| For years I have read the popular business magazines, | | | | more and more credit under the business name only if |
| all having so called experts write articles for | | | | it maintains a positive business credit score. |
| entrepreneurs on how to finance their business. "The | | | | The more credit received under the business name |
| top 10 strategies for financing your start-up", "How the | | | | the more likely other companies will grant that business |
| SBA can help your small business", "Personal credit is | | | | credit. No one wants to be the first in line to grant a |
| the key for entrepreneurs" and so on. In most cases | | | | business $50,000 in credit, but if others already have |
| I'm willing to bet those writing these articles are | | | | they will be more inclined. |
| journalists that have never had a successful start-up. | | | | Fourth, is to use the owner's positive personal credit |
| How can I come to that conclusion you may ask? | | | | score in combination with a positive business credit |
| Because of the bad advice they give. | | | | score as leverage for obtaining hundreds of thousands |
| Going to the SBA for a loan, using your retirement | | | | of dollars in unsecured lines of credit for the business. |
| funds, tapping all your personal credit cards or giving up | | | | The key is to do this with lenders that don't report the |
| 75% of your idea to an investor are all ideas I have | | | | accounts to the personal credit bureaus but rather the |
| read from the popular magazines. The thing is, in every | | | | business credit bureaus. Many banks offer business |
| one of these cases you are using your personal credit | | | | lines of credit and loans, however finding the right type |
| and not separating you from your business. You are | | | | of product from these banks can be tricky. A business |
| putting 100% of your credit and assets at risk. | | | | owner needs to make sure the loan or credit line they |
| I have worked with thousands of small business | | | | apply for reports only to the business bureau. |
| owners who have been very successful without the | | | | By keeping business debt separated from the personal |
| need to use their personal credit cards, retirement | | | | credit report, a business owner has the ability to keep |
| funds or fill out stacks of paperwork and wait months | | | | their personal credit score high. The more a business |
| for a response from SBA backed banks. In fact I have | | | | owner uses their personal credit in the business, the |
| seen entrepreneurs with access to hundreds of | | | | lower the score will drop. Credit scores determine the |
| thousands of dollars without giving up a percentage of | | | | ability to buy homes, rates on car insurance, and |
| their company or having any of the money show up | | | | several other factors. Keeping a personal credit score |
| on a personal credit report. Sounds good right? Well, | | | | above 720 is extremely helpful in the business owner's |
| there is one catch. You will need to go through the | | | | personal and business life. |
| evolution of financing your business. You can't start at | | | | The fifth stage of the business financing evolution is to |
| the end. This is the problem with most entrepreneurs. | | | | look at other alternative financing the business may be |
| They want fast results and aren't willing to wait. By | | | | able to obtain. Leasing is one key area. Why use |
| taking the quick fix they give up ownership and put | | | | precious cash reserves to buy equipment or software |
| their personal credit at risk. | | | | when you can make a small monthly payment? In |
| The evolution of business financing starts with a solid | | | | addition 100% of the payment on the lease is |
| foundation for your business. A solid foundation is | | | | expensed. |
| comprised of several parts. The first of which is | | | | The final stage deals with investors. The majority of |
| structuring your business entity appropriately. I | | | | investors don't want to look at companies unless they |
| recommend to every entrepreneur that you use a Sub | | | | have already progressed through the business |
| Chapter S-Corporation, C-Corporation or Limited | | | | evolution stages outlined above. Keep in mind that an |
| Liability Company to operate the business. This is the | | | | investor is not just investing in a business they are |
| first step in separating the business owner from the | | | | investing in the business owner as well. If the business |
| business. The next phase of building the solid | | | | owner has tapped every available resource for credit |
| foundation is to ensure the business is in compliance | | | | and cash personally and never taken the time to |
| with the lending markets. Several business owners are | | | | establish business credit, financing or lease |
| surprised when I tell them most lenders we work with | | | | arrangements an investor will toss that company's |
| when reviewing a credit application will first call | | | | proposal in the garbage quickly. |
| directory assistance to see if your phone number is | | | | Not every business owner will find themselves at the |
| listed. It's a simple check, but it's the first flag that will be | | | | stage they need an investor. They may have a |
| raised for them if the business isn't listed. Why would a | | | | combination of enough cash-flow, credit and financing |
| lender finance a company that doesn't want anyone to | | | | in place from the early stages that they won't need |
| find them? | | | | additional capital. However, if a business needs to |
| There are hundreds of other due diligence phases that | | | | grow with the help of additional capital or financing |
| a company must go through in order to ensure the | | | | there are two typical ways an investor will look at the |
| owner and business are not considered "high-risk" for | | | | deal. |
| obtaining credit and financing. The more a business has | | | | The first is through debt financing and the second |
| in place to show that it is a real business the more | | | | equity financing. Debt financing with an investor is |
| likely a lender will grant credit to that company. | | | | where they provide a loan to the business in exchange |
| The second step in the evolution of small business | | | | for a pre-determined amount of interest. Equity |
| financing is to define what the business does, what | | | | financing is where an investor puts money into a |
| makes it unique and why it will be successful. The | | | | business in exchange for ownership. There can also |
| business owner must create a one-page "sales pitch" | | | | be a combination of debt and equity. |
| for the business, also referred to as an executive | | | | The majority of small business owners believe this is |
| summary. The executive summary can be used when | | | | where they should start, with the investor. In reality this |
| applying for credit, seeking investors and developing | | | | is the last place a business owner should look. |
| marketing campaigns. | | | | Investors want to use their money to grow a business |
| Business owners need to keep in mind when seeking | | | | by having the money spent on revenue generating |
| financing that the most important thing for a business is | | | | activities. The typical small business owner that goes |
| to produce a profit. Without revenue there will be no | | | | to an investor says "I need a million dollars to start my |
| profit. Marketing the business will help produce the | | | | business." When asked what they're going to use the |
| revenue and the executive summary will help create | | | | money for they say, "start-up costs and payroll". This is |
| the marketing. | | | | where the investor walks away. No investor wants to |
| Third, a company must build a business credit report | | | | fund a project so the business owner can make |
| separate from the owner's personal credit. By working | | | | payroll, buy office furniture, equipment or office |
| with trade credit, the single largest source of lending in | | | | supplies. |
| the entire world, a small business can tap into limitless | | | | This is the perfect example of the evolution of |
| leverage for buying goods and services they need to | | | | business financing. The company starts out as an idea, |
| start, run and grow the company. The beautiful thing | | | | then structure is put in place. Next, the business |
| about trade credit is in many cases it's free money. If | | | | becomes real with licenses and a sign outside the |
| a vendor grants terms of net 30, a business owner | | | | building. Next, the business creates an identity with the |
| has the ability to use the vendors goods or services | | | | right message. Then the business obtains trade credit |
| for 30 days without interest before they need to pay | | | | that separates the personal and business credit in |
| the vendor. The other wonderful part of trade credit is | | | | order to obtain larger lines of unsecured credit. All of |
| that there are companies offering products and | | | | which is used to build the infrastructure of the business |
| services small business owners need who will report | | | | without maxing out all the available credit for the |
| the credit to a business credit bureau. The reporting of | | | | business or business owner. Last, the business has the |
| the trade line will create a business credit profile | | | | ability to seek investors because it has done |
| separate from the personal credit of the business | | | | everything required to create the solid foundation. |
| owner. Eventually the business will be able to access | | | | |
