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Archive for the ‘Business Credit’ Category

A business credit guide exposes the tools and tactics companies use to fund operating activities, whether it be for short-term initiatives or long-term strategic plans — such as mergers, divestitures and acquisitions.

The guide sheds light on various concepts, including the commercial lending process and such debt instruments as commercial paper and bonds.

Bonds

Bonds are credit products a business issues on securities exchanges, promising investors to repay loans over several years — a time frame economists call maturity.

Securities exchanges, such as the New York Stock Exchange and Hong Kong Stock Exchange, enable publicly traded companies to sell stocks and bonds.

Buyers of bonds, or bondholders, receive periodic interest payments and the loan principal amount at the maturity date. To diversify portfolio risk, some investors purchase convertible bonds, which allow holders to exchange bonds for equity if market conditions are favorable.

Commercial Paper

Commercial paper is money a company borrows and agrees to repay within 270 days. Because of the short repayment window, accountants classify commercial paper as a short-term debt. Also known as a current liability, a short-term debt becomes due within a period that does not exceed one year.

Companies often issue commercial paper to cover operating activities and maintain sufficient working capital. This metric equals short-term assets minus short-term debts and represents the estimated cash an organization will have in the next 12 months.

Overdraft Arrangements

Perhaps an overdraft arrangement is the most flexible form of business credit. It doesn’t require a formal loan application, although a bank may mandate that clients maintain proper working capital to be eligible.

In a typical overdraft arrangement, the bank honors drafts in excess of a customer’s credit balance. In other words, the financial institution agrees to pay checks and other debit notices presented against the client’s account, even if the account doesn’t have sufficient funds. Read the rest of this entry »

Business credit is separate from your personal credit. You can build good credit as a business owner and use that credit to help grow your business.

As your business continues to grow and becomes more successful, your business credit will become stronger and may even surpass your personal credit. Establish your business credit and ensure that you build up a good credit history for yourself as a business owner.

1. Understand the difference between a good business credit score and a good personal credit score. As you build your business credit, you’ll want to have an understanding of this rating system. With personal credit scores, a score of 680 or higher is exceptional, and the range can go from 300 to 850.

With business credit scores, on the other hand, a score of 75 or higher is exceptional, and the range goes from 0 to 100. Note that business credit scores start at 0 because not all people have established business credit.

2. Operate your business under an LLC or corporation, rather than as sole proprietorship, partnership or independent contractor. This will separate your personal credit from your business credit and helps to protect your personal assets.

3. Apply for business credit, leases and loans through your business. This means getting another company to grant you credit through your business without using your personal information and then reporting to the credit agencies.

4. Make sure your business is set up properly. To gain credibility and start building good business credit, you need to ensure your company is operating as a reputable business.

This means getting any required licenses and permits, having a valid business address and phone number and adhering to any other state or federal laws that pertain to your business or industry.

5. Pay back your business debts on time and make monthly payments. Be careful not to borrow more than you can realistically pay back. Just like building your personal credit, to build your business credit you need to be a responsible borrower. Also, making monthly payments, rather than quarterly for example, will keep your credit profile active. Read the rest of this entry »

A successful business establishment thrives on regular capital outflow as well as inflow. Not all capital is invested by the owner; it may be borrowed in the form of loans or shares.

The level of business credit and the size and expanse of the business are interrelated.

Using credit, smart and intuitive individuals who have little or no money of their own to invest can start their own business venture. Here are a few ways of getting business credit.

1. Ensure that before you approach a bank for a loan, you have an account in good standing at that bank. This will act as an unwritten assurance that can increase your chances of getting a loan.

2. Make sure that you have assets to pledge for your credit, such as a house, a car or a business premise. They are all symbols of your ability to repay.

3. Insist on building a good credit score and personal credibility right from the beginning by paying taxes and maintaining all legal documents. Most lenders like to see both.

4. Confirm whether the sources from which you have borrowed formerly have reported your credit history to the chief credit reporting bureaus in the state.

5. Keep all business documents complete and comprehensive, from the licenses, permits, telephone listing, business name, domain name, investment details and spent capital. This is also an indication of the credibility of the business and the proprietor.

6. Invest a significant amount in the business before applying for a loan, if possible. The lender will infer that you will work hard to reach your business objective and hence it is safe to make the loan.

7. Determine the profitability of your business. Most banks and lending institutions offer loans to businesses that are going to earn back the investment. This is especially true when profit realization will not take a long time.

8. Begin by approaching the small banks for financing. The bigger banks require great credit history, collateral, hard cash and also personal credibility for any loan that they offer. The small banks, on the other hand, are usually easier to work with.

9. Gradually build a credit score as high as 600 and above to access credit from big banks.

Small business presents special challenges to start up and maintain. It often takes a small business three to five years to generate a profit. Small businesses often stay in business during that time through loans and various types of business credit.

1. Compose a strong business plan. This document outlines your business in detail, how it will function and succeed and what resources you’ll need to maintain the business for the next five years. There are business plan professionals and software that can guide you through this process.

2. Detail which areas of your business need financial aid. You can take a general business loans or arrange financing for specific needs, such as equipment, insurance, overhead costs and rent. You may have a better chance getting one of these, as the competition will be smaller.

3. Talk to your vendors. Vendors and individual companies often offer credit accounts for their clients and may be willing to negotiate prices if you ask.

4. Consider leveraging if you’re buying a small business with inventory. Some lenders will arrange financing with the inventory, receivables and equipment as collaterol.

5. Apply for a business credit card. Every major credit card company offers business cards that are structured differently than personal cards. They have higher limits, lower interest rates and often offer other protections that can keep your business on track.