Establishing Business Credit.  If you are starting a small business, you may need to rely initially on personal credit to get loans, but you should quickly begin to get business credit so that you can use this credit for future business loans.  You establish business credit by buying from suppliers and vendors and paying your bills.  Having a business credit card that you use for business purchases also adds information to  your business credit report, and bank loans certainly provide information to credit reporting agencies.

Why Build Business Credit. The higher your business credit score, the higher your rating with a potential lender, and the greater  your ability to negotiate favorable interest rates and terms with lenders. Your business credit score also affects your ability to attract potential investors, do business with suppliers and vendors, and lower your business insurance premiums.  So it’s worthwhile to take the time to work on increasing your business credit score.

Who Checks Your Business Credit. Your business credit report is easy to obtain by just about anyone, for a fee.  The report can be reviewed by a bank or lender, but also by suppliers and vendors, credit card companies, and also by customers (probably only business customers).

Check Your Business Credit. You can check on your business credit by purchasing a business credit report from Experian or other credit reporting bureaus.  Use your credit check to:

• Correct errors in the report
• Remove old negatives
• Look for credit theft and protect your credit rating
• Build your business credit rating
• Get ready to have your credit reviewed by a bank or lender

Checking your own credit periodically can give you some assurance that you are maintaining a high credit score.  You never know when you will need to use your business credit for an emergency.

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Post from: EveryJoe

What is Your Business Credit Score?

Credit card financing.  The National Small Business Association says that small businesses use credit cards more than any other type of financing.  I’ve mentioned before  the “slippery slope” of credit card financing, suggesting that you use credit cards only as a last resort, and only on a temporary basis. Getting behind with a credit card can mean that your personal credit takes a big hit, in addition to causing financial problems for your business.  If you have good credit, try to find a card with zero interest. then switch to another when the interest rate goes up.. Forget the airline miles; low interest is king here.

F&F – friends and family. Family and friends can be good sources of loans, and these loans can be “off the books” so they don’t affect your credit rating. But they can be the scariest form of financing – you don’t want to lose your good relationship with Aunt Marge because you didn’t pay back her loan fast enough.  Even scarier is inviting family/friends to join you as partners.  Think carefully before you consider taking on Aunt Marge as a partner.

Cash value of life insurance. The cash value is not the death benefit (you won’t need the loan if you die!), but it’s the value in the insurance policy that has built up over time in excess of the premium. Cash value is only present in whole life policies, so term insurance won’t give you this benefit. If you have an old whole life policy hanging around, you might want to look at it to see if there is any cash value built up.

The Small Business Administration. Take advantage of their Recovery loans, or other loan programs, like the Patriot Express loans for veterans, or the Rural Advantage program for small businesses in rural areas.

Vendor financing and trade credit- Buy equipment directly from the vendors. You’ll pay a little higher interest cost than from a bank, but you’ll get the equipment you need. Note that vendors will tell you they don’t charge “interest,” but they do have fees and charges that look and act like interest. When you add them all up, they’re usually more expensive than a bank, but they are a good source if you are looking at large pieces of equipment. If your business credit is good, you may also be able to get credit directly from suppliers, like office supply companies.  Basically.  you are getting a credit card from these companies and paying it off over time.  The interest rates on these can be pretty high, so use carefully.

Borrow from yourself. It’s been said that the definition of an entrepreneur is someone who steals office supplies from home and takes them to work. Look through your house, to see what you can find. You don’t really need the best, newest furniture. Can you get by with your old computer? I know a dentist who used good patio furniture for her reception area. Then a year or so later, when she could afford it, she bought new furniture.

All of the above. If you really want to get that business started or keep it afloat, you will need to be even more creative. Adding up funds from Aunt Marge, credit cards, and vendor financing might be what you need to get started in your business.  Most business start-ups are financed on a combination of many sources of funds.

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Post from: EveryJoe

When You Can’t Get a Loan for Your Business

The Dangers of Credit Card Financing.  If you have really great credit, you can probably get a 0% credit card.  Then you can either (1) dump all your other business credit cards onto that one or (2) Use the zero interest one to buy stuff you need or (3) both.  But here is the danger:

You forget to make a payment. Just one payment, even a few days late, can negate the no-interest card contract.  And you will see your interest rate on that card (where, by the way, you just transferred your other balances) to over 30 percent.  No kidding.  There is pending legislation that will restrict credit card companies from changing your rate until you are 30 days late, but that legislation won’t go into effect until 2010.  Until then, you must keep your credit cards current.

Your 0% interest rate runs out. If you are keeping track, you could switch to another 0% interest card and transfer your balance to that card.  But, then you have two cards.  One with, let’s say, a 22% interest rate, and another with 0% interest.  You’ve rolled the balance to the new no-interest card, and you have the first card sitting there doing nothing.  The temptation is to use that card “just a little,” and pay the balance off every month.  You can see what a slippery slope this is.

Before you know it, you’re in trouble. Too many credit cards with too many balances can destroy your credit rating.  You won’t be able to get more credit cards at low rates, so you’ll have to pay higher rates from the get-go. And now you can’t even get a loan from a bank and you have no way to pay off the credit cards.

It’s a vicious  cycle. The only way to avoid it is to get one low-rate credit card and pay off the balance every month.  When the card rate jumps up, cut it up and cancel it.  Or just don’t get started in the first place.

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Post from: EveryJoe

The Slippery Slope of Credit Card Financing