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Easy Steps to Build Business Credit

Many people nurture an ambition to start their own business. To this end they focus on finding a great business opportunity. Once they are convinced that they have a good business opportunity, they focus on coming up with the perfect business plan.Even if they have some seed capital for the initial investment, they soon find that they need at least some credit to scale up their business and generate sufficient profits. When this happens, they look for business credit. However, most credit institutions are wary of leaning to a business unless the promoter has taken the trouble to build business credit. The steps one needs to take for this are similar to establishing personal credit.

To build business credit you first need obtain all the necessary licenses and permits for the business to operate legally. Though this might take time and involve some amount of red tape, banks and other credit institutions view such a business more favorably. Yet another step in establishing the business credit profile is to have a separate phone number and yellow pages listing for your business. Even if your business address is the same as your residential address, you need to ensure that the phone number is distinct.

In order to establish business credit, you also need to incorporate your business. A limited company is a separate business entity, entitled to its own credit. Once these steps have been taken, the business needs to contact vendors and others who will offer small amounts of credit and report the credit behavior of the business to the credit reporting agencies such as Dun and Bradstreet as well as Experian. To ensure a good report, something that is essential to business credit success, ensure that your business pays the creditors on time. Apart from this, monitor what the creditors are reporting to the credit rating agencies. In case of inaccuracies, get the information corrected by providing proper documented evidence. This is vital to build business credit.

Most agencies offering credit to corporates look for a viable business plan. To convince creditors of the soundness of your business idea, document your business plan. When meeting potential creditors, you need to take along this document and also be prepared to defend your financial projections and forecasts. Make sure your expenses and profits are in tune with industry standards as most creditors will be aware of general industry figures. In case you are projecting greater that average profits, you need to show how you plan to achieve this. This will help you to build corporate credit.

Once you get a few creditors on board, it will be easy for you to convince the rest. This is because your timely payments will help build business credit. Moreover, creditors will take it as a positive sign that others besides you find the business idea a viable one. In case you have angel investors in your business, make it a point to highlight this to other creditors. Ultimately, it is prompt payment of dues that will help you to maintain a good business credit.

7 Signs It’s Time to Reinvent Your Online Business

The only thing constant about entrepreneurship is change. If you’re not one for change, prefer the status quo and like to keep things “as is” for was long as possible, then being the CEO of your own business is probably not for you. Nothing will kill your online business faster than stagnation.

Keeping your business current is the name of the game. Although this doesn’t mean “chasing rabbits” or having ‘bright shiny object syndrome”. Nor does it mean dumping your core values.

A current business means your market + your products + your marketing + YOU = are in tune, fresh and relevant in your niche!

Unfortunately, even the most well-intentioned entrepreneurs can let things get stale. Reinventing doesn’t mean starting from scratch. It means updating, refreshing and sometimes retooling.

So how do you know if your business is ready to be reinvented? Here are 7 business and personal signs that tell you it’s time!

7 Signs It’s Time to Reinvent Your Online Business

1. You’re doing things exactly the same way you did a six-months, a year, two years ago or more. Things happen fast on the Internet. (That’s one of the things I love about it the most.) Everyday brings a new tool, technology, strategy, opportunity. Your customers change. The market changes. If you’re doing business in exactly the same manner you were 6 months ago, your business is losing ground. What’s one new thing you’ve implemented in your business this month?

2. What your customers want to buy from you has changed, but your offerings haven’t. Can you imagine going to your favorite store week-after-week and seeing the same products displayed the same way? It wouldn’t take long for you to say “What’s the point of coming here anymore, everything is always the same?” What new things are you offering your customers? Are you continually bringing exciting products into your business? It doesn’t matter what you sell – whether it’s physical products, affiliate products or digital products – you have to continually introduce new products into the marketplace in order to keep up with what people are buying now.

3. Your business model isn’t a viable business model. I’m a firm believer that you can’t be successful in your online business without a passion, purpose or interest. But that doesn’t mean “do what you love and the money will follow”. If you love goats and want to build a business selling goat products but there isn’t a big enough market for goat products – you don’t have a viable business model. If you want to build a business selling common craft project instructions that are widely available for free on the internet, it’s going to be a tough-go. And many times your business model and your numbers don’t add up. I had a client who wanted to design, sew and sell her own clothes online. She also wanted to make a consistent $10,000 a month in her first year with no additional staff. We ran the numbers – she wouldn’t have had enough hours in the week to turn out the inventory required to make that kind of money on her own. Even with staff, she would have been working for free. Passion, interest and optimism are core when running your own business. But a viable business model is a requirement.

4. Sales are lagging. If your sales are not what they used to be, something has changed. And before things get any worse, you need to find out what the problem is and figure out a way to solve it by reinventing what your business offers. If you sell physical products, the first place to start is by looking at your product line. What new products have you brought into your product line recently? If the answer is none, it’s time to restock. If you’re marketing affiliate products and your sales have dropped, what’s changed? How’s your traffic, what’s the demand for the product your marketing, did you get slapped by Google? If you’re business is not growing, it’s dying. But don’t let it get to that point before you refresh and reinvent it.

5. Your niche is declining or has changed. Every niche market ebbs and flows, morphs and changes. This is why it’s so important to stay on top of the trends in your industry. Trends are about people – your customers. Lifestyle changes, demographics, the economy, marketplace changes all dictate the trends in your niche. What about your niche? What’s really going on in it today? Is it growing, changing or declining? How has it changed? Where does your business fit in?

6. You haven’t grown as a person and neither has your business. The person you are when you make your first $1 on the Internet is not the same person you’ll be when you make your first $10,000 or $100,000 or $1,000,000,000.”

In fact, it’s impossible for you to remain the same and make more money. If you’re not growing as a person, neither is your business. That’s why if you haven’t made your first $1000 yet, you shouldn’t be worried about how you are going to make your million. You’ll grow and change along the way and as you grow, so does ability to make money.

7. You’ve lost passion/interest in your business. This one is tricky. Because there is a fine line between temporary boredom or frustration in your business and a true loss of passion/interest. And of course there are a whole slew of emotional reasons why we may think we’ve lost passion in our business, but we haven’t. Things like fear of failure, fear of success, wanting to “have fun” and not work, reluctance to adhere to a schedule, perfectionism, you name it.

But don’t kid yourself. You know in your gut if you’ve truly lost passion/interest in the business you’ve been running. And if you have, the time to sell it or reinvent it is now. Don’t wait for it to die on the vine so that you have an “excuse” to shut things down. I see this happen all the time. Instead of taking a stance of power and saying “I’m ready to move on.” and then sell the business or reinvent it while it’s still profitable, they wait till it’s on life support to make changes. It’s a lot easier to sell or reinvent a business when it’s on top.

Catalyst for Change

Einstein said “Insanity is doing the same thing over and over again and expecting different results.

If it’s time to reinvent your business, it’s better done sooner than later. There’s no sense in waiting a moment longer to reinvent a business to make it more profitable!

Applying For a Business Loan – Cash Flow, Collateral, Credit Score

It is quite a process when you apply for a business loan at the bank or credit union. A lot of business owners think that financial institutions are asking for the world when they try to apply for a loan. Some people still remember their mortgage application process few years ago when “no income” and “no documents” loans were the norm. Those usually feel frustrated when they are applying for a business loan today. I’ll give you a few tips of advice about what you should know and look for when applying for a business loan.

First of all you have to put yourself in a financial institution’s position for a minute. Bank or credit union is in the business of lending not investing, which means none of the financial institutions will be excited about your start up or business that’s been around for less than three years. You do need track record of stability and historical cash flow to prove that business does have and will have the ability to repay the loan. This leads us to the most important factor in this process – cash flow.

Cash flow and debt service coverage. Positive cash flow, profit, surplus whatever you call it is the most significant aspect of your loan approval process. If your business is able to demonstrate last three years of profit on paper 50% of the approval is done. Pay attention that I said it has to be on paper – federal tax returns, accountant or CPA reviewed or in some cases audited financial statements are what counts. Don’t try to give a story, “oh, my business is making money but I don’t show it on paper” or “I don’t have my federal tax returns and I am definitely not getting reviewed or audited financials”. Those two statements will get you a quick decline. To measure positive cash flow and repayment ability financial institutions use a ratio called debt service coverage (DSC). Business needs to show at least two to three years of 1.25x DSC. DSC is calculated as followed annual net operating income (NOI) plus depreciation, amortization and interest divided by total business annual debt service. For example if business NOI wit add backs is $375,000 and the total amount to make payments on business debts is $265,000 the DSC will be 1.42X which is good. There are also plenty of other ratios and test methods but DSC tends to be the key when it comes to small business lending.

Collateral can be as important as cash flow and DSC. In most cases even if you show the last three years of DSC greater than 1.25X but you lack collateral the loan can get declined. Usually when bank says collateral they mean real estate or industrial equipment and machinery. Business good will, account receivables, contract assignment, inventory or office equipment is not the most desirable collateral. Strong cash flow always has to be followed by strong collateral. On occasion you might find some lenders that will grant you a loan with the lack of cash flow but strong collateral and low LTV. The business might be showing one or two years of losses but if LTV is at 40% or less some lenders might approve the loan for a business that’s been in existence for a while. Typical LTVs are up to 80% on owner occupied real estate and up to 75% on investment real estate. Vacant land for which loans are scarce these days can be financed for up to 50% LTV. On brand new industrial machinery and equipment you can expect up to 80% LTV, on used up to 60%.

Personal guaranty. Requirement of owners’ personal guarantees is expected for most of the privately owned companies. If your business is generating $50 million or less in annual revenue most of the time business owners (anyone owning 20% or more of the business) will have to pledge personal unlimited and unconditional guaranties. For a public company or business generating close to $100 million in revenue personal guarantees can be limited or completely waved. Once in awhile an owner of newly established company makes the statement, “I am not providing my personal guaranty, that’s why I’ve created corporation or LLC” Those get quick answer “No”. There is just no way around it if you want the loan.

Business credit history is one of the urban myths. Usually newer businesses are very concerned about their business credit history. Let me tell you that this is probably one of the last things bank is concerned about when you apply for a business loan. Your personal credit history is even more important than business credit history. And believe in business lending “no income verification and no document” loans do not exist so don’t sweat about your business credit score.

As part of the due diligence lender will check for pending litigations, outstanding judgments, collections or tax liens. None of that better show up because even if you have strong cash flow and solid collateral the loan will get declined. In case you are not applying or applied and got denied with your current bank don’t bad mouth them and have a good explanation of why you are not applying with them or why you got declined.

To summarize it all as long as you have strong cash flow and collateral you should be OK. If you are not getting what you need with your bank try others. There are tens of thousands of banks and credit unions in United States and you can find the list of your local financial institutions by visiting FDIC or NCUA websites. Try not to use brokers unless you have no time to shop around because all brokers do is the same as you would do – just call around from one bank to another. Some financial institutions are even shying away from broker solicited loan requests because they don’t have a chance to learn more about the borrower themselves. In these challenging economy times a lot of businesses tend to have more success when applying for loans at their local community banks or credit unions.