Monthly Archives: February 2017

Small businesses need a constant supply of cash money

A line of credit, or revolving line of credit, is a flexible loan option for businesses. Businesses are allocated a specified maximum amount of capital available to them through a lender based off certain factors such as current cash flow and business credit rating.

The business then decides when, if, and how they would like to use that capital. Interest will be charged only when you decide to pull money from the line. You will have a specified repayment period, but, like a credit card, there is no penalty for paying early (in fact, it is encouraged).

Although interest is only charged once you use the line, there may be a monthly maintenance fee for letting your line of credit sit unused. Check with your bank or lender to see if that is the case for any line of credit you are considering.

 

What is a secured vs. unsecured line?

A secured line of credit is a line in which the borrower puts up collateral as a security deposit on the line of credit. An unsecured line does not require any collateral assets.

Secured lines are often preferred over unsecured lines by both lenders and borrowers. The lender is taking on less risk, so they will usually grant a higher credit maximum at a lower rate for secured lines. New businesses or businesses with poor business credit might only qualify for a secured line of credit because of the inherently higher risk.

Unsecured lines of credit are more expensive because the lender assumes higher risk. Credit cards are a type of unsecured line of credit. Businesses with many years under their belts and stellar business credit are more likely to qualify for unsecured lines at reasonable rates.

 

What are lines of credit typically used for (and not used for)?

Lines of credit are great for many situations. Here are a few examples:

  • Your business has seasonal fluctuations — perhaps your sales take a dip in the summer. A line of credit will help during the periods of low sales.
  • Your clients take 30 days or longer to pay you for products or services you provide. You might need a line of credit to cover the interim time until you are paid.
  • Your product requires expensive materials — you may need a line of credit to cover the expenses while you build and sell your product.
  • You have the opportunity to receive a discount if you pay a particular bill early — if the resulting discount is significant, you can cover the bill with your line of credit while you wait for cash flow to catch up.

The uses of a business line of credit really can extend far beyond these to touch all businesses. A line of credit, however, is a form of short-term financing, so avoid using your line of credit for long-term expenses.

 

How can I qualify for a business line of credit?

A lender will look at the strength of your cash flow and the strength of your business credit to qualify you for a line of credit. If you don’t yet have a bank account set up for your business, and if you are not yet building business credit, it will be wise to start if you suspect a future need for a line of credit.

An additional factor that a lender will look at is your ability to secure the line. Again, a secured line will be a less expensive option, so if you can put up collateral for the line of credit, a lender will be more likely to approve your application.

Easy Business Credit Card Guide

Business credit cards offer a quick and secure way for business owners to get the funds they need to run their business smoothly, take advantage of growth opportunities, provide breathing room when business is slow, safeguard personal finances from actions of the business, and more.

We created this guide to set you on a path to make the most out of business credit cards. Here’s a taste of what’s inside:

  • The incredible advantages of business credit cards
  • How business credit cards affect both your business AND personal credit
  • How to find our your approval odds before you apply
  • The type of business card you should avoid
  • Hacks to earn rewards and flights from your business credit card

Classic for Business card allows cardholders to earn rewards without needing excellent personal credit scores to qualify. As a huge bonus, business owners who make on time payments and keep their balances low can build business credit, however it’s worth noting that your payment history may be reported to personal credit reporting agencies and affect your personal credit scores. (Editor’s Note: This card’s details were updated in June to reflect new terms.)

What You Need to Know for Bad Credit

Although it may seem like you need to have stellar credit and multiple years in business to secure financing, in today’s lending environment that statement is far from true. In fact, there are over 44 different financing options available to business owners, and not all of them require an A+ personal or business credit grade.

Very poor credit will likely put you out of the running for the lowest cost loans such as bank loans and SBA loans, however you will find that some of those 44 financing options are still wide open to you and your business.

There is a trade off. Business owners with bad personal credit can often secure financing, but the more risk the lender assumes because of your poor credit scores, the more likely you are to pay a higher annual percentage rate (APR) to cover the extra risk.

This can seem counterintuitive—why would lenders charge more to the business owners who historically have the most trouble paying back debts? Doesn’t it make sense for the lender to charge less so the bad credit borrowers will have a better chance of paying it back?

That may sound better from the borrower’s perspective, but unfortunately it’s the lender’s money, and thus the lender’s ball game. Lenders charge a higher interest rate to individuals with low credit scores to offset a higher expected default rate. (Keep in mind that, although lenders are giving you a capital infusion to help you grow your business, they are trying to grow their business as well, which means maximizing their return on investment.)

Let’s take a look at some of the better options when it comes to business loans for bad credit.

 

Business Loan Options for Bad Credit

 

Microlenders:

Microlenders are institutions, often operating not for profit, that help low-income or underserved small business owners secure loans.. These loans are “micro” in the sense that they are usually only available in smaller amounts. Up to $35,000 is typical.

There are many microlenders, and each has their own set of rules and requirements. For example, Accion is a microlender that serves small businesses that need assistance with startup costs. A personal credit score of 575 or higher is required, so if you meet their other requirements this can be an option if your scores are lower than average.

The Association for Enterprise Opportunity (AEO) helps business owners find microlenders by state and business focus. Try a quick search and check out the microlenders’ individual websites to find out what their specific credit requirements are.

 

Kiva

Kiva is a microlender that deserves its own callout because of its unique model. It offers entrepreneurs 0% interest loans up to $10,000. The only catch is that entrepreneurs must crowdfund their own loans from the philanthropic individuals who use Kiva’s platform. Kiva has over one million donors and boasts a 94% success rate. To qualify, you must have a business plan and invite friends and contacts for initial funding.

Kiva also reports your payment history to Experian Business. This is great news for the future of your business—if you make on-time payments, you start to build a higher business Intelliscore credit score.

 

BlueVine

BlueVine is an option for B2B businesses who have long invoice cycles and often find themselves waiting to get paid for services or products they’ve already delivered. If this sounds familiar to you, or you experience irregular cash flow and would like to free up some of your cash, BlueVine advances up to 85% of your outstanding invoices up to $100,000. To qualify, you’ll need a 530 personal credit score, and your business must be a U.S.-based business-to-business (B2B) business.

Separate The Personal and Business Finances

You’ve been warned about mixing business and pleasure, but what about personal finances and business finances? At times, it may seem tempting to utilize your personal finances to help out when your business needs a boost, but it’s not always the best solution in the long run. Implementing a financial division between your personal and business finances can help you treat your business like the independent entity it is while safeguarding your personal finances.

 

Why is separating your finances so important?

Though there are many benefits to keeping your personal and business finances separate, two of the main reasons you should draw a line in the sands of finance are based on taxes and personal protection.

 

Taxes

Do taxes ever really seem cut and dry?  If you’re in the majority, the answer is no.  If you’re not, then rest assured that many of us are incredibly envious of your taxation acumen.  One of the main reasons you’ll want to split your business finances from your personal finances is taxes.It is much easier to keep track of business expenses if you use a separate business account.

Once you have your shiny new business checking account, keeping track of things like expenses is essential to properly filing taxes.  From office expenditures to operational and inventory purchases, every receipt counts.  When it comes time to file your taxes (or hand everything over to your accountant), a thorough collection of business-only information is going to save you a lot time and a significant amount of stress.

 

Personal Liability

Separating your personal and business finances is important for tax reasons, but perhaps equally, if not more important is a separation of your personal finances for the sake of your personal security. Using your personal finances to back any entrepreneurial venture can be risky business, but not just because of the initial financial gamble.

Entrepreneurs often wind up signing personal guarantees for leases, loans and lines of credit. Sometimes that’s necessary–especially when your business is young and hasn’t established a strong business credit rating. But your goal should eventually be to avoid personal guarantees as much as possible.  The way you do that is by building strong business credit, so lenders can be confident that your business can and will repay its debts

 

Tips for Separating Your Personal & Business Finances

Now that we’ve distinguished two of the more significant reasons to keep your business and personal finances separate, let’s take a look at a few of the ways that you can proactively put this division in place.

  1. Consider incorporating. incorporating your venture as a C Corp, S Corp or limited liability corporation (LLC) can provide tax benefits, but more importantly help protect your personal assets, provided you set it up properly and maintain it correctly.  By maintaining a corporate structure, you can protect your personal assets from business debts, losses and lawsuits. (Keep in mind, though, that if you sign a personal guarantee, creditors can try to collect from your personal assets if you default on a debt.) If you’re serious about creating a business, incorporating is a smart first step.
  2. Open a Business Checking Account. Once you’ve made the decision to start your own business, one of the very first things you should do is head to the bank and open a business checking account. There are multiple reasons why this is a healthy step for a business.  For starters, it will streamline cash flow and making record keeping much more efficient.
    Additionally, a business account lends itself to easy finance tracking – something that you or your accountant will vastly appreciate come tax time. As mentioned before, a separate business account can help signify to the IRS that your venture is a business and not just a side project or hobby, making more of your expenses tax deductible.
  3. Apply for Business Credit Card. Business credit is a big deal, and one quick and easy way to start to build it is by obtaining a business credit card. In addition to fantastic perks like building a credit history for your company, a business credit card will help you eliminate the need for personal credit cards for businesses purposes. Opening one of these cards will also help streamline business finances, and some cards reduce the risk of having your business transactions impact your personal credit. In addition, you may be able to deduct card costs (an annual fee and interest, for example), if you use it exclusively for business purchases. That may not be the case if you mix personal and business expenses on the same card.
  4. Set a Budget. Being armed with a business credit card and a business bank account is a terrific start, but there is another step that really can help you keep things in check – a budget. It doesn’t seem like setting a budget for your business would do a whole lot in terms of separating personal and business finances, but it can really come in handy.
    Preparing (and sticking to) a budget for your business can prevent you from delving into personal finances due to poor planning. Of course, emergency situations can happen and even the best planned budgets may not always work out as intended. However, by creating a clear cut budget, you’ll be able to reduce the risk of running into avoidable costs that would otherwise leave you turning to your personal finances for rescue.

Business Credit Cards for Travel

Business road warriors are used to packing their bags. But wouldn’t it be more exciting to get ready for your upcoming trip if you knew there were sweet rewards involved?

That’s where business credit cards come in. You probably know of or have a personal credit card that rewards you for your purchases with miles or points that you can spend on flights or hotel stays. But business credit cards for travel sometimes offer even better rewards than personal cards, along with a host of other perks including helping you separate your personal and business finances and build business credit.

Here are some of the best business credit cards for travel we’ve identified for frequent flyers that could be a big win for your business.

The Platinum Delta SkyMiles card from American Express is a great card for frequent Delta travelers who plan to make a large amount in purchases ($50,000+) on their card each calendar year. This card has a killer signup offer of 35,000 bonus miles and 5,000 Medallion® Qualification Miles (MQMs) if you spend $1,000 in the first 3 months. MQMs help you get closer to reaching Medallion status in the Delta SkyMiles program. As an added bonus, you’ll get a $100 statement credit after you make a purchase on Delta using your card within the first three months.

Added benefits:

  1. Two miles per dollar spent on Delta purchases, and one mile per dollar on all other purchases.
  2. No foreign transaction fees.
  3. Earn more miles with boost programs: 10,000 bonus miles and 10,000 MQMs after $25,000 in purchases each calendar year, as well as another bonus after $50,000.
  4. Earn a domestic, round-trip companion pass each year you renew the card.
  5. Added Delta bonuses: free checked bag, priority boarding, 20% savings (via a statement credit) on eligible purchases made in-flight.

Drawbacks:

  1. If Delta isn’t a convenient airline for you, this won’t be the best card.
  2. $195 annual fee.

The Starwood Preferred Guest Business Credit Card from American Express offers a flexible rewards program for frequent flyers of many different airlines who enjoy comfortable resort and hotel stays. New cardholders will earn 25,000 bonus points after they spend $5,000 in the first 3 months. Along with a generous rewards program, new cardholders will earn additional bonus points if they spend even more. Earn SPG Gold status after 30,000 in purchases on your card in a calendar year, which allows you to score more hotel upgrades, late checkouts, welcome gifts during hotel stays, and more.

Added benefits:

  1. Five “starpoints” per dollar spent at Starwood Hotels, two points per dollar at Marriott Reward hotels, and one point on all other purchases.
  2. Points can be redeemed at over 1,300 hotels and resorts, and over 150 airlines within the SPG program.
  3. No foreign transaction fees.
  4. Free Boingo WiFi at over 1M Boingo hotspots.
  5. Access to Sheraton Club Lounge.