I am reading the Entrepreneur Hot 500 issue. Like the Inc. 500 list (which also recently arrived), I love these issues with information about successful hot start-ups. They are inspiring, fascinating (you can make money doing that???) and I've even made some great business contacts like Priority Leasing from studying these lists.
Here's a couple of interesting and relevant facts listed under the "Entrepreneur Hot 500 List At A Glance" (page 72):
1. Credit cards were the 7th most popular form of financing (savings was #1 and friends and family was #2)
2. 61% of the companies in the list had turned a profit by year two and 56% had earned their first million!
Pick up this month's issue of Entrepreneur and Inc., then get inspired and get going!
Friday, August 31, 2007
Friday, August 03, 2007
Follow Up to Reader Questions on Building Business Credit
Read the blog post that comes before this one. The reader replied with some additonal questions:
Thanks so much. I appreciate your quick response.
I do have a couple more questions again after reading through your FAQs again, so if you think all these issues below are covered in detail in your program, then please let me know.
You had said that for new businesses, the banks will want a personal guarantee, which I am understanding this to mean they look at your personal credit for all type of financial help (loans, line of credit or credit card), even if you have an LLC or corporation at the time.
My comment: Yes, most banks want to see personal credit, especially for younger and smaller businesses. I had a very interesting conversation yesterday about this very subject with Steve Edwards at PaynetOnline. His company is a specialized business credit reporting agency with an emphasis on construction and transportation, and a robust database of business credit information, especially when it comes to leasing. They are also working on trying to get more business credit card issuers to report to their database, and to rely on business credit data in extending credit card lines. Steve agreed that the business credit lending model has evolved from personal credit, and needs to "mature" so that better decisions can be made from business credit data.
The upshot is that a lot of business credit decisions are made relying on personal credit.
However, you had said in a later post that there are credit cards, I am assuming the same ones that want a personal guarantee, that will keep this debt off your personal credit report. So my first question is - Is this also the case if you were to get a line of credit or loan (they would keep the debt off your personal credit report)? And besides credit cards, does your program discuss which banks, that offer lines of credit or loans(SBA, ect), would not report this debt to your personal credit? Or is this just something you ask the bank when you apply for a loan?
You always have to ask. We do list that information whenever it is available in our program. We do list business-friendly banks, but we don't list how they report. You'll want to double check -- but most lenders don't report business lines of credit on your personal credit unless you default.
Additionally, if your business went broke and you defaulted on your loan, then would any of the above financial options you had (either credit cards, lines of credit, or loans) report this to your personal credit at this time, even though the debt was never on your personal credit report to begin with? Or would they report the default to your business credit report only, or maybe both (personal and business?)
Most will report a default on your personal credit if there was a personal guarantee. You are correct that a default could affect both your business and personal credit reports and scores. We do not specifically cover SBA loans in our program.
Sorry to be so long winded. I just was wondering if your program covers the above questions.
Thanks for the great questions!
Thanks so much. I appreciate your quick response.
I do have a couple more questions again after reading through your FAQs again, so if you think all these issues below are covered in detail in your program, then please let me know.
You had said that for new businesses, the banks will want a personal guarantee, which I am understanding this to mean they look at your personal credit for all type of financial help (loans, line of credit or credit card), even if you have an LLC or corporation at the time.
My comment: Yes, most banks want to see personal credit, especially for younger and smaller businesses. I had a very interesting conversation yesterday about this very subject with Steve Edwards at PaynetOnline. His company is a specialized business credit reporting agency with an emphasis on construction and transportation, and a robust database of business credit information, especially when it comes to leasing. They are also working on trying to get more business credit card issuers to report to their database, and to rely on business credit data in extending credit card lines. Steve agreed that the business credit lending model has evolved from personal credit, and needs to "mature" so that better decisions can be made from business credit data.
The upshot is that a lot of business credit decisions are made relying on personal credit.
However, you had said in a later post that there are credit cards, I am assuming the same ones that want a personal guarantee, that will keep this debt off your personal credit report. So my first question is - Is this also the case if you were to get a line of credit or loan (they would keep the debt off your personal credit report)? And besides credit cards, does your program discuss which banks, that offer lines of credit or loans(SBA, ect), would not report this debt to your personal credit? Or is this just something you ask the bank when you apply for a loan?
You always have to ask. We do list that information whenever it is available in our program. We do list business-friendly banks, but we don't list how they report. You'll want to double check -- but most lenders don't report business lines of credit on your personal credit unless you default.
Additionally, if your business went broke and you defaulted on your loan, then would any of the above financial options you had (either credit cards, lines of credit, or loans) report this to your personal credit at this time, even though the debt was never on your personal credit report to begin with? Or would they report the default to your business credit report only, or maybe both (personal and business?)
Most will report a default on your personal credit if there was a personal guarantee. You are correct that a default could affect both your business and personal credit reports and scores. We do not specifically cover SBA loans in our program.
Sorry to be so long winded. I just was wondering if your program covers the above questions.
Thanks for the great questions!
Thursday, August 02, 2007
What Business Structure Is Best for Building Business Credit?
Another question from a reader:
From my understanding of what I read on your website, if you want to build business credit, you need to form a corporation or LLC. And that business credit cards help establish your corporate credit. I am considering starting an LLC instead of a corporation. Therefore, I am wondering if your program is more geared towards corporations, or does it equally apply to LLCs as well? When you say establishing corporate credit, do you also include LLCs in regards to this statement?
Lastly, does your program go into any detail about when it might be best for a particular type of business or situation to form a corporation (c or s corps) versus an LLC? For instance, if one wants to do an online business only, or if one wanted to sell products wholesale to other retailers, ect.
Answer:
You can build business credit with any type of corporate structure, though it can be easier with an S or C Corporation. But business credit should not drive your choice of entities. We do discuss the different types of structures in our program, and our program also includes an audio interview with Garrett Sutton on the pros and cons of different entities. However, this is an important choice for your business.
To choose the right entity, I recommend you should talk with both a firm that specializes in setting up corporate structures, as well as your tax advisor.
Watch our for "one size fits all" solutions. There are some advisors, for example, who say "Everyone can use an LLC" but the wrong structure can be costly in the long run. The same thing is true of the companies that will help you incorporate for a very cheap fee. If you aren't in compliance, and don't stay in compliance, the benefits of having a corporate structure are lost.
I'd recommend you take advantage of the free 15-minute consultation offered by Corporate Direct to discuss which structure is right for the type of business you are planning on starting. Don't worry, you won't get a high pressure sales pitch.
If you do decide to join the Business Credit Success program, you'll enjoy a discount on their services.
From my understanding of what I read on your website, if you want to build business credit, you need to form a corporation or LLC. And that business credit cards help establish your corporate credit. I am considering starting an LLC instead of a corporation. Therefore, I am wondering if your program is more geared towards corporations, or does it equally apply to LLCs as well? When you say establishing corporate credit, do you also include LLCs in regards to this statement?
Lastly, does your program go into any detail about when it might be best for a particular type of business or situation to form a corporation (c or s corps) versus an LLC? For instance, if one wants to do an online business only, or if one wanted to sell products wholesale to other retailers, ect.
Answer:
You can build business credit with any type of corporate structure, though it can be easier with an S or C Corporation. But business credit should not drive your choice of entities. We do discuss the different types of structures in our program, and our program also includes an audio interview with Garrett Sutton on the pros and cons of different entities. However, this is an important choice for your business.
To choose the right entity, I recommend you should talk with both a firm that specializes in setting up corporate structures, as well as your tax advisor.
Watch our for "one size fits all" solutions. There are some advisors, for example, who say "Everyone can use an LLC" but the wrong structure can be costly in the long run. The same thing is true of the companies that will help you incorporate for a very cheap fee. If you aren't in compliance, and don't stay in compliance, the benefits of having a corporate structure are lost.
I'd recommend you take advantage of the free 15-minute consultation offered by Corporate Direct to discuss which structure is right for the type of business you are planning on starting. Don't worry, you won't get a high pressure sales pitch.
If you do decide to join the Business Credit Success program, you'll enjoy a discount on their services.
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