Archive for August 2011
Business Credit – Top 10 Myths
Building business credit is one of the greatest opportunities for small business owners. It provides our business with the ability to obtain financing for unforeseen expenses, operations, expansion costs and investments.
There’s so much going on with corporate credit that there are several different fields devoted to servicing it, including business credit cards, small business loans, accounts receivable factoring, merchant account cash advance, lines of credit, equipment financing, secured/unsecured loans and many others.
These types of financing have been around for a long time, so you’d think that by now we would know all there is to know about corporate credit. After years of studying and applying every aspect of it, there are still many facets that remain secretive. And because it is so complex, we tend to simplify information about how it works in order to make it more understandable.
This has resulted in many myths about building business credit. Let’s look at the top 10 myths that have been circulating about business credit, beginning with, of all things, its starting line.
10: Sole proprietorships can establish corporate credit
A sole proprietorship is not considered a separate legal structure. Instead, it is considered a personal extension of you so you don’t have any protection from them. So every time you apply for credit for your business you will need to supply your social security number as the number that identifies your business.
As a result you are responsible for all debts and agreements you enter into in the name of your business; you’re also on the hook for all of your partners actions in the name of your business as well.
9: Using personal credit for business has no effect on the corporate veil
When you use your personal credit for the benefit or operation of your company it can lead to an “alter-ego” decision by regulatory or a financial organization, and a piercing of the corporate veil. This would directly endanger the owners personal assets and make the owner or owners directly liable for the penalties or repayment of any debts incurred by the business or corporation.
8: Obtain unlimited business credit for real estate investing
There are certain industries like real estate investing that are flagged as a high risk with the business credit bureaus. If you plan on investing in real estate then you will want to make sure that the company you are building corporate credit for is not “real estate investing”. Most banks will automatically turn you down because your company is operating in a high risk industry. You still will be able to invest in real estate but you may have to set up a business that does business development, business management, business consulting, marketing & advertising, training and development, etc. and then operate your real estate investing from a separate division of the company.
7: Credit repair is illegal and cannot be done.
False. Consumers have every right to repair their own credit in accordance with the Fair Credit Reporting Act. If you choose to use a credit repair company be sure to verify its track record with the BBB. Also, if you are paying for the service before it’s rendered make sure the company is in compliance with the Credit Repair Organizations Act (CROA). *Non Profits and Credit Union Service Organizations (CUSO) are exempt from CROA.
6: All vendors, suppliers and lenders report to the business credit bureaus
Not true! There are over a half a million vendors and suppliers that are willing to extend vendor lines of credit to your business but less than six thousand of these companies report to the business bureaus. What’s even more alarming is not all of these companies report on a monthly basis either. Some only report to the business bureaus once every six months!
5: All business credit cards report to the business credit bureaus
Currently there are over five hundred business credit cards in the marketplace but less than forty will issue a card without requiring a personal credit check or personal guarantee. These select cards report solely to the business bureaus and not your personal credit reports.
4: Every business has a business profile with the business credit bureaus
A Dun & Bradstreet profile requires that a business owner first apply for a DUNs number and submit their business information. Corporate Experian and Small Business Equifax create a business profile report for your company once a lender or supplier that you have payment experience with submits a data record. There are many other business bureaus that require business owners to complete a registration process prior to creating a profile.
3: Buy a shelf corporation and get all the business credit you’ll ever need
Shelf corporations provide certain advantages when it comes to obtaining credit simply from the fact that a business that is five years old has a much greater influence to a lender than a business that’s been in business for a few months.
With that said a shelf corporation alone will not enable you to obtain all the credit you need because there are many other factors that are taken into consideration. For example, if you have a ten year old shelf corporation that needs a $100k business line of credit a bank will need to view your company’s bank rating, balance history, financials, tax returns, profit & loss statements and so on.
2: All you need is a strong paydex score to qualify for a business line of credit
While a strong business credit file does play a part in qualifying banks look at many other factors. This includes your bank rating, balance rating, NSF track record and personal credit scores.
1: All you need is an 80 paydex score to get unlimited business financing
This by far is one of the biggest myths in business credit because an 80 paydex score with Dun & Bradstreet is said to be like having a 720 personal credit score. While that may be true to some degree there are some important details that many fail to mention. For example, you can have four positive trade references reporting with $200 being the highest credit limit on all four accounts and still score an 80 paydex.
This is because DNB’s rating system requires a minimum of four positive trade references but if the four you have are small limits then this hardly qualifies your business to get approved for thousands of dollars of cash credit, lease credit and business lines of credit.
In addition, having only a DNB file is like having only one personal credit file with the credit reporting agencies. Let’s say all you have is a personal credit file with Equifax but have no file with Transunion or Experian. You would never be able to get approved for a mortgage because you don’t have a completed financial picture for lenders to review your creditworthiness.
This holds true for your business as well. In order to show a complete credit picture for your company then you will need to have a profile with the three main business bureaus.
Now that you know the myths surrounding the corporate credit industry I encourage you to share this information with other small business owners and put your company on the path to corporate credit success!
Business Banking Online in Australia – Seven Handy Tips
Nowadays, no business, big, small or in between, gives a second thought about doing banking online. What used to take hours and days of entering and posting into cumbersome ledgers can be done in a tenth of the time, with a lot less staff. Tedious numerical tasks and manual payroll reconciliations have long gone, replaced by the swift click of a mouse and keyboard strokes. Would we ever go back to the old way of banking? Not a chance.
Online transactions are more convenient
You can bank in your time, not when the bank branch opens for business. Check your finances on a daily basis or plan ahead, that’s the beauty of access – 24-hours a day, 7 days a week access. Pay bills, monitor balances, make transfers between accounts and even integrate your account with other business software applications. Best of all there are no bank queues.
Free yourself from fees
No one likes paying fees, especially for business accounts. Typically online accounts charge lower fees or none at all for making deposits, transactions or paying bills. By using the internet, you can manage your money and make it work hard for you. The trick is to search around and select the best type of online account for your needs.
Put business payments on auto pilot
Banking online brings a great range of efficiencies to the working day, not to mention adding more interest to your bottom line. Once you set up regular automated payments, it can free up your time and your staff to concentrate on building business, improving output and morale.
Relationship discounts add up
There’s a lot of competition for your money today, especially for business customers. Consolidate your banking with one lender and bingo, you’ll be rewarded. What’s more, your personal banking can also benefit from a business relationship, with home and personal loan interest rate discounts, term deposit bonuses, savings account fee waivers and credit card annual fee waivers.
Losing interest in your money?
Many online accounts offer surprisingly good interest rates. Some are better than term deposits and your money isn’t locked away for months on end. Search around and see what you can find.
Online accounts give term deposits a run for their money.
When businesses had some extra cash flow or funds, the immediate answer was to drop them into a term deposit for up to a year. Forget that. With the boom in online savings accounts, think differently. You can get a huge range of benefits, pay no fees and have easy access to funds.
Many banks offer these accounts, but one that caught my eye was the ING Direct Business Bank Account. Just like the name says, it can help you make the most of your money. There’s a high variable interest rate, no fixed term, plus no minimum deposit or balance either. Well worth a look.
Doing business with another time zone?
International trade and payment transactions can now be made online, saving even more time in your working day. You don’t have to wait for the other person or company to be open for business on the other side of the world.
For the banks, time really is money. But through technology you can make the benefits of online banking work in your favor to increase productivity and expand your business opportunities.
Who knows, if you’re dreaming of an early retirement it could well be on the horizon.
Home Based Business Tax Deductions
Running a home based business reaps many wonderful tax deductions that other businesses some times may not claim. Unfortunately to many small business owners end up paying the government taxes every year because they are unaware or several small business deductions that are available.
Most of the time any expenses that are related to your business can be added as a deduction on your taxes. If you do not pay taxes through out the year, deductions can help you from paying a large amount of taxes each year and can also adjust earned income. Try to avoid paying large amounts of taxes or owning any money by keeping track of simple things!
Each business is a bit different so be sure to mention these ideas to your tax adviser or accountant to see if your business can qualify for these deductions.
1- If you join any business or purchase into any franchise, the expenses such as kits, or franchise fees may be claimed as a deductions. Receipts for these business start-up costs should be saved.
2- Business Supplies. Be sure to save all receipts for any supplies you purchase for your business use. Computer paper, business cards, pens, catalogs, brochures or any items you purchase and use for your business.
3- Advertising- Most advertising can be claimed on your taxes. Keep all receipts for any newspaper ad’s you may run, banner advertising, or any advertising you do online. Advertising is a business expense and in most cases can be written off.
4- Items Given Away- Keep a list of any items you may give away, and the costs of these items. Most freebies may also be written off.
5- Phone Bills and Internet Access- If you have a phone line for business use or have the internet in your home or office for business use, save all receipts for each bill paid. These items are business expenses and may also be written off.
A cell phone that is used for business is also a deduction.
6- An In Home Office- If you have an office in your home, make sure to let your tax adviser know. Using a room in your home as an office can also be added on taxes.
7- Long Distance Calls- If you make any long distance calls that are related to your business, make sure you keep all phone bills showing the calls and the amounts charged. If these calls are related to your work, the cost of the calls may also be written off in most cases.
8- Returned Checks and Bank Fees. If you incur any bounced checks from customers and can not collect on them, those amounts may be deducted, along with any fees you were charged from your bank. Be sure to keep the returned check, the letter from your bank and your bank statement to show the fee you were charged.
9- Postage- All postage costs paid by you or shipping fees may be claimed. Keep receipts for all shipping supplies, and postage.
10- Computers & Software- If you purchase a new computer for business use, the cost of the computer may be claimed. Software that you may use for business may also be claimed.
You may also claim depreciation for 3 years after the computer was purchased.