While many businesses have been slammed by recession, some entrepreneurs are using the downturn as a time to prepare for better times ahead. And a big part of that is not only getting your current balance sheet in shape, but lining up funding sources to support future growth.
It starts with understanding the different options, and that alone can be challenging. When American Express surveyed a group of small business owners recently, it found that many were having trouble separating financial fact from fiction.
For example, Amex found that 34 percent of business owners surveyed believed, incorrectly, that a business “term loan” (funded immediately for a set term and amount) and a “line of credit” (which you open and tap as needed) are essentially the same. And nearly 40 percent believe it’s a good idea to apply to as many lenders as possible when seeking a loan, when the opposite is true. Multiple applications can tarnish your credit rating.
Here are five things you should know about financing that can help position your business for future growth:
1. Reinvested profits are perfect. The best source of “venture capital” for an existing business is money your company is already generating. Many entrepreneurs miss growth opportunities by spending profits in unproductive ways. Others take the opposite extreme, pumping every penny into the business while taking nothing for themselves. Both can backfire. If you do need to seek a loan, bankers will prefer that you pay yourself a reasonable salary. They want to know the business can be profitable even if those running it get paid.
Reinvesting profits in your business is a key to successful long-term growth. This is “patient” capital that builds value in your business without debt and without giving up shares to others. About 46 percent of business owners surveyed by American Express said they planned to finance their growth by reinvesting profits.
2. Tap into trade credit. “Trade credit” describes the process of delaying payment for goods and services your business purchases from various suppliers and vendors. You may find vendors more than willing to sell on credit to a growing business – and even to a startup – if you can strike a long-term deal to buy from them.
And from your perspective, trade credit is also one of the safest forms of business borrowing. Bank debt is dangerous because payments are still due even if sales drop. But if sales drop so will your orders, so your level of trade credit will drop too.
Right now, trade credit may be more readily available than bank or other types of loans. And it lets you spread payments over months or even years with little or no down payment and generally favorable rates.
3. Line up credit lines early. The time to establish a line of credit is when you have the ability to qualify for one – not later on when you need it. Having a line of credit can help you growing by providing ready financing when opportunities arise. A line of credit is also vastly preferable to using corporate credit cards that generally carry much higher interest rates and increasingly onerous terms. But avoid using a credit line to bail yourself out of trouble. Lines are meant to be tapped as needed, then paid off so they are available again the next time.
4. Expand banking relationships. If you have accounts with only one big bank, consider opening additional accounts at a regional or community bank. That will give you more options when it comes time to look for loans, lines or other credit to support your growth plan.
5. Consider alternative loan sources. A few options include credit unions you may be eligible to join, accounts receivable financing (also called factoring), and so-called “peer-to-peer” lending. Peer-to-peer (or person-to-person) lending has taken off in the recession as traditional loan sources have dried up and new Internet sites have made it easy to apply for and obtain this type of financing.
Thursday, December 24, 2009
Sunday, December 13, 2009
5 Keys to Funding Future Business Growth
While many businesses have been slammed by recession, some entrepreneurs are using the downturn as a time to prepare for better times ahead. And a big part of that is not only getting your current balance sheet in shape, but lining up funding sources to support future growth.
It starts with understanding the different options, and that alone can be challenging. When American Express surveyed a group of small business owners recently, it found that many were having trouble separating financial fact from fiction.
For example, Amex found that 34 percent of business owners surveyed believed, incorrectly, that a business “term loan” (funded immediately for a set term and amount) and a “line of credit” (which you open and tap as needed) are essentially the same. And nearly 40 percent believe it’s a good idea to apply to as many lenders as possible when seeking a loan, when the opposite is true. Multiple applications can tarnish your credit rating.
Here are five things you should know about financing that can help position your business for future growth:
1. Reinvested profits are perfect. The best source of “venture capital” for an existing business is money your company is already generating. Many entrepreneurs miss growth opportunities by spending profits in unproductive ways. Others take the opposite extreme, pumping every penny into the business while taking nothing for themselves. Both can backfire. If you do need to seek a loan, bankers will prefer that you pay yourself a reasonable salary. They want to know the business can be profitable even if those running it get paid.
Reinvesting profits in your business is a key to successful long-term growth. This is “patient” capital that builds value in your business without debt and without giving up shares to others. About 46 percent of business owners surveyed by American Express said they planned to finance their growth by reinvesting profits.
2. Tap into trade credit. “Trade credit” describes the process of delaying payment for goods and services your business purchases from various suppliers and vendors. You may find vendors more than willing to sell on credit to a growing business – and even to a startup – if you can strike a long-term deal to buy from them.
And from your perspective, trade credit is also one of the safest forms of business borrowing. Bank debt is dangerous because payments are still due even if sales drop. But if sales drop so will your orders, so your level of trade credit will drop too.
Right now, trade credit may be more readily available than bank or other types of loans. And it lets you spread payments over months or even years with little or no down payment and generally favorable rates.
3. Line up credit lines early. The time to establish a line of credit is when you have the ability to qualify for one – not later on when you need it. Having a line of credit can help you growing by providing ready financing when opportunities arise. A line of credit is also vastly preferable to using corporate credit cards that generally carry much higher interest rates and increasingly onerous terms. But avoid using a credit line to bail yourself out of trouble. Lines are meant to be tapped as needed, then paid off so they are available again the next time.
4. Expand banking relationships. If you have accounts with only one big bank, consider opening additional accounts at a regional or community bank. That will give you more options when it comes time to look for loans, lines or other credit to support your growth plan.
5. Consider alternative loan sources. A few options include credit unions you may be eligible to join, accounts receivable financing (also called factoring), and so-called “peer-to-peer” lending. Peer-to-peer (or person-to-person) lending has taken off in the recession as traditional loan sources have dried up and new Internet sites have made it easy to apply for and obtain this type of financing.
It starts with understanding the different options, and that alone can be challenging. When American Express surveyed a group of small business owners recently, it found that many were having trouble separating financial fact from fiction.
For example, Amex found that 34 percent of business owners surveyed believed, incorrectly, that a business “term loan” (funded immediately for a set term and amount) and a “line of credit” (which you open and tap as needed) are essentially the same. And nearly 40 percent believe it’s a good idea to apply to as many lenders as possible when seeking a loan, when the opposite is true. Multiple applications can tarnish your credit rating.
Here are five things you should know about financing that can help position your business for future growth:
1. Reinvested profits are perfect. The best source of “venture capital” for an existing business is money your company is already generating. Many entrepreneurs miss growth opportunities by spending profits in unproductive ways. Others take the opposite extreme, pumping every penny into the business while taking nothing for themselves. Both can backfire. If you do need to seek a loan, bankers will prefer that you pay yourself a reasonable salary. They want to know the business can be profitable even if those running it get paid.
Reinvesting profits in your business is a key to successful long-term growth. This is “patient” capital that builds value in your business without debt and without giving up shares to others. About 46 percent of business owners surveyed by American Express said they planned to finance their growth by reinvesting profits.
2. Tap into trade credit. “Trade credit” describes the process of delaying payment for goods and services your business purchases from various suppliers and vendors. You may find vendors more than willing to sell on credit to a growing business – and even to a startup – if you can strike a long-term deal to buy from them.
And from your perspective, trade credit is also one of the safest forms of business borrowing. Bank debt is dangerous because payments are still due even if sales drop. But if sales drop so will your orders, so your level of trade credit will drop too.
Right now, trade credit may be more readily available than bank or other types of loans. And it lets you spread payments over months or even years with little or no down payment and generally favorable rates.
3. Line up credit lines early. The time to establish a line of credit is when you have the ability to qualify for one – not later on when you need it. Having a line of credit can help you growing by providing ready financing when opportunities arise. A line of credit is also vastly preferable to using corporate credit cards that generally carry much higher interest rates and increasingly onerous terms. But avoid using a credit line to bail yourself out of trouble. Lines are meant to be tapped as needed, then paid off so they are available again the next time.
4. Expand banking relationships. If you have accounts with only one big bank, consider opening additional accounts at a regional or community bank. That will give you more options when it comes time to look for loans, lines or other credit to support your growth plan.
5. Consider alternative loan sources. A few options include credit unions you may be eligible to join, accounts receivable financing (also called factoring), and so-called “peer-to-peer” lending. Peer-to-peer (or person-to-person) lending has taken off in the recession as traditional loan sources have dried up and new Internet sites have made it easy to apply for and obtain this type of financing.
Sunday, December 6, 2009
Guide to Free and Low-Cost Employee Perks
Employees have come to expect benefits such as health insurance and 401K plans. But you don't have to offer a budget-busting benefits package to show employees that you appreciate their efforts. Many companies are turning to affordable benefit offerings that are more like gifts than traditional benefits. This new brand of employee benefit has a more personal touch. For example, many workers long for a break from their hectic workweek. Benefits like flexible work hours and restaurant gift cards show employees that you recognize their sacrifices and want to help ease their stress. Important strategies for making benefits truly beneficial:
1.It really is the thought that counts. When an employee receives a gift that he wouldn't typically buy for himself, he tends to put greater value on that benefit.
2.As a business owner you may hate to admit it, but there is one benefit that is guaranteed to motivate employees: a day off. Whether it's a Friday off every other month or the chance to work at home occasionally, granting that extra time away from work can do wonders for morale.
3.Give spot bonuses. These are gifts you give to individual employees to recognize an achievement that went beyond the call of duty. Present spot bonuses with some fanfare, and do it often enough so that all employees know that they have a chance of receiving one.
Action Steps
The best contacts and resources to help you get it done
Consider the popular choice: gift cards
A great way to customize an employee benefit without spending a fortune is to give gift cards that are tailored to the employee's favorite pastime.
I recommend: GiftCertificates.com is a one-stop shop for gift cards for travel, entertainment, books, dining out, fashions and more. GiftCertificates.com also includes the option of customized paper gift certificates. Starbucks offers corporate rates to businesses that purchase Starbucks debit cards. Employees can use the debit cards (which function like gift cards) to buy beverages, food, or merchandise at any Starbucks. If you prefer to expand your employees' gift choices give, a MasterCard or Visa gift card. Employees can use them wherever those companies' credit cards are accepted.
1.It really is the thought that counts. When an employee receives a gift that he wouldn't typically buy for himself, he tends to put greater value on that benefit.
2.As a business owner you may hate to admit it, but there is one benefit that is guaranteed to motivate employees: a day off. Whether it's a Friday off every other month or the chance to work at home occasionally, granting that extra time away from work can do wonders for morale.
3.Give spot bonuses. These are gifts you give to individual employees to recognize an achievement that went beyond the call of duty. Present spot bonuses with some fanfare, and do it often enough so that all employees know that they have a chance of receiving one.
Action Steps
The best contacts and resources to help you get it done
Consider the popular choice: gift cards
A great way to customize an employee benefit without spending a fortune is to give gift cards that are tailored to the employee's favorite pastime.
I recommend: GiftCertificates.com is a one-stop shop for gift cards for travel, entertainment, books, dining out, fashions and more. GiftCertificates.com also includes the option of customized paper gift certificates. Starbucks offers corporate rates to businesses that purchase Starbucks debit cards. Employees can use the debit cards (which function like gift cards) to buy beverages, food, or merchandise at any Starbucks. If you prefer to expand your employees' gift choices give, a MasterCard or Visa gift card. Employees can use them wherever those companies' credit cards are accepted.
Tuesday, December 1, 2009
A New Way to Rate Customers with no Credit History
Recession-damaged small and mid-sized businesses would like to extend credit to customers with little if any credit history if they could do it without great risk. Now there’s a way. FICO — the company behind the ubiquitous FICO credit score we all know and love — has created a new FICO Expansion Score to help businesses evaluate the estimated 50-70 million U.S. consumers who have either no traditional credit history or thin credit bureau files at Equifax, Experian and TransUnion.
This group of potential customers is heavy on students, senior citizens and recent immigrants, so the scoring model is based on non-traditional credit data such as subscription memberships, bank deposit account activity and utility histories. The resulting scores use the same 300-850 scoring range as the traditional FICO and can also be used in combination with the traditional score when making credit decisions. The new scoring system can help identify responsible, credit-worthy customers who can meet their obligations but simply haven’t had an opportunity to establish a traditional credit history.
MicroBilt Corp., which provides risk manaement services to small and mid-sized businesses, has an exclusive license to use the FICO scoring model in the U.S. and sell FICO Expansion scores to lenders and businesses. MicroBuilt has direct links to the three major credit bureaus, which means businesses checking customer credit can get both the traditional FICO score and the FICO Expansion score from a single source. For more information on obtaining a FICO Expansion score you can fill out a MicroBuilt inquiry form or call 800-884-4397 800-884-4397.
According to its creators, the FICO Expansion score accurately predicts the likelihood that a consumer will become seriously delinquent within the next two years, using the same caliber of highly predictive, objective risk evaluation that other FICO scores are known for.
This group of potential customers is heavy on students, senior citizens and recent immigrants, so the scoring model is based on non-traditional credit data such as subscription memberships, bank deposit account activity and utility histories. The resulting scores use the same 300-850 scoring range as the traditional FICO and can also be used in combination with the traditional score when making credit decisions. The new scoring system can help identify responsible, credit-worthy customers who can meet their obligations but simply haven’t had an opportunity to establish a traditional credit history.
MicroBilt Corp., which provides risk manaement services to small and mid-sized businesses, has an exclusive license to use the FICO scoring model in the U.S. and sell FICO Expansion scores to lenders and businesses. MicroBuilt has direct links to the three major credit bureaus, which means businesses checking customer credit can get both the traditional FICO score and the FICO Expansion score from a single source. For more information on obtaining a FICO Expansion score you can fill out a MicroBuilt inquiry form or call 800-884-4397 800-884-4397.
According to its creators, the FICO Expansion score accurately predicts the likelihood that a consumer will become seriously delinquent within the next two years, using the same caliber of highly predictive, objective risk evaluation that other FICO scores are known for.
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