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What’s the future of small business credit?

admin — Fri, 18 Sep 2009 16:59:59 +0000

from Small business owners have credit lines pulled – BusinessWeek by John Tozzi

What’s the future of small business credit?

We’ve been writing and thinking a lot about this lately. It’s a peculiar time: We’re in the middle of a recession that was incubated by several years of too-easy credit. When loose lending caught up with banks and other finance companies, they pulled back sharply, and continue to raise credit standards for business borrowers. At the same time, regulators are beginning to get serious about stopping abuses in the credit card industry, though the reforms leave out small businesses.

This morning I read Steve King’s latest installment (PDF) of the Intuit Future of Small Business report, focusing on small business credit. Here are a couple of the trends he points out:

1) Shift toward smaller institutions. Community banks and credit unions are among the most ready lenders right now, because they avoided the riskier securities that blew up the big banks’ balance sheets.

2) Unsecured credit is disappearing. Business owners often use consumer credit – their own credit cards or home equity loans – to finance their companies, but those sources of credit not secured by business assets are drying up.

That second trend is worrying, because small business’s credit needs are changing. More and more companies sell services rather than products, and business takes place online. It takes less money than ever to start these types of ventures, but their costs aren’t things that banks are used to financing. I think of it like this: Secured bank loans are Business Credit 1.0. What’s the 2.0? Instead of vehicle or equipment loans, these entrepreneurs need to pay Web developers and buy server space. Instead of inventory financing, they need to buy Google ads on search keywords. That often means they need less money than companies making widgets, but they don’t have hard assets to use as collateral. Try explaining to your banker that you need a line of credit to buy $20,000 worth of paid search ads each month.

That explains why credit cards, an easy source of unsecured debt, became so popular. But credit cards aren’t stable financing. (The NY Times has a good story this morning about what happens to small business owners when their credit card companies reduce their limits.) Most business owners I speak to who borrow on credit cards say they wish they had better alternatives.

It seems like there’s a clear market need for new types of small business financing. So let’s start a discussion. What does the future of small business financing look like?

Here are some ideas to get started:

Kiva and other peer-to-peer lenders. The industry has run into problems with regulators and higher-than-expected charge-offs. But Kiva’s success overseas shows the model’s potential, and the company just began funding US entrepreneurs.

Community development lenders. Focused on lending in communities poorly served by banks, CDFIs are mostly nonprofits and don’t require the same level of returns that commercial banks do. Could the CDFI model be broadened to become a mainstream source of credit for businesses in all communities?

Crowdfunding. Not too far from peer-to-peer lending, but in this case business’s customers are also financiers. An unproven idea to be sure, but it could work for the right type of venture.

What other creative sources of credit are entrepreneurs using? Which ones can scale? What does Small Business Credit 2.0 look like? Tell us in comments or on Twitter.

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Your Personal Credit and Your Business Credit History

admin — Wed, 16 Sep 2009 17:02:59 +0000

By : Pamela Williams – When establishing a separate credit history for your business, does your personal credit matter? Does it make a difference whether or not you have good personal credit? As a business owner, why should you be concerned about your personal credit score?

Your Personal Credit and Your Business

As a new entrepreneur, you may need to apply for a loan in order to finance your business. Without business credit, lenders would be looking at your personal credit history instead to determine whether to approve or decline your application. Thus, having an excellent personal credit or a high FICO score would surely win you an easy approval from your preferred lender. Consequently, if you have a low FICO score or a questionable credit, you may find it more difficult to get approved for a loan.

On the other hand, you may also be able to obtain the loan you need by applying for a bad credit business loan. Lenders who offer poor credit business loans always approve clients regardless of the status of their credit. However, these loans are expectedly more expensive than loans that require good credit.

Clearly, the status of your personal credit score makes a difference in getting the financing you need for your business. But what happens after your loan has been approved? What’s the next step in building your business credit? Why should you establish a separate credit history for your business?

Establishing Your Business Credit

As soon as your loan has been granted, you should take the necessary steps to establish a separate credit for your business. Make sure that you’ve obtained all the necessary permit, licences, tax id numbers, and registration numbers that are required for businesses. Afterwards, register your business with a business credit reporting agency like Dun & Bradstreet or Experian Business.

Remember to submit your monthly loan payments on time to build good credit. At the start, any delays or misses on your payments will also reflect on your personal credit report. Why is this? Since your personal credit history was used on opening up the loan, your credit report acts like a co-signer for your business. Therefore, it is crucial to keep up with your payments not only to build a good business credit but to protect your personal credit as well.

After some time of consistent payments, you should have already established your corporate credit. You may need to wait a year or more before you can completely separate your business credit report from your personal credit report.

New businesses are just like a teenager who’s just starting to build a credit history for himself. At first, a student may need a co-signer to get a loan but once approved, a student can slowly build his own credit history and after a while, he can easily apply for new credit without relying on other people’s credit. Clearly, if you plan to venture in business, preparing your personal credit is a must. Although a good personal credit history isn’t necessary required to start a business, it is definitely an advantage.

Author Resource:- Pamela Williams is a Loan Consultant, Internet Marketer, Writer and owner of BusinessCreditCardSite.com, a finance company in Las Vegas, Nevada that provides support for businesses all across the US particularly with obtaining business credit cards. Visit http://www.businesscreditcardsite.com

Article From Articlebliss (Published: July 2009)

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TOP 5 REASONS TO ESTABLISH BUSINESS CREDIT

admin — Mon, 14 Sep 2009 16:10:59 +0000

Too Many business owners are using their personal credit to finance the launch, expansion or growth of their business. A majority of business owners have no idea what business is or how to establish it. By following a few simple steps any business owner can establishing business credit, therefore, separating their personal credit from their business credit.

When business owners use personal credit card to pay for business expenses, the debt of the business reports back to their personal credit reports which lowers their scores because their business debts hurt their personal debt to income ratio.

To help prevent business owners from damaging their personal credit, every business owner should follow the simple steps of establishing business credit. By establishing business credit the debt of the business will report to the business credit file and not the personal credit file. Establishing business credit will also help the business build a strong business credit file so loans, lines of credit wont require the business owner to sign a personal guarantee.

Here are just a few reasons why every business owner should establish business credit.

1. Establish creditability. You cant expect to walk into a bank and ask for a business loan with no business credit or business history. By establishing a good business credit profile you will be able to secure the financing your business needs.

2. If your business should fail, you would still be legally responsible if you used your personal credit to finance your business.

3. Saving money. Thats right, business credit rates are typically lower than personal credit rates. A few percentage points in interest mean thousands of dollars in the long run.

4. Float your business through tough times. Even though everything make be going great currently, you never know when your company will take a turn for the worse or when economic times might change. By establishing business credit you will be prepared for the down time.

5. Get the money you need. Lets face it, without the money you need to finance the launch or expansion of your business you really wont be in business at all. Dont make the mistake of using your personal finances to finance you business.

The are many, many more reasons why you should establish business credit. We have all heard the saying, “keep business expenses separate from personal expenses,” right? The only way to do that is to set up your business properly in the first place by establishing business credit.

If you are interested in learning…

What rights does a business owner have if there is incorrect information on a credit report?
How do I obtain a business credit score?
What do business lenders look at in order to extend business credit?
Where do you find companies that grant credit?
Which companies report to the business credit bureaus?
What credit cards companies do not require personal guarantees?

Then I suggest you start the education process of learing how to establish business credit!

Corporate Credit Concepts makes it easy to establish business credit. To obtain your free report on how to build business credit and obtain Unlimited Financing CLICK HERE

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shelf corporations

admin — Wed, 26 Aug 2009 15:39:57 +0000

http://www.yeswecanloan.biz Offer expires 07-08-09. Do it yourself kit allows you to build business credit for your corporation with out costing an arm and a leg. $995 includes the shelf corp and the Ebook. Call 985-869-1198 or visit or EBay store google – Louisiana Shelf Corp eBay.

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Technorati Tags: business, Business credit, Ebook, loans, Shelf Corps, trade lines

How Do I Build Business Credit Lines?

admin — Wed, 26 Aug 2009 12:57:59 +0000

Many businesses are looking to get a loan. They soon realize they did not take the appropriate steps in order to attain that loan. For them, it is back to the drawing board or worse yet, folding. If you do not want to be one of those businesses, then you need to make sure you have all things lined up and in order. As you might have guessed, the first main step is found in establishing good business credit lines.

Please note that building personal credit and building business credit are different. Although they rely on the same principles, there are things in business credit that are not found in personal credit and vice versa.

For example, in personal credit you have laws that help establish and maintain a correct credit score. With business, there are no laws to protect you. It is up to the business owner to monitor their credit and make the necessary corrections.

1. You need to first establish a sound business structure. Make sure you are a corporation or LLC per DUN prerequisites. Establishing a solid business structure requires all licensing and tax obligation papers, etc. You want to show you are compliant with law and regulations

2. Make sure you establish and build credit by purchasing from companies that report to the major credit bureaus: Dun and Bradstreet, Experian and Equifax. You can do this by establishing a net 30 account with these companies.

There are also some aspects you should avoid when looking to build business credit. There are companies out there that look to trick the unknowing. If you are browsing through information and come to one that says you can build your business credit for a certain amount of money, you are looking at a scam. Stay far away from those as possible. Here is what some of them look like.

1. You can buy trade accounts. This is extremely against the law. If the credit agencies find out about this, they will purge your credit history. This will also not allow you to establish very good credit history later on, as it will be a permanent blemish on your business credit history. No one likes to deal with a cheat or liar.

2. There are companies out there that are called shelf companies. They will basically guarantee you a loan based on their credit rating. This is wrong for two reasons. One, you want to build your own credit and relying on someone else is the wrong way to do it. Two, they more than likely will not have the credit to obtain that loan either.

3. Make sure you have good personal credit as well as good business credit. Do not just rely on good personal credit as a back fall. Remember, you want to keep personal and business completely separate.

If you follow the steps outlined above, you will ensure that you have a good solid foundation to begin establishing business credit that is necessary for advancement and growth.

To Learn more and start building Business Credit Lines Click Here

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Shelf Corp Shop

admin — Fri, 14 Aug 2009 03:13:03 +0000

http://www.yeswecanloan.biz Building business and a commercial profile will help your business get capital needed to stay afloat. We can help you every step of the way in building a profile that will put you in the best position to get funding.

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Technorati Tags: Business credit, car loans, commercial credit, credit, lend, loans, money, shelf corp, Shelf Corporation, to, trade lines

Advanta Cuts Off Small Business Customers

admin — Mon, 22 Jun 2009 17:08:59 +0000

from Small business owners have credit lines pulled – BusinessWeek by John Tozzi

Small business credit card issuer Advanta is shutting down all customer accounts on June 10 in an effort to shore up its finances amid steep losses, the company announced yesterday.

Advanta, which focuses exclusively on small business credit card lending, has more than 1 million accounts and customers charged $13 billion last year. Bloomberg reports that Advanta’s loss rate is 20% on some accounts. Advanta will use $1.4 billion to make cash offers at 65 to 75 cents on the dollar to investors in the securities backed by its credit card debt, the company said.

I have messages into Advanta to find out more on how this will affect small business cardholders, and we’ll update with what we hear.

Update: Advanta spokesperson Amy Holderer emailed the following statement in response to my questions:

The actions that we outlined in our press release yesterday are being taken as proactive steps designed to dramatically reduce future risk and to maximize our capital and our liquidity measures. With regard to our existing customers, our goal over the next month is to keep a balance between being useful to the small businesses and mitigating risk to us. Customers will be notified of changes to their card access at the appropriate time. We will not be accelerating payments required from our customers, and they can pay their outstanding balances according to their account terms. Advanta will continue to service and collect its receivables.

If you’re an Advanta customer, have you been informed yet? Have your rates gone up recently? And what are you planning to do when Advanta shuts down your account? Tell us in comments or on Twitter.

There was no love lost for Advanta by some readers in the comments thread on this story about small businesses increasingly relying on credit cards. Many readers reported that Advanta jacked their rates arbitrarily. For example, here’s what a reader Amy wrote last year:

I too am a small business owner who got caught up in the 0% introductory rate scam a year ago. After the introductory rate period expired my rate went up to 19% and has now been increased to 35.08% without an explanation. I owe about $4,800.00. I have never been late with my payments, I pay more than the minimum amount required each month, have excellent credit and have never exceeded my credit limit.

Incidentally, credit card reform legislation that would curb practices like arbitrary rate hikes is in the works in the Senate right now. The House version, passed two weeks ago, did not apply to small business credit cards like Advanta’s. There’s an amendment to the Senate version that would include small businesses with 50 or fewer employees, sponsored by Sens. Olympia Snowe (R-Maine) and Mary Landreiu (D-Louisiana). I’m told the amendment could be offered as soon as this afternoon.

(Hat tip to Planet Money and Calculated Risk.)

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