There seems to be an assumption out there that personal credit is more important than business credit, or at least important in the sense that it can have a greater impact on your finances.
What many business owners are coming to learn these days, however, is that business credit is in many cases equally important, even if your personal finances are closely tied to the financial health of your business.
And, much like personal credit, business credit is tallied and scored depending on the financial performance of your business and the state of your financial ‘health’.
Many business owners are content to simply maintain a decent business credit score and hope their personal credit will help as well, or just to keep conducting business in the usual way without paying much attention to their business credit either way.
Approaching your finances in this way might be a little more convenient, but can really prove detrimental to your business’ financial health in the long run.
Here are a few of the biggest reasons to work on your business credit score aside from your personal credit:
Small businesses with low or stagnating credit scores tend to find themselves missing out on a lot of potential leverage when it comes to lending. Much like any sort of personal loan or funding, many lenders will take stock of your business’ credit score to determine the sort of options and funding types available to you.
Maintaining strong business credit can really affect your ability to get favorable terms or higher amounts when you try and apply for small business funding, and it may become a larger problem down the road if you’re unable to secure the funding you need.
In the bigger picture, building and maintaining business credit helps you maximize your ability to get funding in the first place. Due to differences in the way the two scores are calculated, business credit actually has a much higher capacity than personal credit alone.
Building business credit can actually provide a far more accurate picture of your business’ financial performance than your personal credit alone could, and this accuracy can make or break potential transactions and deals down the line.
Maintaining strong business credit actually can help your personal finances and credit too, in a sense. By separating your business finances and your personal finances, it can greatly streamline things like financial records and tax filings and cause fewer headaches in your accounting.
Furthermore, it can actually be a strong legal safeguard – by separating business and personal expenses, you can preserve the liability protections you can get from officially incorporating your business which would be unavailable to you by using your personal finances to fund your small business.
Building business credit, like building personal credit, can take a lot of patience and effort, but the benefits are clear and will pay off well for both you and your business in the long run.
To the average business owner, it can seem like there’s a nearly endless array of options for small business loans. The terms and options can get a little overwhelming, but if you really boil it down, most options for small business funding can fall into one of a few different categories.
Two of the most common classifications of business loans are secured and unsecured. If you’ve been in business for any appreciable amount of time you’ve likely seen these terms before, but we know they can get a little overwhelming when you’re looking for funding, and learning the advantages and uses of each can make all the difference when you have to pick your next business loan.
The biggest difference between the two of them lies in the name: secured business loans require collateral to the bank or lending entity, whereas unsecured business loans are any loan made to a business without collateral.
Collateral, as you’re probably aware, is anything your business owns or possesses that’s considered of equal value to the amount of the loan, generally given to provide security and incentive for you to pay the loan back (hence the name ‘secured’).
Each of these loans are applicable to different situations and can satisfy different needs at different times. Before deciding on which type of funding is best for you, ask yourself a few questions about your business to help you decide:
Many lending agencies are more prone to giving out secured business loans, as they have a greater assurance that the amount of the loan will be paid back.
If your business has anything of value that you can put up for collateral, you run the risk of losing it if you’re unable to pay back your loan but you also greatly increase your chances of the loan actually going through. It’s a good way to make getting your loan more of a ‘sure thing’ if you have collateral to offer.
No judgment here, but there’s a lot of people out there who might not have the sort of A+ credit that banks like to see that still own a business and need extra financing. Secured loans tend to be easier to get if your credit score is less than perfect due to the collateral involved, but it isn’t a guarantee either way – better to weigh your options when able.
Not every business expense has the luxury of being easily foreseen or telegraphed, and sometimes business funding needs can crop up with extremely short notice.
Unsecured loans tend to be approved and provided faster due to the lender not having to review your collateral or anything, and even if you’re approved for a smaller amount than you might have been with a secured loan the turn around time can make all the difference in the world sometimes.
Granted, this is a question you should always be asking yourself, but it particularly applies when deciding what type of loan you’re getting. Secured loans, by nature, will always have to be more strict about their repayment terms and schedule, whereas unsecured loans (generally speaking) can afford to be more lax or favorable in their repayment terms.
Before taking on any extra business debt, however, it’s important to consider your ability to repay the loan, and on what terms you’ll be able to.
Equity financing is a unique way of raising money and capital for your small business that many small business owners remain unaware of, or at least unfamiliar with how it works.
The term “equity” refers to the ownership that both the business owner and any investors (if applicable) have in a company. Whether through signed partnerships, shares and/or stock that is bought and sold, individual owners and business partners are considered equity to a small business.
Equity financing, then, is the act of raising money and finances for the small business in question through these investors. To put it simply, equity financing is the business owner giving away part of their ownership interest in their business in exchange for money. Consider it an investor buying a piece of the business and looking for a return on their investment in the form of profit-sharing, repayment, and more.
It differs from traditional small business financing, which is generally referred to as debt financing, which requires regular repayments until the debt is paid off. Equity financing generally ties investor repayment into the operating cash flow of the business, which allows the investors to make money alongside the business and then terminates their involvement in the business when they’ve been repaid a specific return on their investment.
This is all well and good, but you might be wondering when this sort of financing can be best used. Generally speaking, equity financing is fairly time-sensitive, and depends on the needs of the business.
A good (and common) time to seek equity financing is while you’re finding startup capital for your business. Angel investors, a common source of equity financing that specifically seeks out businesses that can offer a high return on their investment, tend to flock to business ideas that are yet to get off the ground.
Equity financing is a good solution to any short-term financing needs that may arise before your business is fully opened and operational both due to its availability and its impact on your finances, making it optimal for coming up with the money needed to do things like find a location, train and hire your staff, and so on.
Another common use for equity financing is to finance riskier businesses. Many banks or traditional lenders might not be willing to take a gamble on a riskier business idea (be it concept, location, or what have you), but equity financing will allow you to get money from outside investors who understand the inherent risks and might not be expecting to make all of their money back.
While it does take time and effort to find the right investor, the availability of financing they can provide can make or break the chances of your business getting off the ground.
Equity financing can still help even after you’ve already been operating, particularly when you want to manage your business’ debt. Unlike other forms of business financing, equity financing isn’t counted into your business’ debt and is repaid much differently.
Granted, there’s always still risks involved – and frankly, it can be a lot more legwork and effort to find an investor that can meet your needs. Even if you are to find one, they can end up controlling how you run your business. Make sure you do your research before deciding on a financing strategy and keep your options open.
For many small businesses, the ability to access the right capital to grow or sustain operations can mean the difference between success and failure. Securing financial resources remains a constant concern for business owners — but one lucky business is about to get a leg up.
LendingTree, the nation’s leading online loan marketplace, has announced a Small Business Grant Contest in which $50,000 in funding will be awarded to one deserving business. According to the contest page, LendingTree is looking to fund “a small business that, despite promising opportunities or business achievements, is running into financial roadblocks, hampering its growth potential.”
To apply, business owners need to fill out and submit an online registration form through January 13, 2017, at 5pm EST. The form asks for basic information about your small business and its financial performance, why LendingTree should award you the $50,000 grant, and how you intend to use the prize money if you win.
The contest is open to U.S. residents who are 18 years of age or older. LendingTree’s team of small business experts will evaluate and select the winning small business, which will be notified in mid-February.
Considering that small business grants are relatively rare, you shouldn’t miss out on an opportunity to win $50,000 in free funding for your business. Visit the LendingTree Small Business Grant Contest site for more information, and good luck!
Most forms of small business financing come with some kind of time period (or “term”) in which the loan needs to be paid back. These generally differ depending on the amount of the loan and what it’s going to be used for, but for the most part most small business loans tend to have longer payment periods.
That’s not always feasible. And in many situations, business owners have been finding themselves turning to short-term business loans to cover unexpected financial needs whenever they arise. While the terms and conditions may vary on these loans, they’re generally considered best for unexpected cash flow emergencies, taking advantage of business opportunities, and other more sudden needs.
If you’re considering going for more business funding and you think a short-term loan might be just what you need to get through your financing needs, here’s a few questions to ask yourself first to make sure they’re a good fit:
Every business has a slow season, but no amount of planning can accommodate for sudden cash flow shortages or financial losses. If you find yourself short on money, but know you have money coming in within a certain period of time, short-term business loans can fill that need and help keep your business afloat while you wait for your revenue to pick back up.
Most businesses tend to be cyclical in nature, and the process of invoices is one we’re all familiar with. If you have a lot of outstanding invoices that may not be paid before you need to start handing your expenses, short-term loans are a good call to fill the gaps before your clients can pay you back for your products and/or services.
Let’s face it, no matter what your business, things can (and will) break, largely at the worst possible time. While equipment loans are a good way to purchase equipment in the first place, more immediate repairs or replacement might be better handled with short-term funding due to the shorter loan period and amount provided.
While most businesses are able to plan ahead for bigger operating expenses, short-term loans are a good option to provide for more immediate expenses, or expenses you don’t intend to face for as long as others, such as temporary holiday help or equipment rentals.
Finally, an important part of taking any loan is your ability to pay it back, and short-term loans tend to give you even less time to handle the repayment. Before looking into any financing, make sure your day-to-day cash flow will be enough to handle the repayment schedule of the loan itself to avoid placing your business into further debt.
If your business is encountering the need for some extra funding to get by, contact Credibly today with any questions you might have about our financing products.
Equipment financing is one of the more popular types of small business financing available today. True to its name, equipment financing serves as a method for business owners to pay for equipment they need when they might not have access to the required capital otherwise. Every business thrives on having the right tools at the right time, and equipment financing can allow for flexible access to these tools right when they’re needed most without a lot of overhead or delays.
Even with as self-explanatory as the term might be, we’ve still seen a lot of questions out there about what it can – and can’t – be used to pay for. If you’ve been considering getting additional financing to help your business but you don’t quite know what it can be used for, we’ve compiled a few of the more common uses and needs for equipment financing here:
Not to sound too much like your parents, but the endless march of new technology affects us all, especially small business owners. Computers become outdated, new methods of tracking inventory and reaching customers get developed, tablets get broken, and suddenly your favorite old cash register just isn’t quite cutting it anymore. Equipment financing helps small businesses have access to the latest and greatest in business technology, or at least something newer than what they’ve been working with, and the impact on productivity and your bottom line can be felt almost immediately.
Plenty of people dream of owning kitchens, but not many of them expect all the upkeep and maintenance that goes into it. Between the demands of constant use and the need to maintain government-mandated health and safety standards, many of which revolve around the cleanliness and functionality of things like freezers and ovens, equipment loans are a popular method for kitchens to get the funding to replace that greasy old grill and give their patrons the safest (and most delicious) experience they can while still spending capital on other needed areas of the business.
A lot of people think that equipment loans can be used to purchase new inventory for stores or e-commerce outlets. While the terms of equipment financing wouldn’t meet that need as well as dedicated inventory loans, equipment loans are a great way to remodel storefronts and warehouses. Particularly with the holiday season coming up, expanding your inventory space or allowing for more shelves for products is always a safe decision, and equipment financing allows for that more easily.
Sometimes the benefits of equipment financing come less from what you’re buying as it does how you’re buying it. A business that hasn’t been open too long can use equipment financing to help mitigate the risk and uncertainty that comes with spending a lot of money on a certain asset until you can demonstrate how the asset helps your business through productivity, cost savings, and the like. With less of your own capital tied up in the equipment, you’re at much less risk of purchasing new tools and supplies.
Even after the financing has been provided for new equipment, the regular monthly payments can help a business better plan for monthly expenditures, cash flow, and unexpected expenses that can pop up by providing a set monthly cost for the equipment every month. That way, the next time something needs to be replaced, you’re already in a better spot than you were!
No matter how long your business has been around, the odds are pretty good that you’re going to encounter the need for small business financing in one way or another. The U.S. Small Business Administration reported that over $25 billion* in SBA-backed small business loans were given out in 2015 alone, and the number of small business loans in America is sure to increase as small businesses maintain their popularity.
So it’s safe to say that if you own your own small business, you’re going to have to get financing one day to help out – but do you know everything you need to before you start looking for a loan? There are a lot of common misconceptions and incorrect information out there about small business lending in general, and if you go into the world of business loans with the wrong information, it could cost you in the long run. Here are five of the more common misconceptions about small business loans and what the facts really are:
Facts: Banks are one source, and perhaps the most well-known since they’ve been around for quite some time, but there’s actually a number of different financing methods out there that a lot of business owners may not even know about. Different options like crowdfunding, working capital loans, or even more traditional short-term loans can help get your small business the money it needs without having to deal with the time-tested (but frequently detrimental) method of talking to the bank.
Facts: Speaking of banks, there’s a strong belief among many entrepreneurs that the SBA is a direct source of lending, when in fact this is not the case. The SBA is a government guarantee program that works with banks to both decrease the risk to the bank and help small businesses find the loans they need. That said, as these loans are all coming from the bank, it does carry a similar amount of effort and risk on your side, and small business financing provides a preferable alternative to dealing with banks in many situations.
Facts: While the banks still go by your credit score, many small business lenders have begun looking more holistically at the overall health and success of your business. In most cases, small business lenders such as Credibly will look at how long you’ve been in business, your daily account balances, and your monthly minimum deposit to get a better sense of how your business is performing – a factor that simply checking a credit score may not always be able to accurately determine.
Facts: While it is a big factor in the decision of your lender, it isn’t the be-all, end-all of your approval chances. Similarly to your credit score, in most cases, a number of factors for your business will be considered ranging from available collateral and current cash flow to revenue projections and even time spent in operation are factored in as well. And even if your chosen lender is unable to provide the loan you requested, you may be able to explore options such as a smaller loan with a shorter term to provide bridge financing until a larger loan can be obtained.
Facts: Businesses of any health can apply for small business financing – in fact, many highly successful businesses rely on quick injections of external financing to help with future growth and development. Loan types like business expansion financing exist to help growing companies support their plans of expansion and growth, and many healthy and successful businesses rely on small business loans to get fast access to money that they might already have tied up in other projects to help their business get to where it needs to be.
Hopefully, now that some of these myths have been busted, you’ve got a better idea of what small business loans can do for your business. Still got any questions? We’re happy to help. Contact Credibly today and we’ll get you what you need to know – and what you need to grow your business.
Every business, no matter what industry, what size, or how long it’s been around, is going to need some extra money now and again. Whatever the reason, the need for small businesses to get additional financing above and beyond standard income and revenue will always be there, as small businesses borrowed over $1 trillion in 2013* with that number projected to grow as the number of small businesses in America continues to rise.
As common as small business loans are these days, if you’re a business owner in America you’ve probably considered getting one. But the question is always there – if you do get a small business loan, how much do you need? Here’s a few things to look at when considering getting some extra funding for your business:
What Will The Loan Be Used For?: The first thing that needs to be considered before you try getting small business funding is to determine exactly what you’re going to need the money for. Are you trying to ramp up on inventory before the busy season starts? Do you need a business expansion loan to help branch out into new locations and markets? Or do you just need a little help with payroll and operating costs? Not only will this give you a more direct idea of how much money you’ll need, many business loan providers will also need an idea of what the money will be spent on once you receive it.
What Are Your Current Business Expenses?: The next things that should be taken into account when considering a small business loan are your current expenses and operating costs. While unexpected expenses can’t always be planned for ahead of time, you can average out your regularly occurring monthly costs and expenses such as payroll, utility bills, rent, inventory replenishment costs, and anything else that already takes up your finances and resources. This will give you a clearer picture of what your loan amount should ideally be.
What Are Your Current Income & Savings?: Next, after looking at how much money you already need to spend every month, take a look at what you make every month and how much you have in reserve. It isn’t always a good idea to dip into your savings to help pay for business expenses, but knowing how much money you have in reserve and how much you can reasonably expect to make every month – outstanding invoices, customer revenue, and so on – may give you the flexibility to ask for an amount that you know you can afford to pay back.
How Long Can You Pay Your Loan Off?: Finally, there will come a time when every loan needs to be repaid and this is an important factor to consider. How long can you afford to have the extra expense of repaying your loan? Most small business loans are designed to be repaid in the short term, so if you can afford the extra payments after receiving the loan, you’ll be in a better place to repay – and obtain – the amount you need.
Finding the right-sized capital for your business can be a complicated process, but knowing your business will be all the better for it in the end will be worth it.
Even if it isn’t always obvious, bad business credit can affect your life in a number of ways and it can have an impact on more than just your personal finances. If you’re an entrepreneur, both your personal credit and your business credit score can come into play over a variety of financing needs.
Some of them may be a little more obvious than others, but it’s important to keep these things in mind when considering any kind of small business financing or financial matter, as they could very easily affect your ability to conduct business, grow, and succeed. We’ve rounded up the three most important side effects of bad credit here and what they might do to impact the finances of your small business:
The first, and perhaps most commonly-known side effect of bad credit, is an inability to get loans or financing. Much like with your personal credit, business credit is one of the first things small business lenders look into when determining your eligibility for a loan.
Your credit score doesn’t have to be flawless, but a score that’s too low might be a warning sign that you won’t be able to repay your debts or manage your finances properly.
While there are business loans offered for bad credit, the terms tend to reflect your poor credit score and may not be as flexible as standard small business loans. (And it’s important to mention that it isn’t always just your business’ credit, either – many lenders will take a look at your personal credit score too, as one can easily affect the other.)
Another effect of bad business credit is one that small business owners might not consider as often. Depending on what your business does, your credit score may affect your ability to conduct operations and order needed supplies.
Many utility companies and property management companies will consider your credit score when determining your eligibility to rent office space, open an account with the electric company, and more.
Above and beyond this, if your business operates in retail or manufacturing, you may find yourself unable to buy retail stock, raw materials for manufacturing, or needed equipment with a bad credit score as many distributors will look into your credit rating before selling you their products, particularly if you’re trying to get on a payment plan.
Even if you’re still able to order their products, many vendors will offer discounts or different payment plans for higher credit scores, which may be inaccessible to you if your credit is less than perfect.
Finally, if your personal credit is bad enough, you might be unable to start a small business at all. Many small businesses require a number of loans to cover basic start-up expenses like buying office equipment, renting a space for the business, getting stocked up on inventory, and so on.
A poor personal credit score can affect your ability to get the financing you need to start your business in the first place, which could mean your plans for a small business might be over before they even have a chance to begin.
Of course, every vendor and small business funder will be different, but these are always important facts to keep in mind when trying to find funding and supplies for your small business — particularly with less-than-perfect credit.
Want to learn more about business credit, and how lenders consider your score when making funding decisions? Download this free journal — a collaboration with the credit experts at Experian!
What are the most common uses for a small business loan? You might be surprised at how often this question comes up among small business owners, but the fact is that small business loans come in different varieties and can fulfill various operational needs (such as working capital).
As opposed to traditional bank loans which might have strict conditions or limits on their usage, Credibly loans and financing are specifically designed for small businesses and can be used for nearly anything your business requires.
No matter how your business serves its customers, every small business needs the right tools to get by. Restaurants are always going to need ovens and seating, stores are always going to need cash registers and merchandising displays, and your favorite craft beer brewery isn’t going to get much done without the right tanks and brewing supplies!
If you find yourself suddenly lacking the equipment and supplies your business needs to grow and thrive, small business financing is a great way to purchase it without having to go through the lengthy process of applying for capital from a bank.
For any business with a retail arm, whether you run a storefront or are strictly B2B, keeping up on your inventory levels is critical to the success of your business. Otherwise, what are you going to sell?
Whether you order your goods pre-made or you have your wares custom-made for your business, small business loans can help you keep up on your inventory levels and make sure you always have something to sell your customers.
Every business has their own operating expenses, from rental and utilities to anything else you need to keep your location open and your business functioning. Trends in sales, seasonal changes, and other uncontrollable events can begin to take their toll on your business’s access to capital, and small business loans can help to cover these expenses until your business returns to full profitability.
A fairly important one, and yet one that not a lot of people consider using small business loans for. Your employees aren’t going to show up for work if they’re not getting paid, but if you’re in a bit of a tight spot and need to make sure your workers get their checks on time, small business loans can be the ideal solution.
Of course, there are many other uses for small business loans — really, they can be used for almost anything your business needs to pay for. The next time your business needs a little extra cash to get by, skip the banks and pre-qualify for some small business financing. You’ll be surprised how helpful it can be.