledgers and board resolutions. 

_______________________________________________________________ 

He needed help and only had a small budget.   

_______________________________________________________________

Jim ordered the Business Credit Xpress Program, began immediately following the steps in the Business Management Kit ( an bonus program in Business Credit Xpress that provides all of the forms and contracts needed to organize your corporation).   Jim was well on his way to correcting his first blunder. 

Jim has taken the first step in building business credit.  Have you?

The solution is creative financing.  

This simply means that rather than seeking funding in the form of a loan or line of credit and then using the cash to meet the need, the owner will apply for credit in an alternate form. 

A perfect example is equipment leasing.  Similar to cash loans, these credit accounts are often reported to the business credit bureaus and become  a positive part of your business credit report. 

  Compared to purchasing your equipment, here are some benefits to leasing:

1. All types of machinery, equipment, furniture, computers and vehicles can be leased from or through banks, commercial finance companies or leasing firms.
2. Do you use computers? If there are major improvements in a computer system during the period of the lease, the business owner may be able to upgrade the system by merely changing the terms of the lease
3. Equipment lease payments are often lower than a payment-for-purchase.
4. The resulting available cash from avoiding numerous debt payments in fixed expenses can help improve the cash flow of a business.

Another major benefit is that at the end of the lease you have a several options. 

You can structure your lease so that when you make your last payment:

1. You pay a minimal amount (often $1 ) and then you own the equipment;
2. At the end of the lease you pay the current market value and then take ownership;
3. Renew your contract and upgrade to a later model piece of equipment;
4. If you are ready to purchase your equipment, turn in the leased product and purchase a later model.

There two disadvantages to leasing that you should be aware of:

1. Over the life of the lease, you will generally end up spending more than the equipment’s original purchase price, if you had bought the item outright.
2. The loss of the tax benefits that accrue from the capital depreciation of major items such as buildings, major equipment, computers and vehicles. An owner who purchases such items can depreciate their declining value on successive tax returns, and thereby reduce the tax burden for the business.

 Next, I’ll give you a list of questions that you should ask before signing your lease.

To your growth & success,

DaJuan

There’s so much hype about business credit that for the novice, it can be tough separating fantasy from reality.  It would be wonderful to think that all  you have to do is push a few buttons, learn a secret code and money will begin to flow like water.   Fortunately, for business owners, who are commited to building a strong business model that is not the case.   Here are some real facts that you have to keep in mind…

 Business Credit is NOT…..

1.     It is NOT credit granted on the basis of personal credit scores.

 It’s not uncommon for business owners to be granted loans,
 equipment leases or professional services for their businesses
 if they have an acceptable personal credit score.  If business  
 credit has not been properly established, these loans are often
 personal loans used for business purposes. They are approved on
 the basis of the entrepreneur’s personal credit only and are
 reported on their personal credit file. This is an unwelcome  
 two-edged sword.  Though credit has been granted,  the owner
  has unwittingly lowered their personal credit score by
 increasing their income to debt ratio.  

2.     Business credit is NOT a substitute for building and  
       maintaining a good personal credit score.  Rather, it is a
       separate credit score and profile that can ultimately  
       become the sole basis for credit approval

       Building a strong business credit profile if you have bad
       personal credit is possible.  However, there are times when
       your information about your personal credit may be requested: 
 
 ·  When you are applying for large lines of credit and loans,
        ·  If your business is les than two years old ,
        ·  If the industry that you are in is considered high risk. 

Don’t despair,  bad credit doesn’t have to stop you from building
business credit. We will walk you through each step and if needed,
connect you with professional help to have your personal credit repaired.

3.    It is Not obtained by randomly submitting applications and
      hoping for the best.

      Every lender has “ criteria” that must be met before credit is granted. 97% of business credit applications
      are denied simply because business owners don’t take the time to
      learn what a lender requires.   Before you submit, applications,
      take the time to understand business credit and let us introduce
      you to lenders whose criteria you can meet.

I’ve got good news ….. Finding loans, lines of credit, retail credit cards or equipment leases for your business without having to provide a personal guaranty is often one of the most daunting experiences that a small business owner will face. The frustration of consistently being denied business credit can quickly take the excitement out of entrepreneurship.

I’ve got good news …..

With all of the unavoidable challenges that we face as business owners, struggling to finance your business doesn’t have to be one of them. You can follow a blueprint that will place you on the path of building business credit.

Here’s a brief overview of the main steps.

Step 1. Choose the right legal structure
Step 2. Comply with all government and industry requirements for registering your business
Step 3. Register with the business credit bureaus
Step 4. Contact current vendors and request that your timely payments be reported the the major business credit bureaus
Step 5. (Here’s where it gets a little tricky) Begin applying for small credit accounts with vendors that will report your timely payments to the credit bureaus but who won’t require a personal guaranty

Step 6. Organize your financial portfolio so that you have the right types of credit.

I know it seems too simple. I’m sure you’re saying if that’s all there is too it, I can go and do that today. Slow down, while steps 1-6 are an overview, it’s the details that get you. Let’s take a closer look:

Step 1 and 2 – After completing steps 1 and 2 are you sure that you’ve covered the 100 or more compliance areas that a vendor can check before denying you credit?

Step 3 – There is information that can caused you to be categorized as “high risk” by the credit bureaus – not the vendors – and you’ll be denied credit. Do you know what it is?

Step 4. If your current vendors don’t report their accounts to the bureaus, is there a way to get the information on your profile?

Step 5 – Who are these lenders that will give you credit without checking your personal credit or requiring a personal guaranty?

Step 6- Why is that necessary?

Before you start randomly submitting credit application ( a big no-no!) let’s learn about the industry, it’s expectations and approval criteria – It will be time well invested.

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