A Step By Step Guide To Building Credit For A Small Business

For a small business financing can mean the difference between life and death. There are many ways to secure financing for any sort of small business these days. One way, is to obtain a credit card. However, many new business owners are unaware of how to go about applying for a business credit. The owner can establish credit in the name of the business without affecting personal credit or he or she can sign for the business personally and assume all the liability. The purpose of this article is to explain to new business owners how they can obtain a company card offer for the first time.

The first thing any owner should do is establish a checking account under the name of the business. This can be done quite easily at your local bank. If you are a sole proprietor than you will have to provide your bank with your social security information for the account. However, if you are the owner of a a newly formed corporation you will need to obtain a federal tax identification number otherwise known as an EIN. Once you have established your checking account you will need to start making regular deposits and show that you have regular cash flow. This will begin to start establishing some credit for your company. Be careful not to over draw the account as well.

The next step you want to take to establish good credit is to also establish yourself with vendors in your industry. Set up credit accounts with local vendors such as office supply vendors as well as merchants who may provide your company with any raw materials. The bottom line is to start establishing a payment history with other businesses. Some of these merchants will then in turn report to the credit bureaus that will also set a credit precedence for your company. All business credit card providers will look at the three bureaus as well in order to make a determination as whether or not they are going to issue you that new business card.

Once you have established a credit rating than it is going to be time to start looking for a credit card provider who is going to best suit your needs. You will want to go over a variety of offers before you apply for any particular card. Examine features such as the interest rate and other fees associated with that card offer. You will also need to determine if you plan to carry a balance or not. Those who do not plan to carry a a balance will want to look at different rewards offers that are on the market. A small business can save money on a regular basis if the owner chooses the right rewards business card. Look for a reward offer that is going to suit your needs the best. If you plan to travel a lot than a business credit card that has good travel rewards program is probably your best bet.

Once you have chosen the right provider than you can start the application process. Prior to turning in the application, the owner will want to gather some important information. Just as you did with your bank account you will need information such as your social security number is you are sole proprietor or federal tax identification number if you are incorporated in any way. You will also want to get together your past tax returns with the IRS to prove your income. A profit and loss statement verified by a Certified Public Accountant will probably also be necessary. Once you have all this information gathered you can begin the normal application process of filling out requirements such as business address, name of owners, type of business, number of years established, as well as bank account and credit references. This is where building up a good history with local merchants is essential for obtaining a corporate card.

After the paper work has been turned in the issuer will look over your criteria and decide if they will grant you the credit that you are seeking. If your creditworthiness meets up to the issuers expectations than they will grant you credit line. If you are rejected, you will be told so in writing and will be given an opportunity to find out why you were rejected. Those who are rejected can apply in the future once they have improved their credit situation.

Financing Your Small Business

If there were only two reasons for a business to fail they would be poor financing and poor management or planning. You can’t over-emphasize the importance of financing your business. Financing the business is not a one time activity as some might think. It is necessary whenever the need arises such as when expanding, modernizing etc. At this stage you need to understand the importance of exercising extreme caution and plan the utilization of capital. A wrong decision here can haunt your for the life of your business.

Are You Sure You Want To Raise External Funds?

For start-ups, it’s understandable that you need to raise capital through loans. But what about expansions and upgrades? Make sure that external financing is an absolute must before you apply. It is critical that you organize your finances at transitional stages but only after you make sure that you can’t do it yourself, either permanently or for some time. Equally important are the criteria of risk, the cost of not financing and how well it contributes to specific and overall goals of the company.


Equity Financing: Equity financing involves selling off of your shares (mostly partially) in return for cash and giving away that portion of ownership and rights to profits. Equity financing can be sought from private investors or venture capitalists. This brings about proper capitalization opening access to debt financing. Equity finance doesn’t need to be returned like loans unless your partner wants to withdraw.

Debt Financing: Debt financing is loan financing against some kind of guarantee of repayment. The guarantee can be collateral, a personal guarantee or a promise. Lenders restrict the use of debt finance to inventory, equipment or real estate. You need to properly structure the debt and the rule of thumb for doing so is giving long term debt for fixed asset loans and short term for working capital. The reason is that fixed assets generate cash flow over their lifetimes and have the benefit of lower interest rates as opposed to working capital loans.

Sources of Finance:

You can choose finance sources depending on your circumstances and the amount required.

1. Family and Friends: Small and short-term working capital requirements can be financed quickly through your own resources or through family and friends. The benefit here is the absence of the interest component (mostly.) This method of raising finances is handy even in early stages of business. You should be mindful, though, that disputes over money are the main reason that close relationships turn sour.

2. US Small Business Administration: This is the most prominent source for debt financing. The SBA doesn’t lend money directly but organizes and guarantees loans through various lenders and sources under its umbrella. Local governments, banks, private lenders, etc. disburse loans immediately to businesses approved by the SBA. SBA loans are available for various business purposes and at the lowest interest rates available.

3. Venture capital: Raising venture capital is organizing financing through selling shares whose value equals the finance you require. Essentially this means selling a portion of the ownership and control rights. It is essential that a proper valuation of your business’s worth is made before the deal is done.

Financing a business shouldn’t be hard provided you have established your credentials as a good manager, have collateral/assets, a convincing cash flow statement, genuine need, a proven track record, good credit history and a robust plan. This should not just save your business from collapsing but also allows it to grow and succeed.

Small Business Finance – How To Find The Right Price For Your Product Or Service

NAME YOUR PRICE; I JUST GOT TO HAVE IT! Sweet music to our ears when a customer asks us to just name our price.

What possesses a customer to act like this? And, how can I duplicate this feeling for my other customers?

First: The above example happens a million times a day. Every time we purchase something this feeling is occurring on some level. Usually, we look at the price, determine if it’s a good value, and then purchase or not purchase based upon our internal value judgment.

Second: The real trick is determining the variables your customers are using to make their value judgment. Knowing these variables allows you to determine the range of acceptable prices for your product or service.

Examples of variables involve the five senses, psychological factors (prestige, security, and acceptance), convenience, availability, etc.

Earlier, we talked about profiling your customers. A part of your profile should now include the variables involved in their buy decision. If your product or service has strong variables (ones with direct triggers to emotional variables) to work with, you have an easier time determining your price range. Weak variables force you to use more marketing tools to move the customer to a buy decision.

An example is The Club a device which locks your steering wheel. Their advertisement shows someone breaking a window and stealing a car capitalizing on a big violation and fear component. They then supplement that violation and fear with their strong name and police endorsement.

Third: Price should reflect the type of relationship you want with the customer. If you want a relationship with your customers built upon high quality. Then provide yourself with enough margin, the difference between your cost and your price, to provide the extras that are needed in that type of a relationship. It will take time, follow-up, and a great product/service to establish a high quality relationship. Also, you will not be able to maintain a large customer base so your profit must come from a smaller loyal customer base influencing an increase to your price.

Fourth: Pricing is your tool to motivate the customer to the behavior you want.

Whatever challenges you are facing in your business, pricing can usually be a tool to help you meet them. It is one of those versatile tools much like your favorite tool around the house. If you are having trouble scheduling customer projects to maximize your billable time, then offer discounts for customers willing to schedule out further. If you have too much inventory, then offer a clearance sale to get rid of it. If you are just too busy, raise your prices to handle the overtime or to just make it more worthwhile to you – while also slowing down the number of customers coming to you.

Pricing is neat, handy, AND when well thought out; it is a very powerful tool.

Fifth: Approximately 30% of US shoppers are categorized as price sensitive shoppers within any given industry. These are shoppers who like to bargain and will travel across town to save on a purchase. These shoppers are not loyal to a business. If someone comes in and asks for a great price on their first order because more orders will follow expect them to ask for another great price on the second, third, etc. Instead of saying no to them, explain that your policy is to offer discounts based upon quantity, loyalty, and timing. Avoid saying “no” whenever possible, use your pricing tool to allow the customer to decide whether your solution is right for them.

The good news is 60% of shoppers are value buyers and 10% are prestige buyers!
Lastly: How do you know when your price is the right price? When customers who should say no to you, do say no, realize that it is a good thing. If no one is objecting to your price then you are pricing too low. Be prepared to handle their objections by anticipating them and having your explanation ready.