Archive for April, 2008
Business Credit Success for former ESPN reporter
April 25th, 2008
By The XBanker
If you are an ESPN SportsCenter fan, the name Scott Walker should ring a bell. Scott was a reporter for the popular show for four years when he decided the travel was taking its toll. He wanted a career that would allow him to spend more time at home with his wife, Nicole Neal Walker, an attorney. Initially they started a television production business, but by the end of 2004 they had developed a bigger vision.
With their knowledge of television production, they decided to build the premier interactive golf website. With DigitalGolf.TV, golfers get access to exclusive content on top-ranked golf courses featuring 18-hole interactive views from every tee box, fairway and green, as well as an expansive library of popular video instructional tips to help golfers of all skill level improve their game.
Their latest offering? The Digital Golf Test Drive(tm), which allows members to test drive a golf club — brand new or like new — for as long as they like.
“Golf equipment is so expensive,” explains Walker.” We want people to be able to have access very quickly to the best equipment. And if they don’t like it, they can send it back to us. We don’t want people to get stuck in a product that is not right for them.” Walker says it’s “like Netflix for golfers.”
With a membership of only $44.99 a month, golfers can check out a club and have it sent to their door with free shipping. Two clubs at a time are available for $79.99 per month and a full set is available with a monthly membership of $99.99. Members keep clubs as long as they like, and either purchase them or return them and try something else.
But in order to bring this popular program to its members, DigitalGolf.TV had to invest in a lot of golf equipment, and the Walkers want to do it the right way – using business credit whenever possible.
To do that, the Walkers been following the BusinessCreditSuccess.com program and have been meticulous about following the steps in the program. “For us, the most important thing were the basics,” Walker explains. “From the business perspective, business credit is befuddling. But the time you’ve put into it really does save you a lot of heartaches.”
Success Steps
Like many entrepreneurs, the Walkers have used both personal and business credit cards to grow their business. Though very pleased with their success so far, they wish they had used more business credit. “I wasn’t aware of some of the things that were available to me with business credit. I would have taken a little more time in building the business, and taking the steps that would provide a better foundation for success. What we have learned now (through the program) has helped us improve our foundation.”
Advice For Entrepreneurs
Scott Walker’s advice to other business owners?
“Work the steps (in the business credit building program) and don’t try to skip any. Before we applied for a D-U-N-S number we made sure we had walked through the steps first, such as getting the phone line in the name of the business and getting it listed with directory assistance.” It takes a little time, he points out, but is worth it. “All that work is coming to fruition and the bank is pleased.”
And no doubt many golfers, who now can virtually tour the best courses in the country, lower their handicaps and hit the links with their dream equipment, will be too.
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Business Financing For Those With Bad Personal Credit
April 24th, 2008
By The XBanker
The harsh reality for most business owners is that they can’t escape their personal credit. With the rise of the McBanks, business lending (particularly for loan amounts under $100,000) have become auto-scored and personal credit driven. This is what we lovingly refer to as the Bank Lending Matrix. In this system, you either fit the mold or not. It is even tighter these days due to the mortgage melt-down and irresponsibility of lenders and consumers.So if you have poor personal credit (by bank standards that means a score under 670) you need to forget about bank small business loans until you get your score up. If you need the cash now, you may need to consider bringing on a partner with good personal credit or trying to raise money from investors.I’d prefer to see you get the money you need without giving up equity. So, depending on your borrowing needs and the status of your business, here are some potential solutions for you:
You may just find that you can get all the money you need from one or more of these solutions. Feel free to speak with one of our associates if you have any questions or need help with one of these solutions.
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Tips for Boosting Your Credit
April 21st, 2008
By The XBanker
Many consumers are looking for the fairy godmother of credit, who will wave her wand and make their bad credit disappear. But building better credit isn’t magic.
I’ve been watching the consumer finance industry for 18 years now, and I’ve never seen it so tough for consumers. It’s almost as if consumers have to walk through a “minefield” of traps to keep up, much less stay ahead. One wrong move, and your credit score drops like a rock, your interest rates jump to the stratosphere, or you’re dragged into arbitration where you’re virtually bound to lose. I see it all the time.
The better your credit rating, the more money you’ll save and the stronger your negotiating power. So let me give you some essential tips for maximizing your credit rating and saving money. (I am assuming you’ve already received your free annual credit reports If not, order them right away.)
Tip #1: Don’t close old accounts! I’ve said it before, and I’ll say it again. You’re bound to see some old accounts listed as open though you don’t use them anymore. FICO says that closing old accounts won’t help your credit rating and can only hurt it. Think having too many open accounts hurts your credit? Think again. My colleague Scott Bilker of DebtSmart.com has 83 open credit cards and a credit score of over 800 – which is excellent!
Tip #2: Watch your debt levels. If you’re using more than 30 – 50% of your credit cards or home equity lines of credit, your credit score may take a hit. In fact, Experian says that consumers who use more than 50% of their available credit have Experian Plus Scores of 633 versus a national average of 677.
Tip #3: Check the Credit Limits. Some issuers don’t report credit limits for competitive reasons. But this can hurt your credit score. Without a credit limit, the FICO score will substitute the highest balance ever reported, which is likely much lower. This can make you look maxxed out, even on cards you pay in full! Complain to the card issuer, and if they won’t report the limits, look elsewhere.
Tip #4: Don’t Cosign. I’ve heard so many stories from consumers who have been burned by cosigning. Even if you cosign a loan and it’s paid on time, it likely will still be reported on your credit report and count against you as if it were your own debt.
Tip #5: Stay On Top of It. Identity theft, credit fraud and credit report problems are rampant. I receive complaints every week from consumers who have discovered mistakes or problems with their credit reports. And every week I read new stories about security breaches that have put consumer’s personal information at risk. It’s no longer enough to check your once a year – you must stay on top of your credit and financial accounts.
Think about it. What will you do if someone cleans out your bank account…or runs up hundreds of thousands of dollars of debt in your name…or even hijacks your health insurance policy? You’ll quickly be living a nightmare.
You may think that avoiding online transactions is the best way to protect yourself from ID Theft. But the Better Business Bureau says the opposite. In fact the BBB recommends consumers monitor their financial accounts online and use electronic alerts to notify them of important activity like transfers, or low balances. They also suggest consumers use online statements and pay bills online as well.
A report by the Better Business Bureau and Javelin Strategy & Research says that id theft victims who monitored their accounts online experienced losses one-eighth of those who relied on paper statements to detect the crime.
Tip #6: Clean Up Common Mistakes. One in four credit reports contains mistakes serious enough to get you turned down for credit, a loan, an apartment, home loan or even a job, according to a report by the Public Interest Research Group. Over the last decade, the state PIRGs and other consumer organizations have issued numerous reports showing that credit files frequently contain mistakes.
The PIRG study found that 79% of the credit reports studied contained mistakes of some kind, 25% of them serious errors. In just over half of the reports, personal identifying information was misspelled, long-outdated, belonged to a stranger, or was just incorrect. Add to that the growing problem of credit fraud and identity theft, and you can’t be sure your credit report doesn’t contain costly mistakes. The only way to make sure it’s correct is to review it. Mistakes can happen at any time, to anyone.
Now here’s the important part. What do you do when you find mistakes? Federal law gives you the right to dispute mistakes on your credit report. The credit bureau or creditor must get back to you within thirty days with the results of your investigation. But be careful.
You need to be smart about how you handle disputes. For example, you should always send your disputes by certified mail and keep a record of all correspondence. Dispute items with both the creditor and the credit reporting agency for maximum results. Also, get good advice before you pay off disputed accounts or old collection accounts, or you may make costly mistakes.
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Social Lending or Peer-to-Peer Lending
April 21st, 2008
By The XBanker
Here’s the truth: lenders care about risk – and so should they. Underwriting guidelines are 100% based on the principle of risk avoidance. It’s simple: the less risky you are perceived to be, the better your chances are of getting approved. The unfortunate truth is that with most banks, your “story” doesn’t play a part in the risk equation. You could be extremely gifted, passionate about your business, intelligent, and a proven winner in past ventures, but, unfortunately, non-tangible factors rarely help your case.
The Bank Lending Matrix doesn’t accept intangibles as data inputs, so these intangibles are neutralized at the banks.The only way to overcome this is to get your “numbers” in order. This means to take care of your personal and business credit score, build your business, create legitimate revenues, and wait until you have 1-2 years of history before you ask the bank for money.Waiting isn’t ideal for most entrepreneurs, since they need the money to get started.
A new and viable financing option is something referred to as social lending, community lending or peer-to-peer lending. Some of the most well know are Lending Club, Prosper, Zopa and Virgin Money (formally known as Circle Lending). With the exception of Virgin Money, these social sites are online platforms that allow a prospective borrower to tell his or her “story” when seeking a loan. If someone in the community likes what you say, they may choose to lend you money.Here’s an example, let’s assume you want to borrow $5,000. You don’t actually have to convince one person in the community to lend you the full amount – you just need to persuade 100 people to lend you $50 each (for instance).
Using Prosper as an example, Prosper takes the $50 from each of the 100 lenders (average Joes, not big banks) and issue you (the borrower) one loan. You only have to make one payment each month to Prosper. They manage the payment process and distribute the money to the 100 people. It really doesn’t get much easier than this!
I like this lending option, because the underwriting is not automatic and intangibles definitely play a factor in the decision to lend money. Just because your not dealing with the matrix, doesn’t mean that you get to take advantage of a bunch of pushovers – you might find that your peers are even more risk adverse than the banks! Nevertheless, social lending is a great alternative to the banking industry and might be a viable avenue for getting capital for your business.
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Truly Free Credit Reports
April 18th, 2008
By The XBanker
Here’s how to really get free copies of your credit and consumer reports (including a few agencies you may not know about).
There are three major national credit reporting agencies that collect and sell reports about consumer’s financial habits. There are also national specialized consumer reporting agencies that are required to provide an annual free disclosure to consumers. Since these may collect and report different information, it’s a good idea to review all of them at least once a year.
To order your free annual credit report for Equifax, Experian or Trans Union, go to www.AnnualCreditReport.com or call 1-877-322-8228. The reports are free, credit scores are not.
Chexsystems and Telecheck both report on bounced checks and overdrawn bank accounts.
Choicepoint provides several types of consumer reports:
C.L.U.E. reports relate to insurance claims. Get a copy at www.ChoiceTrust.com or call 1-866-312-8076.
To request a copy of your employment history report from Choicepoint, call 1-866-312-8075.
To request a copy of your tenant history report from Choicepoint, call 1-877-448-5732.
MIB reports information related to applications for life, health, disability, or long-term insurance. Visit www.MIB.com or 866-692-6901. Note, if you have not applied for for individually underwritten life, health, or disability insurance during the preceding seven year period, MIB will not have a record on you.
One question I am often asked is whether it’s a good idea to stagger your requests for your free credit reports. In other words, order one from one bureau in January, the second in a few months, etc.
My answer is, “Absolutely not.” These agencies do not share information with each other and a mistake may show up on one report but not the others. If you don’t know about it, you can’t fixe it. It is essential you check them all right away. If there is a problem, or you want more frequent access, order a credit monitoring service.
Have fun!
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How Equipment Leasing Can Benefit Your Business
April 16th, 2008
By The XBanker
One of the biggest mistakes that I’ve seen entrepreneurs make is to confuse capital and cash. Confusing the two can lead to wasting valuable cash and limiting your business’s potential. I’m a huge believer in using a mix of capital including loans & lines of credit, trade credit, and equipment leasing.
When it comes to financing your business, the name of the game is preserving your cash and limiting your personal exposure. I’m surprised at how many people come to us seeking cash to purchase equipment, vehicles, or machinery for their business. If you have access to cash, the last think you want to do is spend it on equipment. Cash is king, and without it a company can not operate and pay its bills. Just about any piece of equipment can be leased (most of the time with little or no money down!). In most cases, it is the equipment that generates revenue for the business – so the equipment literally pays for itself. All the while, you are still holding your cash and enjoying the tax benefit associated with the lease.
Another advantage to leasing is that it is much easier to obtain approvals than with a bank small business loan or line of credit – because there is a secured asset involved. This also leads to more lenient approval criteria, which means you don’t need perfect personal credit to qualify. In fact, if you’ve properly built your personal credit, you can obtain corporation-only leases with no personal guarantees! There is also a lot of flexibility in payment terms and buyout options. Take advantage of this by customizing the lease to best match your situation and business needs. The process is quick, usually consisting of a one page application and a fast turnaround.
As you consider the capital requirements for your business, keep leasing in mind. Not only can you save money, but you can preserve precious cash for growing your business.
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The Nevada Law on Corporate Privacy
April 16th, 2008
By The XBanker
Many promoters will tout the complete privacy offered by Nevada corporations and LLCs. But what they won’t tell you is that the law has changed and privacy has been somewhat compromised.Here is the law for corporations:
- In addition to any records required to be kept at the registered office pursuant to NRS 78.105, a corporation that is not a publically traded corporation shall maintain at its registered office or principle place of business in this state:
- A current list of its owners of record; or
- A statement indicating where such a list is maintained.
- The corporation shall:
- Provide the Secretary of State with the name and contact information of the custodian of the list described in subsection 1. The information required pursuant to this paragraph shall be kept confidential by the Secretary of State.
- Provide written notice to the Secretary of State within 10 days after any change in the information contained in the list described in subsection 1.
- Upon the request of any law enforcement agency in the course of a criminal investigation, the Secretary of State may require a corporation to:
- Submit to the Secretary of State, within 3 business days, a copy of the list required to be maintained pursuant to subsection 1; or
- Answer any interrogatory submitted by the Secretary of State that will assist in the criminal investigation.
- If a corporation fails to comply with any requirement pursuant to subsection 3, the Secretary of State may take any action necessary, including, without limitation, the suspension or revocation of the corporate charter
- The Secretary of State shall not reinstate or revive a charter that was revoked or suspended pursuant to subsection 4 unless:
- The corporation complies with the requirements of subsection 3; or
- The law enforcement agency conducting the investigation advises the Secretary of State to reinstate or revive the corporate charter.
- The Secretary of State may adopt regulations to administer the provisions of this section.
It is important to note that Nevada is not asking for the owners of the entity up front. The requirement is that the registered agent either keeps a list of the owners or the name of a contact person who has a list of the owners. The Secretary of State will request the ownership list only when a law enforcement agency needs it for a criminal investigation. Not for a civil case mind you, but only for a criminal case. What this means is that if your business and asset protection plans are on the up and up, your privacy will be protected. (If you are engaged in fraud and other crimes, we would ask that you go elsewhere.) But for the good guys, you will still maintain your privacy. Two points are worthy of further note. First, for limited partnerships the only owners the new legislation aims for are the general partners. While the generals do indeed control a limited partnership, frequently they only own 2% or less of the entity, and are usually just a management corporation or LLC. The limited partners will own 98% of the limited partnership and, except for management, are the economic beneficiaries of the entity. Whether the new law intentionally just wanted information only on the general partners or will be corrected to include the limited partners’ identities remains to be seen. But for now, people very concerned about privacy may want to use Nevada limited partnerships. The second point has to do with Wyoming. The corporate law of Wyoming does not have such an ownership disclosure procedure. Yet. Apparently the federal authorities are working to get a similar legislation approved in other states, including Wyoming. We will keep you informed of such developments. Until then, once again, those very concerned about privacy may want to use Wyoming entities.
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Business Plans and Bank Loans
April 15th, 2008
By The XBanker
The next time someone tells you to prepare a business plan for the bank, ask them when the last time was that they used a business plan to secure a loan.
The bottom line is that if you are doing less than $1m in revenue, you probably aren’t going to secure more than $100,000 from any one bank. This means that your lending approval will be driven by the Bank Lending Matrix, rather than some business banker carefully reviewing your financials.
So, before you burn a lot of time and money on a business plan, I recommend that you ask a couple of banks how your plan pertains to their process and what information they’ll need to see. Chances are, they’ll tell you just to fill out an application. But, don’t be suckered into applying for a small business loan unless you know you meet the approval criteria.
There are a number of reasons to create a business plan, but getting a bank loan isn’t one of them. Business plans can be great operational tools and help you think through your business. But, for start-ups and small businesses, you are either going to qualify for one the banks canned products or not. Plus, the banker who just wrapped up their BA in Sociology isn’t really equipped to dig into your financials. Banks hire social studies graduates for a reason, they’ve been trained to smile, nod and look interested. At the end of the day, they just want you to set-up a checking account and leave them alone to finish their game of solitaire. By all means, don’t take my word for it: ask your business banker and find out the truth for yourself.
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Can you remove credit inquiries?
April 15th, 2008
By The XBanker
“How can I get credit inquiries off my credit file?”
It’s a common question I hear and here’s my take.
When someone reviews your credit, the credit agency lists an “inquiry” on your credit report. There are two types of inquiries: soft and hard. Soft inquiries are shown only to you, when you receive a copy of your credit report. They do not appear on credit reports sold to lenders. Soft inquiries are created when your credit report is included in a review for a “preapproved” credit card, when one of your current lenders reviews your account (perhaps for a credit line increase or an interest-rate increase), or when you access your own credit report directly through a service that allows consumers to review your credit report. These inquiries do not count against you when you apply for credit and are not included in a credit score because no one sees them but you.
Hard inquiries are created when you apply for credit, insurance (most property insurers now use credit report generated Insurance Bureau Scores) and even some jobs.
In an effort to avoid penalizing consumers for shopping for mortgages and car loans, Fair Isaac Company (the ones who create the popular FICO scores and sell a majority of the scores to lenders and credit bureaus) created a policy that all mortgage-related inquiries, and separately all auto-related inquiries in the most recent 30-day period before the score was created count as a single inquiry. Going back before the most recent 30 days, all mortgage-related inquiries or auto-related inquiries within a 14-day stretch are treated as a single inquiry.
But here are the caveats. It only works if the inquiries can be clearly identified as mortgage or auto-related, it only applies to companies using FICO scores (a few use others) and it only applies to companies using more recent FICO software to generate their scores.
If you are shopping for credit, and you fill out a bunch of applications, your credit report will be affected. How much?
Contrary to what you may have read elsewhere, there is no standard point reduction for an inquiry. You can’t say, for example, that an inquiry lowers your score by 7 point or 9 points, for example. It depends on the mix of information in your credit report.
Inquiries can account for about 10% of your score, so it’s not a major factor, but it does count. We will see clients who have been trying to establish credit, and have applied in all the wrong places. Their credit files show multiple inquires, and their score has dropped as a result.
Inquiries remain on your credit file for two years. Can you remove them? Maybe, but it’s tough. If you are a victim of identity theft, you should try to get them suppressed so they don’t affect your credit scores.
As with many things, an ounce of prevention is worth a pound of cure. So don’t apply unnecessarily for credit when you aren’t likely to qualify! Keep those score-lowering inquiries to a minimum.
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Urge Your Vendors to Report
April 11th, 2008
By The XBanker
One of the frustrations for small business owners trying to build business credit is the fact that many businesses don’t report client’s payment histories to D&B or Experian, the two major business credit agencies.
Experian is trying to help change that. (They’d love to have more businesses reporting.) They have set up a website where you can contact your vendors and urge them to report to Experian.
I want to make sure I am clear — that website does NOT offer a list of companies that report to Experian. It offers a list of credit managers you can contact, asking them to report.
It’s really quite ingenious. Experian is getting business owners to help become their sales force. If enough customers speak up, the vendor will have to listen. That’s OK — if it works, we’ll all benefit.
If you have established trade credit with vendors who don’t provide customer payment info to Experian, use that list to tell those companies you want them to start reporting.
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