A prerequisite to securing a business loan is to have healthy credit.
Your FICO score defines your credit health. You must have a good FICO credit score to obtain favorable financing for all aspects of your life; your home mortgage, your insurance coverage, your auto financing, and most importantly, your business. If you can operate your business profitably and your personal expenses do not exceed what your business can pay you in salary and dividends, your personal funding needs will be covered. Therefore, adequate and well-priced funding for your business should be your primary concern. Your credit health, defined as a good FICO score, will provide many funding options for your business during times of economic instability.
Credit card companies have made short terms debt readily available to businesses. However, credit card debt is difficult to reduce in the current economy. Over the past two and a half years many companies have had inconsistent revenues, inventory shortages, and price increases, all of which have contributed to dependency on credit card lines of credit in order to cover operating costs. Credit card companies profit when individuals and companies use the maximum credit lines, but credit scores will be lowered and the ability to borrow additional funds from other funding resources will be limited and more expensive when a borrower retains high loan balances on credit cards.
How can an SME (Small/Medium Enterprise) retain a favorable credit score, reduce and repay lines of credit and simultaneously create a positive net income?
The following advice is offered by a recognized financial advisor to small businesses:
- Review your personal credit scores from Equifax, Transunion, or Experian; for your business credit and your personal credit. If a FICO score dips below 680, consider what options provided in this article will help you raise your score to the acceptable level of 680, or speak with an experienced credit counselor for personal advice.
- Do not use the same credit cards for both personal and business expenses. Try to establish business credit. Your personal guarantee will be required, even on a business credit card. If your business is new and business credit is not available, use a personal credit card designated solely for business purposes. Always maintain different credit cards for personal and business uses.
- Make timely monthly payment of the debt. Late payments have the largest impact on lowering your score.
- Do not exceed 30% of an available credit card line of credit. Use additional credit cards to keep the debt to under 30%, even if the interest rate on the other lines of credit is higher.
- Plan for future funding needs when your FICO score is 680 or higher.
Don’t operate under crisis management in a market when many other businesses face the same crises.
- If you have determined that the business can survive and grow, consider bringing in an investor who will provide the needed interim funding. or –
- Consider bringing on an operating partner who can provide both expertise and credit worthiness.
- Prepare conservative cash flow projections, for both the short term (one year) and the long term (3 years), to help you evaluate the future profitability of your company. These projections will be a guide to assist you in how to provide for future needs. In addition, investors and lenders will be impressed with your planning and will want to review the projections.
- Ask your vendors for more favorable payment terms or consider alternative vendors who can offer better payment terms.
- Do not use credit card lines for long term investments. Finance equipment, real estate, and other long – term investments with notes that amortize over the life of the asset.
- Check your FICO score periodically to make certain there are no reporting errors. Notify the agency immediately, requesting a correction if there is an error.
- Create a relationship with your business banker. Speak to your banker about other lending options for your company – SBA loans, working capital, or other loan programs that would match your needs. If you have an acceptable credit score you will be considered a potential borrower. You should have other professionals who you trust; your lawyer, your CPA, your financial advisor, who could advise you about your funding options.
- Keep your accounting records current. They should be readily available when needed. In times of uncertainty, current financial records are vital to all interested parties.
Innovation & Strategy
A properly executed small business plan can positively impact business vitality and growth. In part one Planning Is Core To Small Business Success- Part 1 of this planning two part series, we looked at why a business plan is core to success. In part two we’ll look...
Five ways to address operational changes All businesses are affected by an uncertain economy. Increases are only positive when they impact the bottom line. Small and medium size businesses often do not have the staying power to survive when one or more of the factors...
New privacy policies for business owners responsibility is growing to ensure consumer's personal privacy and information rights Editor's note: This is a third, in a series of three articles, on privacy policies note In Part 1 we covered The Corporate Transparency Act...
Let’s talk about FEELINGS... If you look at today’s marketing and business headlines, there is a lot of chatter about BIG data and AI - it’s everywhere. This compelled me to recently tweet the following “It’s all about BIG data these days but we must never forget the...
Latinas conquer challenges in the workplace, silence doubt, spark joy with self-love this Valentine's Day On Valentine's Day, thoughts often turn to romantic love and expressions of affection for others. But this year, why not extend that love inwards, showering...
This lively fusion of Latino creativity and innovation don't just create; they inspire In the vibrant heart of Latin America, a playful and dazzling fusion of art and technology is painting the future with bold strokes of innovation and tradition. Here, Latino artists...
Nutrition and best practice healthful habits to avoid the mid-day slump You know the feeling all too well: the clock reads 3pm on a Tuesday, you still have hours of work ahead of you, and yet your eyes begin to feel heavy and you start to lose focus. Maybe you...
Christmas advertisement and some of our favorite videos in the U.S. and worldwide we've come to love.... Whether Hispanic, Latino or Latin it's a Feliz Navidad time of year! Enjoy these videos from the ad community, some classics. Chocolate Frey - Singing boxes...
A 360 recap of Super Bowl LVIII Latin Biz Today advisory board member & Sports lead and two of his sports management students weigh in on Super Bowl LVIII The Aftermath It’s hard to put into words why anybody would be shooting at a Super Bowl parade and killing...
Work & Life
Health & Fitness
Travel & Destinations
Join Latin Biz Today partner Johanna as she virtually takes you to the Hispanic Fiestas de la Calle San Sebastián Also please see Johanna's recent background piece Part 1: The San Sebastián Festival in Old San Juan I recently had the chance to immerse myself in the...
There are so many great goals that we can try to incorporate into our lives that can really provide lasting benefits. The start of the new year marks an opportunity to reflect on our lives and think about where we see ourselves in the future. New Year resolutions...