DavidGass.com

This is a question I really want an answer to. What are you willing to pay for a $100,000 credit line in your business name?I started thinking about this when one of our lending managers received a call from a company who offers $100,000 credit lines to small business owners. The requirements for approval seemed relatively simple, have a FICO score of 680 or better and a business license. Our manager was obviously intrigued based on today’s lending climate.

He spent quite a bit of time working with the company and their underwriters to completely understand their process and requirements before we started offering it to our clients. They told us there were other companies similar to ours offering their program and we should jump on board.

Obviously as part of our due diligence we spend time researching a company before we refer our clients to them. I don’t just jump in based on someone telling me our competitors are doing it. I always do my own due diligence first. In addition we want to see all the paperwork a client would have to sign so we are completely informed of what they are expected to do.

It was during this phase of research we realized what they were charging the clients.

I don’t want to tell you just yet what that figure is. I need to prepare you first, so you don’t fall out of your chair.

When I first founded BCS we spent a lot of time researching companies offering bank lines of credit for small business owners up to $50,000. The line was provided with a good personal FICO score, business credit score and reported to the business credit bureaus so it didn’t show up on your personal credit report. It was a pretty good deal to have four or five of these credit lines even though you may have personally guaranteed it because it wasn’t showing on your personal credit report.

Imagine having access to $250,000 any time you needed it and never having it damage your borrowing ability personally. That’s what many of our clients were and still are able to do with good personal and business credit. Yes, there are some of these programs still available although less than 40% of what it was just 2 years ago.

When we first researched these banks we found brokers who were offering these lines to small business owners for a 5-10% fee when they got them the line of credit. I suppose I can understand someone paying for someone else to research the banks and find them so you don’t have to hassle with applying and getting denied by banks with stricter requirements. The more you apply and get denied the less likely you will get approved when you find the bank that you could have gotten credit with initially.

Even so these companies were charging up to $25,000 for $250,000 in credit lines. If you were to break that down as an annual percentage rate in addition to what the bank charged you would find annual percentage rates of 400% or more. Average credit cards are running 15%

When I saw what everyone was charging to do this, I decided to research the banks ourselves and offer our Business Credit Builder clients access to the list and requirements free of charge. They wouldn’t pay anything extra to know who the banks were, saving them up to $25,000. Obviously for an investment of less than $2,500 with BCS to do much more than just find an application but rather build their business credit profile, a $25,000 savings was worth the initial investment.

So back to the company we just found today offering $100,000 credit lines. In the paperwork we found that they were no different than these other brokers we have seen in the past charging finder fees for getting them the financing. However, this time possibly because it’s more difficult now than ever to obtain small business credit, they have increased the fee to 29% up front when the credit line is secured. In addition they said if you want to make money too just add whatever you want on top of that. That means some companies out there brokering this company’s services are charging upwards of $35,000 for a $100,000 line of credit.

If you could qualify for this line of credit you can find another one somewhere else for no fee.

Please do me a favor and the next time someone wants to get you a credit line ask what all the fees are. It’s really not worth the money for what these sharks are charging.

David Gass – Founder
Business Credit Services, Inc.
www.bcscredit.com

The credit markets have been tightening for the last year and personal credit has become more and more elusive.  Now, more than ever, we are starting to see a tightening on business credit and loans offered by banks.  Banks are tightening their standards and dropping more liberal business loan programs as well. 
Just a few months ago, BofA offered an express business line of credit program that even entrepreneurs in business just a month or two could qualify for with the right credit scores.  They pulled the program in the last quarter.   American Express for years has offered a Business Line of Credit program that entrepreneurs could apply for in addition to their American Express credit cards.  The line of credit was competitive in the industry with interest rates and most small business owners with an American Express credit card were getting approved.  The program was pulled in the last quarter. 
The closing of great programs such as the BofA Express Line of Credit and Amex Business Line of Credit are signaling the need for small business owners to find alternative ways to finance their businesses.  There are several unconventional methods that most entrepreneurs can use to build up access to capital they will need from time to time.    Some of these methods include: merchant account cash advance programs, equipment leasing, equipment sale-lease back, A/R Factoring and trade credit (also known as corporate credit or business credit). 
Trade credit is the single largest source of lending in the entire world.  It is when one business sells services or products to another business on credit terms.  For example, when Dell Computers sells a laptop to a small business owner, the business owner is given a choice: pay now with a Mastercard/Visa/Amex credit card, apply for a Dell Computer line of credit or apply for a Dell Computer Credit Card.  When the small business owner chooses to apply for a Dell Credit Line or Credit Card they are using trade credit.  Dell will then offer terms to the applicants who qualify.  Terms may include no-interest for 30 days if paid in full, or an interest rate charged each month a balance is carried and a small monthly payment that must be made on the credit card. 
If the business owner has structured their company properly before applying for the credit, they will likely receive an approval based solely on the business credit profile, business credit score and how compliant the company is with the business credit market.  If the business is prepared and built some initial business credit before applying with Dell, they will likely get approved regardless of what the personal credit score of the owner looks like.  This is True trade credit (corporate credit), when you rely completely on the business’ ability to obtain the credit and not just that of the individual owner or officer of the company.  Every entrepreneur should have a business credit profile and score.  That includes also being in compliant with the lending market. 
A business credit profile and score need to be created with all the major business credit bureaus, not just one.  D&B (Dun and Bradstreet) is the oldest business credit bureau, although Experian Business and Equifax Business have created very competitive products and services to compete directly with D&B over the last few years.  Most credit bureaus create a business credit profile and score when companies report to the bureaus the payment history of their clients.  The more companies reporting to a business credit profile, the better.  Companies who purchase a business credit report for analysis to determine credit approvals, like to see when others have granted credit already.  They would prefer to see several credit accounts with the business, whereas with an individual you may find it more difficult to obtain credit when you have a lot of credit accounts. 

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David Gass

If you are new to starting business and haven’t a clue as to where to start you are not alone. About a year ago my wife told me she was going to start a small craft business and wanted some direction of what to do. I sat down with her and came up with a list of ten steps she needed to take to determine if she really wanted to start the business and second how to get it off the ground.

The first step is to determine your passion level. One of the key indicators for investors when deciding if they are going to invest in a business is whether or not the entrepreneur is passionate about their idea. How do you measure the passion? It’s not an exact science. However, I will tell you that you should allow a few weeks after coming up with an idea before acting on it. Rushing into a business venture is never a good idea. Look at it as you would a marriage. Don’t present a ring on the first date. The other thing to consider when it comes to passion is the amount of work involved in running a business as oppose to just the business itself. If you dread having to deal with human resource issues, paperwork, bookkeeping, legal issues, etc. you may not be ready.

Second, put your idea on paper. The SBA recently came out with a statistic that business owners are six times more likely to be successful if they have a written business plan. Although a professionally written business plan is key it isn’t everything. You need to first write the plan, develop financial statements and pro-formas with projections of the amount of money you can make with the business as well, then develop the action plan. The action plan is step-by-step instructions on how to implement your plan. Without the action plan you will be like the majority of entrepreneurs who fail in business. Number one because there was no plan and number two because they didn’t act upon the plan. I have seen business owners spend $25,000 for a business plan that just sat on a shelf when it was complete. If you don’t take steps to write a good plan and develop the action plan around it you will be headed down the road of “closed for good”.

Third, put together a team of individuals to work with you and mentor you on starting and growing your business. Don’t go it alone. There are entrepreneurs that would love to help another entrepreneur starting their first business. Find individuals that have started and grown their own companies. Find individuals with expertise in certain areas such as legal issues, tax planning, marketing, sales, etc. You aren’t supposed to know it all. You just need to know who to talk to and where to go for advice and mentorship when you need it most. The best athletes in the world have a team of individuals that support them. There’s a reason for it, to make them better and push them beyond their comfort zone. It’s when we are out of our comfort zone that we grow.

Fourth, determine your entity. How are you going to operate the business, as a sole proprietorship, partnership, corporation or LLC? You should consult with another entrepreneur or professional that can give you some direction to which entity is best for you. In most cases I would always recommend either a corporation or LLC for a business start-up. Very rarely would I tell someone to operate the business as a sole-proprietorship or partnership. There are so many advantages to having a corporation or LLC that it doesn’t make sense to set up your business any other way. The asset protection advantage is the most important benefit for running as a corporate entity and shouldn’t be overlooked.

Fifth, get the proper funding. Look at your projections and for the amount of money you need and then multiply that by three and you will be about where you will need to be. The majority of entrepreneurs who write out projections for their expenses in starting a business use the words “conservative” way too frequently. They will say “I am very conservative in the numbers” or “my projections are very conservative”. The fact is that most people starting a business for the first time don’t have any idea what expenses will come up, so it’s best to take your projections and multiply by three. Once you have that number you need to make sure you have the funding to cover it. You may not need all the money in a bank account but at least have access to the funds. There are three ways to get the money: Personal savings, Credit and/or Equity Financing. You can dip into your personal savings and use that to fund the business. You can obtain credit lines, loans or use credit cards to fund the business. You can also sell equity in your company by finding investors willing to pay to be apart of your idea. You will likely find that at some stage of your business you will use all three.

Sixth, research. Make sure you research as much as you can about running a small business. Read, read, read. There are three books I would highly recommend. “E-Myth by Michael Gerber” “Good to Great by Jim Collins” and “Think and Grow Rich by Napoleon Hill”. You must become a student of entreprenuership if you plan to stay in business long term.

Seventh, get the proper licenses. Call your state, county and city and ask which license you need for the type of business you are operating. Some agencies don’t require a license, but I would do everything you can to get at least one. Investors and credit grantors like to do business with companies that have a license. You also need to look at any type of permits you may need for the business as well. Some business need occupancy permits, health permits, etc.

The eighth step is to work on your message and marketing. Develop a good marketing message and avenues you plan to market your business. I have seen too many business start-up and close in a matter of months only because they didn’t set out a plan for marketing or had a very poor marketing message. I would recommend having a really good copy-writer on your team and ask them to work on the content of your message and marketing materials. They will more than pay for themselves if you have a good one. In addition, make sure you use more than one source of marketing/promotion. Don’t rely on just one newspaper, website or radio ad to generate all your customers. Businesses with multiple sources of marketing and revenue are able to sustain the business long term and not have as bid of ups and downs.

Ninth, test. Test your marketing, your product, your service. Test everything. Just because you start your business and use one method for delivering your product doesn’t make it the most efficient or cost-effective. I have worked with business owners and asked why they spend so much money on a certain part of their business and the answer typically is “That’s the way we have always done it”. I suggest every time to test something else and see if that will work just as well. By testing you not only see what works but you also know what doesn’t work. Sometimes it’s better to know what doesn’t work than it is to know what does.

Last, take action. Your business doesn’t have a chance unless you take action and start to implement your plan. Your action plan will determine your direction and where you need to focus your time. Entrepreneurs have the tendency to get distracted quickly. By having a plan you have a guide map that will let you know when you fall of course.

David Gass
President/Founder
Business Credit Services, Inc.