“Strategy without tactics is the slowest route to victory.
Tactics without strategy is the noise before defeat.” – Sun Tzu.
The smart entrepreneur has a strategy and works on the strategy. At CreditGeni.us, we are here to help you do that
For most of you to even start a business you will need money to fund your venture. Where you get it is up to a variety of factors. One item is a definite: if you do not know the basis for business credit or personal credit you do not have the ability to protect yourself and your venture.
When you are starting your entrepreneurial career, everything will be based on your personal credit report. For startups, it better be impeccable. You should have a mid-score of over 700 with little to no hard inquiries – those pesky items that populate your credit report when creditors are looking at your credit report.
If you do have scores below 700 or you have hard inquiries on your report, credit repair is what you need. As a startup, if you have little or no capital, the primary credit funding will be through credit cards.
The SBA is great for funding, if you have capital investment and good credit scores.
Our mission is to assist small and medium business’s achieve their goal of operating a financially strong, independent, and profitable business by securing necessary capital at the lowest possible cost, especially in the critical first two years of operation.
The Importance of Building Business Credit
During the early stages of an entrepreneurial startup, money is often tight. Many new companies rely on the owner’s use of personal assets to secure funding for the business. This is all predicated on the entrepreneur having great credit to begin with on the personal side of credit. The goal of the small business owner is twofold: to build or increase sales revenues and to build the company’s credit worthiness. This last goal of building the company’s credit worthiness often goes by the wayside.
Business credit is an asset and as such, increases the value of your company. It is an economic resource that makes up the financial foundation of the company.
There are two types of business assets. One is a tangible and the other is intangible.
- A tangible asset are assets such as vehicles, real estate, computers, office furniture, and other fixtures that are used for business use only.
- The second are intangible assets and these are nonphysical resources that add value to a business such as copyrights, trademarks, patents, accounts receivable, and business credit.
Remember this: business credit ADDS value to a company’s financing ability and credit capacity. By building business credit with all the national business credit bureaus, your company increases its financial capacity. This creates an asset that can be used to acquire financing for the business based on its own credit worthiness rather than the personal credit of its owners.
There are three major benefits of building business credit:
- Large credit capacity –businesses have 10 to 100 times greater credit capacity compared to personal credit. As a credit worthy business your company will be in a position to qualify for financing based on factors is strictly related to the business. Without building business credit you will have to continue to rely on your personal credit. And this affects your ability to purchase and finance on your personal credit side, like homes and vehicles.
- Increase company’s value –a credit worthy business has a powerful advantage in financing ability. This asset is fully transferable and WILL increase the value of the company and is very attractive for a potential buyer or investor.
- Protect personal credit –a business owner will be able to limit if not totally eliminate the use of personal credit checks since the company has its own credit ratings. This prevents a business owner from having to co-mingle personal credit, personal debts, and personal assets with the company.
Building business credit can and will provide remarkable results and benefits for your business. With this asset a business can secure lines of credit to provide growth, leased equipment, finance a company vehicle, and obtain business loans and credit cards without putting personal credit at risk.
Please remember: the greater the business credit, the greater the potential return you will receive if you choose to sell the business in the future.
Types of Financing
There are many ways to finance your business. Here are some of them:
- Savings –if you have money in savings, this may be one way. Also known as bootstrapping, this works well when you are receiving very low returns on your money and the cost of borrowing is high. It’s the safest as you do not have to pay it back. But it also reduces your cash on hand.
- Friends and family –friends or family may lend you money or even give it to you as a gift. This can be risky because if the business fails or if you take longer than expected to return the money, your relationship will become strained and possibly destroyed. They also may feel they have a stake in the business and give you advice you do not want and need. You can also exchange part ownership in the business or stock options. This is usually not a wise option.
- Home equity loan –known as a HELOC (home equity line of credit), you borrow against the equity you have in your home. The huge downside is if your business venture fails, you will lose your home through foreclosure. Not a comforting thought.
- Credit cards -these must be business credit cards and there are some well-known companies that offer business credit cards. You must ensure they are business credit cards. They’re easier to receive than traditional business loans and won’t damage your own personal credit if you pay them by the due date. Typically, you have to sign a personal guarantee to obtain these. If you go delinquent, they’ve been known to put this information on your personal credit. A true business credit card may be approved depending on personal credit scores but the line of credit will not show on personal credit reports. The benefit? This safeguards your individual debt to limit ratios on your personal credit report. Upside -large amounts could be available. Downside -interest rate might be high and it can take a long time to repay should you just pay interest. .
- Online networks – these allow people to make unsecured loans to you. One of them facilitates business loans of up to $100,000 starting at 5.9% with 1 to 5 year payback periods. Origination fees can apply and interest rates can run up to 30%for riskier ventures. .
- Traditional banks loans –these are not easy to obtain anymore and most banking institutions utilize the Small Business Administration for this. The SBA guarantees loans from participating banks which then entice those banks to lend money to qualified applicants. Please know that applying for a loan from the SBA involves a lot of paperwork and takes a long time. Rates and terms will vary and are based on the type of business loan. Amounts range from $50,000 to $1,000,000. For example, to receive a loan for a restaurant, it can take 50% cash equity from the applicant.
- Nontraditional lenders –there are many companies to offer lending solutions to small businesses that have different criteria for lending than traditional banks. Most will not finance startups and all have different criteria such as length of time in business, what type of business, which your gross income is on a monthly average, and so forth.
- Venture capital -these firms, referred to often as angel investors, are very picky about their equity investments. One million dollars is usually the minimum investment and the fees are often rather high. A representative of the VC firm will likely want a seat on your Board of Directors and can have input into the direction of the company.
- Crowdfunding –you have heard of these places: sites such as Kickstarter and Indiegogo. These companies are usually more successful with creative projects and consumer electronic gear.
Do You Need Excellent Credit to be a Successful Entrepreneur?
The quick answer is no. However, if you want or need SBA financing, better terms, or business credit cards, you will need a score over 700.
When you are an entrepreneur, or small business, most credit decisions will be based on your personal credit.
A lower credit score, or a score below 700 will decrease your profit margins and minimize alternative financing available to you. Simply put, it could severely limit your business growth rate.
If you have a score below 700, we can help. Sign up for a FREE Credit Genius Consult.
Will I need to submit my W-2s, tax returns, or any financials?
In some situations we do not collect your financials and we will not need them. Other times we do.
What if my business is new, can I still get lines of credit?
YES! In fact, many of our clients are owners of new or start-up businesses. We have a strategy just for you.
Will Unsecured Business Lines of Credit affect my personal credit report?
Most of our business lines of credit do not report to your personal credit report unless you go into a default status.
I have great credit, what’s the problem, why can’t I have what I want?
Great credit is good and it will help you in everything you do as a business owner, but good credit alone does not get you access to the large amounts of actual Business Credit available. There are many other items we take into consideration. The right lenders need to be identified, what type of business credit lines are the best for your goals, where your company is located. These and other issues will ultimately determine the amount of total Business funding available.
If I have someone else who has better credit than me, can I use them as my credit partner or personal guarantor?
Yes, About 25% of our Business Credit is with Co-Signers.
How much capital can I raise through the Business Credit CARD Program?
Our Average funding is 100,000 per person. Some people and Business’s Qualify for just 50K while others can get 200,000.
Since there’s no collateral what happens if I default or stop making payments?
There’s still a PG (personal guarantor) who signs for the repayment of the loan. With unsecured credit you must keep in mind that if you default or stop making payments that the lenders will still do whatever they can to collect their money.
Are business credit lines ‘non-recourse’ money?
No, not normally. Most require a Personal Guarantee or PG.
I have a good paydex score. Isn’t that better?
A paydex score is a good thing to have, and sometimes a paydex score and a D&B profile can be important when going after Business Credit. However, there are other times when it’s completely irrelevant.
What are the rates for business lines of credit?
Interest rates vary from about 8 to 21 percent. Most of our credit lines start out with 0% promotional rate from 6 to 18 months.
What if my credit is not perfect
Depending on your credit status, you might be eligible for a business line of credit right now, with no further steps. If so, we’ll proceed. However, if your credit report has some “blemishes” that need to be fixed, no problem.
How long does credit repair take?
It depends on the issue at hand. If it is just Inquiries, that can be a short period of time.
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