Essential Tips for Existing Small Business Owners and Start Ups
Recognizing current trends and addressing issues that are whispered.
The tips provided in this article have been gleaned first hand by the author from clients who have recently had to deal with these issues.
Personal credit
Clean up your FICO score before set up your legal entity. Make 680 your goal.
If this task will take more than a reasonable amount of time, consider another arrangement. You can be the manager of the company, with an operating agreement that protects you, and the principal, your partner, who has good credit, can be the major shareholder.
This arrangement has to be done with someone you know and trust. A good personal credit score improves your ability to negotiate with your venders and lowers your costs of borrowed funds.
The fastest way to improve your FICO score is to pay off pass due credit obligations.
You should also try to reduce your credit lines to not more than 35% of the amount of the line. These two steps will provide faster and cheaper access to capital for business expansion.
Bankruptcies and real estate defaults will take longer to resolve, and are not readily forgiven by institutional lenders for at least five years. Some lenders will wait seven years before they consider you a qualified borrower. Don’t let third parties pull your credit until you are ready to buy products or services. Provide them with your FICO report.
Raising capital
When seeking capital, either equity or debt, shop before you buy. Beware of the quick fix. It may be the most expensive option.
And remember, It is easier to pay off a loan than unwind an equity investor or partnership agreement. (Stay tuned for a follow up article with a detailed blueprint for funding your business.)
Signing a lease
NEVER sign a lease until you have the funds to make the monthly payments, and always read the fine print in the lease which may include the pass thru of operating expenses.
Does the lease require that the tenant pay for structural repairs or increases in real estate taxes if the property is sold?
Try to negotiate and delete these conditions form the lease. Consider what the expense pass thru may be and include it in your budget. Ask for an LOI (letter of Intent). Discuss this document with an unbiased professional and an attorney.
If you plan to seek financing, the term of your lease, with extensions, must match the term of your loan.
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