If you have never owned a business before, it may be a surprise at how much there is that has to happen before you even begin to sell a service or product. All of this preparation takes time, but it is well worth the effort. Once you have spent the time to giving your business the right foundation, everything else falls into place much easier. This is true of every day operations and even truer of getting funding. There are simply no shortcuts to getting business loans. Before any lender will give you the money you need to open your business or expand on an existing business you have to prove your business fundability. That takes time to develop and there are some very well-defined steps to achieving the credibility you need for it. Set Up Right Beginning a business takes more than just thinking up a name and getting started. You have to have the appropriate trademarks, register your business with Federal agencies and also make sure you have all the proper licensing. It also helps to join the local Chamber of Commerce, the Better Business Bureau and also to have the right online affiliates. Register with Dunn & Bradstreet and make sure you are in the 411 listings for your state. Proving a Path Spend the time it takes to develop a clear business plan. This is one of the best documents for proving business fundability with a lender. It shows both your plan of operation and how you expect to create a profit as well as all of the expenses you will have making that money. Creating Credibility It is the age old question, how do you get good credit if you can’t get credit to create it? Luckily, it is a little easier than you might think, but it does still take time. You have to go through the paces and provide a record of reliability that spans enough time to show your business is reliable in making payments.  You create good business credit by opening a bank account, keeping at least the minimum amount of money in it and making regular deposits and payments of accounts. You open several vendor accounts. Lenders want to see at least 5 different vendor accounts paid on a regular basis.  Obtain at least 3 credit cards in your business’ name and use them to make purchases for your business. Keep them up to date and along with your banking records, vendor accounts, they will create a strong credit background to prove your business fundability.  

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To a traditional lender the only really important aspects pertaining to business fundability are can you pay and will you pay. That’s why it is so important to create a good business credit profile and to be able to show a reasonable expectation for profit with your business when you apply for a loan from a bank or finance company. What are Reasonable Profit Expectations? It isn’t quite enough to show your business will make money. You have to show that your business will make enough money to both repay the loan and stay in business. To show the proper level of expected profits needed to prove your business fundability it should have at least a 1.5 ratio of profit to loan. That means if you are applying for a $20,000 loan, you will need to show that your net profits (the money from all income after expenses) will be at least $30,000 over the course of the loan period. Will you pay is often harder for new businesses to prove. Having good personal credit is good, but you really don’t want banks to use your personal credit to back a business loan. There are two reasons to avoid that situation, the first is it doesn’t help build your business credit and the second is it puts your personal finances at risk should your business have difficulty paying back the loan. Borrowing From Friends and Family There are some advantages to borrowing from friends and family, but it can come at a big cost. Friends and family that are willing to invest in your business may expect to have input in your operations even when they aren’t capable of making decisions or to give advice. However, friends and family can be a great deal more lenient if you have trouble making your payment on time and may give you a break on interest. If you choose to accept money from friends and family weight the option carefully and make sure everybody’s expectations are well understood and in writing. Even loans from friends and family can affect your business fundability when looking for future loans. Make sure that if go to a traditional lending source after you have accepted loans from friends or family that you let the future lender know that existing loans are “friendly credit” and may be subordinate to the new loan.

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The main difference between opening a business bank account online and opening a personal account is the type of identification number you use. In order to open a business account you will need a “business tax identification number” instead of your social security number that you would use for a personal account. Note that sole proprietors can use a social security number for identification, but it is not a good idea if you are trying to establish your business as a separate identity. Where to Get a Business Tax Identification Number You can get your business tax identification number known as EIN (employer identification number) from the IRS website online. It is a simple process and although primarily set up for businesses that charge tax on products, it creates an individual account for your business making it a separate identity. When You Can’t Open a Business Bank Account Online There are some types of businesses that cannot open a bank account online. These include: • Gambling businesses (on or offline establishments) • Dealers of precious metals • Telemarketers • Government institutions If your company deals with any of the above services, you can still make use of online banking through your land based bank’s online account information, but you can’t open a business bank account with them online, or open a business account through any bank that solely exists online. What’s Next? Once you have your EIN, you can check out the various online banking options, and select the bank with the best deals for your needs. Make sure you check the various fees charged by the online banks you are considering. The fees can end up making a big difference in how much a business bank account costs you. Minimum deposit amounts, and the amount of money you have to keep in the account without a monthly fee will make a big difference too, so look for banks with the lowest fees to save you money, especially when starting out. When you apply you will be given several options to select from regarding the type of account you want, including if you want the debit card option which can help you make your funds more available to you.   For more information take the Business Fundability Test

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If you are feeling down about your financial outlook, but are anxious to start a business, you can turn your debt problems into business opportunities. I won’t blow smoke up your skirt and say it will be easy, but you can do it if you are smart and make the right moves. Business opportunities always exist for those who are open to trying new things, but most business start ups require some amount of money. The old saying “you can’t make money without spending money” is usually true. So how do you get the money you need if you have debt problems? You need to take some important steps to ensure your best chance of success. Know Where You Stand It may seem like a no-brainer, but you might be surprised at how many people opt to not know the specifics about their financial situation. They know things are bad, but are afraid to look at credit reports and find out just how bad. You might even find that your credit isn’t as bad as you thought it was. However, if you do find that your score is extremely low, you can only make the moves you need to correct problems by knowing what debt problems you have. Know Exactly Where Your Money Goes Besides your credit report, you need to examine your current spending habits in order to make room for business opportunities. If you don’t have an official budget, take the time to write down everything you spend on a monthly basis. This will give you an idea of your personal cash flow, and where you might be able to get some extra cash to start your business. Pay Down Existing Debt The fastest way to improve your credit score is to pay off debt. Do what you can to pay off each account with money you have discovered in your personal budget. Even if it is just a small amount of money each month, you can whittle away your debt slowly but surely. Think like a Millionaire After paying down your debt, and getting your credit score up, start thinking like a millionaire. Pay yourself a monthly amount that you put away and never touch. Look for high interest ways to invest safely while you are doing this so the money works harder for you. As you save you can look for ways to get loans as well now that your credit is cleared up, so that you can begin truly capitalizing on your business opportunities.

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It should come as no surprise that it is not easy to obtain small business loans if you have bad personal credit. That can make starting up a business with bad personal credit a little more difficult, but it is not impossible. Develop Your Business Credit One way to make your loan applications more attractive is to build your business credit apart from your personal credit. While it is not the fastest method of obtaining small business loans, it may very well be the surest way to get the money you need for expansion or further development.  The first thing you will need is a federal tax identification number. This is easy to obtain, and will replace your social security number when making financial transactions related to your business, and also when filing taxes for your business. Once you have your federal tax identification number you can take the steps necessary to begin accumulating credit for your business: • Open vendor accounts in your business name • Open a bank account in your business name • Apply for small business credit cards in your business name Once you have established good credit in the name of your business, you can use that to apply for traditional small business loans from local lenders. Getting Started Faster If you don’t have the time or the resources to fund your own startup you can check out the many social lending possibilities available online. Social lending sites are appealing, because many times all you have to do is convince a potential private investor of the validity of your idea and your ability to make it work. Social lending sites are the internet connection to venture capitalists.  If you are already in operation, but don’t have enough time invested in your business to have built up reasonable business credit, consider getting a cash advance against accounts receivable. These loans are like payday loans. You will need to provide the lender with a full account of your receivables, but it provides you with cash flow to buy new equipment, fund payroll or expand without waiting for the money you have coming in.

Business Credit

It’s easy. It happens. You’re in a rush and you need to pay a bill for the business, so you whip out your personal credit card. It’s available, so what’s the big deal?  The problem with using personal credit cards or credit information to get business loans and credit is that you entangle your personal credit with that of your business. That’s a much bigger problem than you might think. Even if your business is you and no one else, here are 5 reasons why mixing your business with your personal financial information is dangerous. 1) It is easy to get over-extended in business. If you do not protect personal credit scores by getting any businesses expense funding in the business name, and tax ID your ratings may plummet. One of the biggest influences on credit ratings, besides lack of payment, is the debt to income ratio. If your business has a lot of working capital money outstanding, lots of accounts waiting for payment, you may have a serious cash crunch that will have a negative impact on your credit. 2) Paying your business expenses with personal credit cards and/or paying business taxes with your social security number instead of a Federal Tax ID number means that you “are” your business. If you have a bad stretch and can’t pay your bills, not only will you be unable to protect your credit rating, but your creditors may be able to attach your personal bank accounts, property or other assets to get their money. 3) If your business achieves a great deal of success, it is still dangerous to combine your personal and business identities. You could be a target of industrial espionage that ends up with losing personal private financial information and even identity theft. 4) You could destroy your ability to provide for your family. Sure, you may be providing well for your business by obtaining loans and credit for your business with your personal information. However, that could be a serious problem when you want to buy a new house, need a new car or just try to apply for a new credit card for family expenses. Your extended credit is already loaded up due to your business. If you are late on a business loan or credit payment, you have destroyed your personal ability to get a loan or credit as well. 5) The biggest reason may well be one that keeps your business going during the tough times. Having credit built up in your business name will not only help you protect personal credit, it gives your business a persona. Good business credit will help you get loans when you need them. There are times when it is impossible to keep personal and business credit separate. New or small businesses with fewer than 20 employees are often treated as personal financing situations by banks and lenders. However, it is a smart move to do everything in your power to separate them as much as possible.

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Unlike the usual business credit card application, application for a corporate credit card is more time consuming and, not to mention, more stressful. Knowing that it carries specific restrictions compared to the ordinary credit card is one reason it is more difficult to obtain. [More]

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