Posts

Business Credit Myths That Can Cost You Money

Business Credit Myths That Can Cost You Money

Start building your business credit the right way.

You know the adage: A little bit of knowledge can be a dangerous thing. That’s certainly true when it comes to credit, where a misstep can affect your credit scores for months or years, making it more difficult and expensive to get funding when you need it. And when it comes to business credit, many small business owners have little experience or frame of reference, making it easier to fall for bad advice.

Here are some common business credit myths that can trip up small business owners:

Myth: Building Business Credit is Just like Personal Credit

The overall process of building business credit is similar to that of building personal credit: Establish accounts with companies that report payment information, then pay on time and keep debt low. But there are some differences between the two you should know. One major difference is that payment information for business credit may be much more detailed than that of personal credit. Unlike personal credit, where payment history falls into 30-day buckets, if you pay a business account even a few days late, it may be reported as a late payment.

Myth: My Business Needs to be Two Years Old & Turning a Profit

While it’s true that many banks prefer to lend to successful businesses with at least two years of experience and solid financials, there is nothing stopping you from establishing a commercial credit history as soon as you start your business. And why wait? Similar to personal credit, an older credit history will be considered lower risk than a newer one, so the sooner you start, the better.

One easy way to get the ball rolling is to get a business credit card to use for your business purchases. Most business credit cards report to one or more commercial credit agencies; however, the application is usually evaluated using the owner’s personal credit scores. And personal income can also be used to help qualify. That means that if you have decent personal credit and sufficient income from a variety of sources, you can probably get a business credit card—even if your business is not yet profitable.

Myth: I Pay My Bills on Time So I Have Good Credit

Paying your bills on time is a great habit, but it only helps your credit history if those accounts are reported to business credit bureaus. Some lenders and vendors report to one or more of these agencies, but others do not report.

 

Myth: I Don’t Need to Borrow So I Don’t Need Credit

Your business credit information may be used to evaluate your business for a variety of opportunities beyond loans, such as working with new partner, a major retailer, or landing a government contract. It may be reviewed when you apply for business insurance.

You never know when your business credit reports will be reviewed, or when business credit scores will be used to make a crucial decision about your business. Establishing that credit rating before you need it will give you one less thing to worry about when opportunity comes knocking.

 

Setting all myths aside if you have questions ask your accountant or a lending professional for direction, that’s what they are there for.

Making Sense of the Financing Process

Making Sense of the Financing Process

The financing process runs like clockwork here at SFG. After all, we are in the financing trenches all day, every day. We understand that to people on the outside of the financing world, the process might not be second nature. In fact, it’s typically quite the opposite. That’s why we have put together this eBook to cover the ins and outs of the equipment financing process.

Inside this eBook you’ll find:

  • What you should know before you begin working with a lender
  • How to select a lender you can trust
  • What you should know about the application
  • How to decipher the financial documents
  • How funds are distributed from the lender

The Plan

Approaching a lender for financing isn’t something you should do on a whim. You will need to prepare first.

Know what you need and why you need it. Simply walking into the lender’s office and saying “I need four trucks” likely won’t get you very far. Why do you need those four trucks? Has your bakery business picked up so much in the last several months that you can’t handle all of the deliveries with a single truck? Do you need to replace your current fleet of delivery trucks because they are ten years old and constantly breaking down? The key here is the reason. It may be obvious to you, but your lender is going to want to know how the new piece of equipment is going to be beneficial to your business.

Consider your time frame. If you have to make that massive amount of deliveries in your single truck tomorrow, you’re going to need financing a lot sooner than if you’re just looking to upgrade your fleet. It’s important to have an idea going into the financing process of how soon you’re going to need the equipment. That way, your lender will know from day one if they are going to have to move mountains to speed up the process for you – in many cases, they will.

Know where your finances stand. Before you go waltzing into that lender’s office, you’ll want to pull your credit report and recent financial statements. That way you’ll have an idea of any errors or blemishes that might be red flags to your lender and you’ll be prepared to talk about them. On top of this, you should be prepared to answer questions about your monthly, quarterly and yearly revenue, average bank balances, and credit history.

Select a Lender You Trust

Now that you’re certain that you need financing, the next part of the process is to find a good lender. Before you run right into your nearest bank, be sure to consider your options and do some research.

There are many different types of lenders, from a traditional bank to a non-traditional “alternative” lender. Consider what you are looking for and the benefits of each. Be careful, though, some banks will not finance used equipment and will likely put many more restrictions on your loan.

Once you’re settled on the type of lender and think you’ve found a good place, go online and check out their website. Is there any­thing there that raises a red flag or doesn’t sit right? Do a Google search and read all that you can about that lender. See if you can find reviews of other peoples’ experiences. The more you know the better.

Complete the Application

You’ve selected a financing partner you’re excited to work with and you’re ready to sit down and tackle the application. Easy, right? Maybe. Making a mistake at this part of the process could mean your funds are delayed, which could be costly if you’re count­ing on that money for an important business need.

Remember, the lender is going to want to learn a number of things from your applica­tion – most likely the length of time that you’ve been in business, your overall revenue, an average bank balance, and your credit score. It’s important to give the lender only and exactly what they ask for. If the lender wants to see bank statements from the last three months, don’t send bank statements for the entire last year, even if it might paint your business in a better light. This will only give the lender more paperwork to sift through and could confuse the process.

On the same token, don’t withhold critical information about your business. If they ask for bank statements for John Doe’s Tasty Bakery, but you give them bank statements for your other operation, John Doe’s Bread Shop because both businesses will be using the new equipment, but you didn’t tell them about your second business in the first place, then you are going to slow down the process.

Submit the Application

In the end, the timeframe depends on you as well. If the lender sends you the appli­cation, and you sit on it for four days before you send it back, you are slowing down the process for yourself. Be prepared for the lender to come back and ask for more information or clarification on parts of your application.

Once you have submitted your application, and it has been approved by the credit team (usually within 1-to-48 hours), the lender will begin to assess your options and what programs might be a good fit for your needs.

The Financial Documents

This is when the lender will draw up the financial documents. The documents will include information on payment terms and your financial responsibility.

It’s usually not necessary to have a lawyer go over the paperwork, but don’t be afraid to call in counsel if there’s something that doesn’t sit right with you or something you just don’t understand. Be sure to read the entire document carefully. Don’t worry! Though it may seem like there is a lot of financial jargon in the financial documents, almost all of it has to do with consequences and actions the lender may take if you don’t pay your bill on time. As long as you pay on time, you generally won’t have anything to worry about.

Remember, if you do have an issue paying, call your lender first before just skipping out on your bill. Chances are they will be much more willing to work with you if you call and explain your situation.

The Funds

Once the signed documents have been returned to the lender, the lender will ensure that the documents are signed in all of the correct places and that nothing has been altered. Now, the lender may begin the funding process.

The lender will call the vendor for the delivery date of the equipment and request their payment terms. At this point, the vendor will likely deliver the equipment to you. It is your responsibility to look over the equipment and ensure that it is exactly as advertised and free from damage. Look carefully, as this is an important step!

If all is well with delivery, you’ll give the lender a verbal authorization and funds will be released to the vendor. In almost all cases, the contract will start when money leaves the lender’s hands.

Repayment

Once the funds have left the lender, the financing process is complete and the responsibility for repaying the loan lies in your hands. Be sure to make payment in accordance with your contract terms.

If your financial agreement is a lease, you will most often return the equipment at the end of the lease term, but in some cases you may be granted the opportunity to purchase the equipment at “fair market value” or at set a price outlined in the initial contract.

Now, you’re ready to finance your next piece of equipment!

 

Business Credit

Since Business Credit Is Highly Unregulated Most Companies and Business Owners Are Unaware of How Important It Is

Tracy Becker, FICO Pro CEO & President of Credit Restoration and Education at North Shore Advisory, Inc.

Personal credit reports and scores are a hot topic these days and there is a wealth of information available online to help educate consumers on how they work, their significance, and regulations pertaining to them. When a bank rejects a consumer for a mortgage the law requires the bank give an explanation for the rejection and the credit score used in the decision making is supplied to the consumer.

On the other hand, opposite rules apply for business lending and business credit information. When applying for a business loan a bank doesn’t need to divulge if it used a copy of your business credit reports, scores, and indexes to make a decision. If businesses actually knew how easily accessible a copy of their business credit was and how limited and poorly the scores might reflect on them, they would be running to get a copy of their Dun & Bradstreet or Experian business credit profile. Equifax is also a business credit bureau but is rarely used.

However, building a well-balanced and positive business credit profile can be a great asset for a company. Unfortunately business owners & professionals believe if a company has credit it will automatically be listed on their credit profile and reflect on their score. Actually, this is the furthest from the truth. Many vendors, lenders, and creditors do not report to the bureaus and it is difficult for companies to figure out which ones do. Having a professional credit expert guide and build the right credit can give a company an edge in getting loan approvals and the best interest rates.

Is Business Credit Important?

Business Credit

 

Business credit scores are the business equivalents of personal FICO scores, and are just as important. As with consumer scores, business credit scores play a big part in determining whether financing of all types will be approved. In today’s economy, credit scores and indexes can be the difference between a company’s ability to fail or succeed. Business credit is an asset that should be cultivated, maintained, and used to bring more opportunity and growth to a company.

Here are some of the benefits of a healthy business credit profile:

●  The ability to grow a business and get new financing through equipment leasing, business loans, factoring, credit extensions, and more.

●  Huge savings. Healthy scores allow for approvals and can also bring the best interest rates and fees on loans, leases, and credit extensions. Companies can use their new improved scores to refinance existing loans.

●  A winning edge over the competition. Companies are often judged by their credit score, and a healthy one reflects a financially sound and successful business. This can make the difference when competing for a bid/contract or acquiring a new business-to-business customer.

The most important score for a business is the Paydex score, which is from Dun & Bradstreet (D&B). The D&B Paydex Score ranges from 1 to 100, with higher scores indicating a lower risk business. Although D&B is the oldest and most popular business credit bureau there are two others. Experian and Equifax both provide business credit reports to vendors, lenders, creditors, and potential clients. These bureaus have their own ratings and although they are not as popular as D&B they are used by some banks and vendors.
Unfortunately, one late payment on the wrong account or a collection account for a specific debt listed on a business’s report can drop a score by 40-plus points. This will immediately place a company into the high risk category, and can cost hundreds of thousands in lending fees as well as hinder new business. In addition, many vendors, lenders, and creditors do not report to the bureaus for business credit, so a business may have limited credit even if they have been making on-time payments with a variety of accounts.

Tracy Becker President
North Shore Advisory, Inc.

The Factors That Influence Your Credit Score

credit report

FACTORS THAT INFLUENCE YOUR CREDIT SCORE

  • Your pay history  (35%)
  • Revolving credit card balances  (30%)
  • Time in the bureau (15%)
  • Recent credit inquires (10%)
  • Type of credit (10%)

POSITIVE FACTORS:

  • Paid off accounts with good payment history
  • Low credit card balances
  • Limited inquires

NEGATIVE FACTORS:

  • High credit card debt
  • Line of credit debt—improperly listed
  • Late payments
  • Too many inquires
  • Judgments and Liens

PERSONAL CREDIT IS IMPORTANT

Things have changed and your personal credit is more important than ever. Because the marketplace moves so fast, many lenders have switched to a “scoring” system to evaluate credit. These “scoring” systems rely heavily on the personal credit history of business owners.

WHAT BANKS AND FINANCE COMPANIES LIKE TO SEE:

  • Clean personal credit: A credit report will be reviewed based on the social security numbers of individuals and business owners. Clean credit refers to credit reports without negative information.
  • Equal credit highs: Have you borrowed the same amount of money in the past?
  • Good : Has the applicant made loan payments on time?
  • Company financial statements: (used for business owners) Income statement—Is the company profitable? Are revenues increasing or decreasing? Balance Sheet—Does the company own (assets) more than they owe (liabilities)