Business Financing Types

As a small business owner, it’s not uncommon to be turned down for a bank loan. A faster (less than 2 hours) and better alternative is online lending. There’s no need to go into a bank. You can simply do it right from your home. While rates are slightly higher, the competition can’t offer anything close to the same convenience. These loans are a great way to build your business credit as well, assuming you always make on time payments.

How To Get The Most Out Of Alternative Term Loans:

  • Short term cash flow improvement
  • Buying inventory
  • Equipment purchases
  • Refinancing of a loan
  • Acquisition of a businesses

What’s great about alternative term loans:

  • Reasonable interest rates (7% – 30%)
  • Quick turnaround time (compared to banks)
  • Less effort and documentation needed
  • Fixed, predictable payments (usually monthly)
  • May help improve business credit scores
  • Available for many uses

Negatives of alternative term loans:

  • Interest rates are higher than those of a traditional loan
  • Can be difficult to get good customer service
  • Can include a penalty if paid off early
  • Most require that personal and business credit are good
  • Collateral might be required
  • Many require at least 2 years of business operations

While some business owners believe this type of financing causes their clients to have a negative view of them, this can’t be further from the truth. In fact, many businesses use invoice financing with great success. Given the higher interest rates (15%-35% APR) compared to other types financing, these loans are great when your business is need of cash immediately and for a short period of time. Because credit is extended based on your accounts receivables, your client’s credit score is usually more important than yours. Invoice financing can be a good option when you need a financing but haven’t yet built up enough credit history to get approval from a traditional lender.

Who Should Use Invoice Financing:

  • Businesses that deal in B2B
  • Businesses that have a seasonal cycle
  • Any B2B Businesses who have well-known clients
  • Businesses with extended billing cycles including retail, manufacturing, clothing, etc.
  • Businesses with unusually large invoice amounts

Advantages of Invoice Financing:

  • Quick and easy approval
  • Fills cash flow shortages
  • Simple pricing model

Disadvantages of Invoice Financing:

  • Rates are higher than other financing types
  • Invoices are required for collateral
  • Must have B2B or B2G (government) business

With equipment financing, the equipment is used as collateral. This means financing can be easier to get. When you have equipment that you’ll own long term, it’s best to look for a financing partner. These can include lenders who specialize in equipment financing, your bank, lenders who will work with the vendor and even alternative lenders. If you want to save money on this financing type, shop around for the lowest cost lender.

Best Ways to use Equipment Financing:

  • Financing for new equipment
  • Equipment based business start can use their equipment as collateral

Advantages of Equipment Financing:

  • Below average APR
  • Monthly payments don’t change
  • A great way to build your business credit
  • Equipment can be used as collateral

Disadvantages of Equipment Financing:

  • Down payment may be a large percentage of loan
  • Must have excellent credit to get good terms
  • Equipment can become outdated before it is ever paid off

Can help supply cash or bank credit line on short notice at an affordable price, assuming you are able to qualify. Qualification requires great credit on both your personal and business credit. If you don’t qualify, you can likely still get a loan from an online lender but at a higher rate. Business lines of credit are good for short term uses but shouldn’t be utilized for long term debt. Banks loans are better for anything long term.

Who Should Use A Line of Credit:

Established Businesses
Businesses With Lengthier Billing Cycles such as Manufacturing, Clothing, Retail, etc.
Cash for general operations
Taking advantage of short term opportunities to increase revenue

Advantages of a Line of Credit:

  • Interest isn’t charged until you begin using the credit line
  • Can fill cash flow shortages
  • Credit line that is always available

Disadvantages of a Line of credit:

  • Usually require business to be at least 2 years old
  • Interest rate can fluctuate
  • Qualifying can be difficult

This type of financing is similar to personal payday loans. The interest is high and they are usually reserved for business with poor credit. If for some reason, you can’t qualify for other types of financing, a cash advantage might be your only option. This is certainly a short term loan and you should already know how and when you’ll be able to pay it off. Have the all cost figured out before taking financing, as calculating all cost can be a little difficult.

Getting The Most Out of Business Cash Advances:

  • Fix short-term cash flow issues
  • Deeply discounted inventory purchasing
  • Unforeseen expenses
  • Short-term cash for debts that have come due

Advantages of Business Cash Advances:

  • Able to access cash quick
  • Payments are commonly based on the percentage of daily sales
  • Don’t need to have great credit
  • No restrictions on use of funds
  • Don’t have to put up collateral

Disadvantages of Business Cash Advances:

  • Can have APRs range from 70% – 200%
  • Must meet minimum daily payment
  • Unlike other loans that can help bulid credit, this type of financing does’t
  • Can be locked into specific merchant processor
  • Business must provide bank account info or accept credit card payments

Business owners can be put off by the difficultly in getting an SBA and long-term loans. But there is not reason not to try. These types of loans offer exceptional interest rates and some of the best repayment terms. It’s certainly worth the time and effort required to go through the application process.

Getting The Most Out of a Long-Term Loans:

  • Cash for general operations
  • Equipment purchases
  • Acquiring commercial real estate
  • Refinancing another loan
  • Acquisition of a businesses

Advantages of SBA and Long-Term Loans:

  • Below average interest rates
  • Payments spread out over longer periods
  • Down payment that is a very small percentage of loan or none at all
  • No restrictions on loan use
  • Establish your business credit

What’s not-so great about SBA and Long-Term Loans:

  • Lots of paperwork
  • Can take a while to get approved
  • Need great credit
  • Collateral might be required

D-U-N-S number and Business Credit Report

It is never too late to start working on improving your business credit score. A good business score will make your business eligible for financing from banks or alternate lending companies, this applies to all kinds of businesses. Funding is essential to businesses, you will eventually get to a point where you need to expand your reach, need more equipment or undertake bigger projects.

Lenders need to see how much funding you have borrowed in the past and how you paid the repayment. This will determine how credit worthy your business is.

The top three credit bureaus today are Dun and Bradstreet, Experian and Equifax.

Each of the credit bureaus mentioned above has different credit assessment processes. 

We have highlighted the different ways through which the top three reporting credit bureaus assess a company’s eligibility for credit. The method used by these companies is quite different from what is applicable with the personal credit bureaus. 

Dunn & Bradstreet

Used by lenders to check your credit when applying for Term Loans, invoice Financing, Equipment Financing, Business Line Of Credit, Business Cash Advance, SBA and Long Term Loans.

Dun & Bradstreet has been in the business of assessing business credit since 1941. Their assessments are based on the extent to which a business communicates with its vendors, this constitutes the trade data. The assessment of how a business pays vendors for services is also put under focus. This is graded according to a 100 point score referred to as D&B PAYDEX®. The results show how promptly bills are paid; the score attained here should be high to benefit the business.

Other business information like banking history, transaction history, and business information will be retrieved from the public records; however, the final score is dependent on the trade data.

Equifax

Used by lenders to check your credit when applying for Business Credit Cards.

Equifax conducts its business by converting the data it receives from Small Business Finance Exchange (SBFE) into a comprehensive business report. The SBFE is in charge of all reports presented by the banks for awarded loans; this means an Equifax report shows the pattern that represents how the owner of a small business pay their business credit card payments, pay off small loans or credit lines.

Equifax also considers other information from the business data files but it makes its assessments basically from the extent of interaction between the small businesses and the conventional financing options.

Experian

We consider the Experian business credit report as one that fairly considers all aspects of small businesses past transactions for a credit assessment. The assessment process, in this case, retrieves bank information, trade data, and information from the public records. Experian understands that there are businesses which mainly get their funding from banks while rarely using trade credit options. On the other hand, some companies rely on the trade credit providers more than the banks for funding.

Useful tips to establish develop and improve your business credit

The right time to start improving your business credit is now. Considering the various parameters used by the credit bureaus to assess a small companies credit, there are many actions a business owner can take to meet up with these requirements. We have included some useful tips in the following part of this paper.

1. Have a good knowledge of your credit score: There are many advantages of understanding the status of your credit score. You will know what needs to be done to improve it. From the inception of your business, it is important that you establish a credit score; however, it is never too late to start even with old businesses. You can monitor your credit score regularly to know the trends and how it affects your funding plans in the future.

2.  Use your credit accordingly: it might be detrimental to your business in the long run if you end up consistently using personal credit to meet business demands and vice versa. Your reporting company only considers the utilization of credit in the right way. This means, using personal credit for business purposes will have no impact on your business credit score.

You will be building your business credit score when you use the business credit for only the intended purposes which will be reported on your account increasing your credit score.

3. Consider opening an account for a Quill, GraingerHome Depot or Staples credit card:  You can easily develop your business credit by discovering simple actions that add value to your business credit. Securing credit cards from organizations like Home Depot and Staples is a good idea. All the expenses from this company will be reported to the benefit of your business credit score. It is easy to get one of these credit cards, and we have confirmed that they report to the business credit bureaus whenever you use their credit cards.

4.  Deal with only vendors and lenders who report to credit bureaus: before establishing a business relationship with vendors, ask for proof that they report to credit bureaus, these reports will improve your business credit score.

This applies to lenders as well. It is important that your repayments for loans should be reported to credit bureaus as this leaves a trail of payments that will boost your business credit profile.

5.  Use and monitor your credit expenses: The D&B PAYDEX has a 100 point score that applies to all businesses. To meet this score, you should ensure that credit is used for the right purposes and payments are made when due. Regular repayments will ensure a continuity of the credit line a vendor has given to your business. This will increase the chances of securing better loans from banks or lending companies in future.

A business credit card is different from the personal credit card in different ways, the billing system is different and the rules guiding the use differ as well. It is important to study and understand the applicable rules to avoid late payment on your credit cards. Late payments can cost you extra fees and charges; it will also have a negative impact on your business credit score. This is why monitoring your credit card transactions and payment dates are important.

6.  Always update your business credit score information: the reports presented to the credit bureaus will only help your business score if they are accurate and updated. There are processes that can be used to correct any error many in your reports. A proof might be required to confirm your queries but once the error is confirmed, the right changes will be made.

  Guard your business credit score carefully because it is one of your valuable assets. Its usefulness will be fully realized at a time a good opportunity suddenly comes up in your business for which you will need more capital. Always ensure only the right business practices that promote your business credit score is used for all your transactions develop good relationships with your vendors, suppliers and loan providers.

D-U-N-S number allows other businesses and financial institutions to have access to your D&B business credit scores. In addition, to do business with the government or large retailers may require having s D-U-N-S number. Using one of the links below you can look up your  D-U-N-S number.

The first step to start building your business credit is to get a D-U-N-S number. It is the most widely used business identification number in the United States and in the world. You can use one of the links below to register your D-U-N-S number.

Dun & Bradstreet Credit report and business credit score are used when you apply for business funding such as  Term Loans, Invoice Financing, Equipment Financing, Business Line Of Credit, Business Cash Advance, SBA and Long Term Loans.

Dun & Bradstreet offers different option:

CreditSignal® 
Gives you free access to see changes in your  D&B® scores and ratings and can help you ensure that your business credit information is up to date and see who and how many times your credit report has been purchased.

CreditBuilder™ 
Can help you take actions and build up your business credit by submitting good payment history that is unreported. In addition, this option gives you the ability to dispute inaccurate information on your business credit report and improve your business credit score. A Higher business credit score can improve your chances to qualify for business financing and help you grow faster by increasing your cash flow.

 

You can get your  Dun & Bradstreet here

View Sample Dun & Bradstreet Report

Updates add corrections to your Dun & Bradstreet information can be made and submitted through their free iUpdate site.

D&B has a variety of products that can help you help better and smart decisions about a customer’s creditworthiness, a supply chain partner’s reliability or a prospect’s value.

If you do not have a contract with Dun & Bradstreet, order on their retail sites.

Company Update Introduction Document – Updates and corrections to your Dun & Bradstreet information for a US company must be made and submitted through our free iUpdate site. If your company is located in Canada you can make these changes by calling 1-800- 463-6362.

Experian Business Credit Report Information

Purchasing your company’s Experian Business Credit Report

Experian makes it easy for you to get a copy of the credit report for your company online without waiting. You can purchase the credit report for your business from Experian anytime you want, this can be used for any purpose.

Obtain Business Credit Report on another company from Experian

You can get a business credit report on your business and also another company in the United States including partners, vendors, suppliers, business clients and many more. You do not need the company’s authorization or that business owner’s authorization to get a business credit report on that company. You can instantly get a business credit report of another company online for any reason at all.

When you have been Declined Business Credit

If your company been denied credit due to a business credit report by Experian in the past 60 days you can request a complimentary copy of your business credit report from Experian. Submit your request to Experian in writing on your company’s letter head. You should include the following information:

1.  Write that you want a copy of Experian business credit report for your company. This should include a copy of the notification letter sent to you by the creditor that declined you. You cannot get a complimentary business credit report without a copy of this letter.

2. Include the name of your business or any variations made to the name like the names your business formerly operated by in the past 10 years.

3. Include the present physical address (es) of your company and P.O. Box (es).

4.Include the former physical address (es) of your company and P.O. Box (es) in the past 10 years

5.  The letters must be signed by the owner of the company.

Your request letter can be sent to:

Experian
Commercial Relations – RFR
P.O. Box 5001
Costa Mesa, CA 92628-5001

You can also email your request letter to:

 Experian
 Commercial Relations – RFR
RFR@experian.com

Experian Business Credit reports is used when you apply for Business Credit Cards.

1. CreditScoreSM Report $39.95

   • Scored report
   • Detailed credit & business info
   • Summary financial payment info

View Sample Report

ALSO, VALUE PLANS ARE AVAILABLE

Up to 30 CreditScore reports per month

   • Scored reports
   • Includes Recommended Credit Limit
• Detailed credit & business info
   • Summary financial payment info
    • Larger plans available (Contact us)

2. Business Credit AdvantageSMPlan $149

Designed for business owners

    •  Full year of subscription access
    •  Our most complete report
    •  Mobile-friendly alerts
    •  Score improvement tips

View Sample Report

3. Valuation Report

    • Get the value of your business
    • See Key Performance Indicators
    • See business fair market value
• More information (click here)

View Sample Report

A business credit report is an objective picture of how a business runs its financial liabilities and debts. All information provided in Experian’s business credit reports is sourced or verified from a 3rd-party. This information non-biased and reliable and allows other companies to see a realistic and objective view of an overall performance of a company’s financial health.

Having at least one trade line and/or one demographic element is the minimum requirement in order to have a credit report. To Learn more how to add a tradeline on your credit report, please review the steps outlined in our biz credit wizard.

Visit SmartBusinessReports.com to check Experian’s database in order to know if your business has a credit profile. You don’t need to be a registered member to search their database however if you are interested in acquiring a report you will be automatically directed to register.

Yes, you can. Unlike personal credit reports, you do not need authorization from a business owner to get a business credit report. Personal credit reports can be obtained only by permission while a business credit reports can be pulled anytime without permission. 

What does Experian business credit report contain?

Experian’s report shows clear business credit information that includes financial and public record information, a comprehensive demographic and also analytic score.

Credit: the number of trade experiences, utilization of credits, balances outstanding, payment habits and trends over time

Public records: recency, dollar amounts and frequency associated with liens, judgments, bankruptcies

Demographic information: years on file, business size and Standard Industrial Classification (SIC) code,

How to get a business credit report and score?

You can access Experian’s business credit database by going to SmartBusinessReports.com. It is very easy and simple to sign up, you can do this by just clicking on the member login link at the top of SmartBusinessReports.com pages after which you create an account. Click here to begin.

One of the things lenders, suppliers and some customers look at before making a decision to do business with you is your business credit report. It is almost impossible to get funding and have lines of credit for your business with a bad credit report. Having a good awareness of what drives your current business credit score can help you improve it. When these factors are managed correctly it can have a positive effect on your credit score and this, in turn, leads to greater opportunities to grow your business and increase your cash flow.

SmartBusinessReports.com Business Credit Advantage package – a  monitoring service for business credit –This provides you with an unlimited access to your business credit score and report so you can always be aware of what you have in your business credit profile in order to take advantage of it.

No doubt that many small business owners today fail to separate their personal expenses from business expenses. For instance the same card used to get supplies or buy gas for the company’s vehicle is used to pay for a family dinner. At least half of small business owners use their personal money for business. Here is the challenge with relying on personal credit to fund the business, when that business runs at a risk the personal credit score runs at a risk also.  Moreover, many creditors today do not rely on personal credit alone to know the financial state of the owners business as this is not an ideal way to tell the business performance of a company. In addition to this, most smart creditors are making use of new combined commercial scoring tools that incorporate both personal and business credit attribute to tell if a small business is at risk.

A business credit report contains a recent, objective picture of how a business runs its financial obligations. This can include:

  • Actual trade payment experiences
  • Public record information
  • Background of company
  • Collections information
  • Comparative data placing a company’s payment performance in context with its industry

Many of the information seen on a business credit report comes from real businesses like yours that gave Experian their accounts receivable information, so this information is reliable, impartial and accurate. This allows for an objective view of the overall financial health of the company.

What is DBT?

Days Beyond Terms (DBT)- indicates days that has taken a business to payits bills based on trade lines beyond agreed payment terms.

DBT is calculated at +30 days, so a DBT of 5 simply means that a customer is paying, on average at 35 days after invoicing. Experian’s business credit reports show the DBT for the business being reported on and also that of the industry-average DBT.

What is Continues Tradelaine?

Continuous trades are existing tradelines that have been updated in the past 3 months. DBT, quarterly DBT and monthly DBT are calculated on continuous tradelines.

What are UCC filings?

UCC filings or ‘Uniform Commercial Code’ filings is needed when a company pledges properties as collateral for a loan. Experian’s business credit report shows about 10 most recent UCC filings (original, amendments or terminations).

Experian keeps data on file by making use of standard industry and government rules. Expiry dates of data helps to ensure that all information provided in a report is recent enough to give an accurate financial health of a business.

Trade Data: 36 months

Bankruptcies: 9 years and 9 months

Judgments: 6 years and 9 months

Tax liens: 6 years and 9 months

UCC filings: 5 years

Collections: 6 years and 9 months

Bank, Government & Leasing: 36 months

Inquiries: 9 months

When public records and business information are reviewed, companies can save yearly on the cost of purchasing new businesses, managing liability and potential fraud. This can also help establish good business relationships that will last for a long time.

Where does Experian get its information from?

Experian gathers credit obligation information from a lot of businesses nationwide. These are usually the suppliers and lenders that the company has an existing financial relationship with.

Experian also gathers legal filings from different courts across the United States this includes the local, county and state. Background information on a company is gathered from different independent firms.  Every information provided by Experian from a company about its business is verified.

Experian gets business credit reports information from different sources and this includes actual trade payment experiences submitted by payees, the background of the company, public record information, collections information and comparative data placing a company’s payment performance in context with its industries.

Here are a few examples of the agencies and entities where Experian pulls data from: state filing offices, credit card companies, public records, Corporate Financial Information collections agencies, and marketing databases.

You can search to confirm if your business is listed in Experian database directly by visiting this link, you can also verify and ask for a correction on your business information if you need to. Click here to start. Only corporate officers or business owners can suggest changes to business information so you will need to verify your identity before submitting an update request for your business.

Business public records are records of incidents or actions filed or documented with a government agency for tax and other regulatory requirements. These records are accessible to the public to protect the interest of the person who filed it.

What is the benefit of using public records to make business decisions?

Financial services, real estate, contractors insurance, telecommunications, staffing agencies, transportation, Fortune 1000 companies, legal and professional services, and small businesses make use of public records to reduce the risk of business credit and control liability and fraud.

Why monitoring your business credit report is important?

There are four crucial reasons why you should monitor your business credit report; they include

  1. To avoid surprises that isn’t pleasant: Any decision made by others concerning your company totally depends on your business credit profile because this can be used to determine how much you can get from lenders, how much credit you will have access to from suppliers or even the interest rates and insurance premiums that you will pay. So knowing your business credit report is essential to know and monitor your business credit report for accuracy and adjustment.
  2. To safeguard your business:  A lot of American companies lose billions yearly due to Business identity theft and fraud. This can cause a negative impact on cash flow, pose a challenge for creditors and suppliers and affect the reputation of your business. Checking your business’ credit report for strange activities that might suggest fraud can help to protect you and your business.
  3. To correct mistakes: Your credit report gives an overview of your business to the world. Any information that is not correct or outdated can paint a wrong picture of your business to others which can lead to unfavorable decisions that will impact your bottom line negatively. Monitoring your business credit report will help you find inaccuracies in your business information and request for corrections.
  4. Build your score:  Getting funds or lines of business for your company is almost impossible with a bad business credit score, being aware of what drives your recent company credit score is the first step to improving your score. When these factors are managed effectively it can positively impact your business credit score which in turn leads to opportunities for your business to grow.

There is no regulation to using business credit reports since there is no personal or any consumer data involved.

Is the ranking scale the same for business credit scores and personal credit score?

Unlike personal credit score the Business credit score give a quick overview of potential risks depending on where the score fall. The higher the score the lower risk it has. Business credit score on a scale of 0 to 100.

How to determine a business credit score?

Experian’s Credit is  a statistically derived algorithm that determines the risk depending on multiple factors like:

Credit: the number of trade experiences, utilization of credits, balances outstanding, payment habits and trends over time

Public records: recency, dollar amounts, and frequency associated with liens, judgments, bankruptcies

Demographic information: years on file, business size and Standard Industrial Classification (SIC) code,

Checking and monitoring your business credit report has no impact on your business credit score. Getting the business credit report for your company is known as a soft inquiry. When you do a soft inquiry it does not affect your business credit score, neither are they shown to potential creditors or lenders.

Building or improving business credit

As a business owner, you have a chance to get, build and maintain credit both as a business owner and an individual. This means you do not have to solely rely on your personal funds when starting and growing a small business. 

Less that 10% of business owners understand the basis of business credit, how it is established and tracked or how it can influence their lives or business.

Let’s look at the difference between personal credit and business credit.

Personal vs. Business Credit

Once a person with a social security number gets their first employment or applies for their first credit card, a credit profile is created with the personal credit reporting agencies. This profile is known as a credit report; this report is always given along with any credit enquiry or application submitted, change of address and job. This information is given to credit bureaus by those who issue credit. In the long run, this credit report becomes a statement that the person can pay back a debt. This also is true of businesses however when a business issues another business credit it is called a trade credit. Trade or business credit is known today as one of the largest source of lending worldwide

Information concerning trade credit transactions is collected by the business credit bureaus, like Experian in order to create a business credit report  for you by making use of your business name, federal tax identification number (FIN) which is also known as an employer identification number (EIN) this can be gotten from the IRS and your address. Business credit bureaus like Experian use all these compiled data to create a report about your company’s business credit transactions. Many creditors rely on this business credit report before they can grant you credit and how much will be given to you.

Many entrepreneurs make the mistake of using their personal details to get business credit, loans and leases. This can put them at a risk of having a low personal credit score. Also, this does not allow them build their business credit score in order to get future credits because the current credit was gotten based on their personal credit history.

The best way to set up a business credit profile is to make use of a company that will set it up for you without using your personal credit details and then report the payment experiences to the business credit bureaus, such as Experian. When this information is reported to the proper agencies, they will help you set up your business credit profile.

Capital is the bedrock of every business and business owners; you should have a plan for getting one. Most business owners don’t think of capital until it is needed and this is sometimes too late.  It is essential to have a plan on how you intend to fund your growth. Consider varieties of lending sources when you start planning how to fund your business. One of the most common sources of funding are banks however there are a lot more source of capital. You should have a portfolio with a large number of sources like mix of bank loans, business credit, lines of credit, credit cards, and many more.

You can establish a presence with the business credit bureaus, like Experian by building business credit and helping to get credit from banks and other lenders who report their data.

Thinking about capital is laying a good foundation, a wise entrepreneur wouldn’t start a foundation that can only meet short term needs rather he will dig deep or lay the groundwork before starting. The high level contains at least 5 layers of financial well for your business.

It begins with the personal properties of the principals. This isn’t necessarily the best source of your business needs however it is one of the most popular. Leveraging on making use of other people’s money (OPM) is usually the best approach to get funds and meet the needs of the business.

The second layer consists of 3Fs: Friends, Family and Fools, and another commonly exploited source of funds.

The next three layers are: loans, credit and investors.  Most new entrepreneurs are everywhere and get lost in the process when it comes the deep layers of the well or even seek for funding that they are unprepared for. One of the biggest mistakes entrepreneurs make is looking for capital late, they usually run out of luck. No one really wants to give money to a needy person. The best option is digging your well even when water isn’t needed.

What are the factors I should consider when evaluating capital sources?

It is very important to know when looking for credit or capital for your business that not all money is created equal. The things you need to consider when sourcing for capital or credit are:

1. Equity/Debt–The capital you get will either be an equity or debt. Equity requires the owner of the business to give up ownership of the company whole debt does not involve this most of the time.  You need to have a good understanding of the money you are collecting.  Most investors deal with equity while banks and businesses deal with debt, this is because equity gives an investor a percentage of the future profits coming to the business. Equity is one of the most expensive capital you can ever get even though it might feel like a free money.

2. Control – Does the money take you from being in charge? No doubt that more investors will reduce you being in control this is because they may want to have a financial oversight or independent audits, so you need to be aware of the sacrifice you are making.

3. Security – How does the investor or lender secure the money? Are you a guarantor for obtaining this money? Is there a blanket lien on your assets? Who will they go after if there is a default?

4. Transferability – Can this capital be transferred to the next business owner? In other words, is the capital for the business or for you? Selling a business when the capital is tied to you is pointless.

5. Ease of Attainment – Can you get it easily? How much time does it take for you to secure the capital needed?

6. Team – Are the new additions to your team committed to your success? Sometimes what your business needs is you staying in control and other times bringing in investors and letting them take control is exactly what the business needs.

There has been a ripple effect of banks looking at their bottom line from recent mortgage on small business owners.  Due to the report of the survey of U.S banks conducted by the Federal Reserve it was shown that about one third of these banks have tightened their standard of lending to small businesses. The Fed data reveals that many lenders who are nervous about their bottom line, have increased their credit standards for small business loans at a rate not seen since September 11, 2001, this has made it really hard and costly for small businesses to acquire loans. Furthermore, 80% of these US banks have tightened the requirements for getting loans for commercial real estate purchases.

With the tightened credit requirements, business owners need to get other capital sources. A business or trade credit is a very vital tool for business owners. The trade credit is the largest means of getting credit in the world. Not using a trade credit will stifle the ability of your company to grow and forge ahead of competitors.  Trade credit or business credit is when a business sells a product or service to another business on credit terms. This means that the business buying the product or service does not need to pay ahead of time, rather they are to pay monthly with interest, some may ask you to pay in 30 or 60 days without interest. In fact in most net 30 terms they will give you the chance to pay early with a discount.

As an entrepreneur, starting and building your business, you will see that almost everyone you work with on a loan, lease or line of credit is going to require a personal guarantee or at least they should. Take a look at it from the creditor’s point of view:  “If I can get the business to guarantee to pay me back and someone individually, the likelihood I’m getting paid is much greater.” Doesn’t this make sense?

As the owner of a small business you wouldn’t want to provide personal guarantees so you don’t want to be on the hook for debt in a case where something happens to the business.  You would want to separate your personal life from business, but what do you do when creditors ask?

One way to get credit from anyone or for your business to be approved without providing a personal guarantee is to meet the terms of the lending markets. Compliance is an important key that every business must have if you do not want to make use of personal guarantee.

When a business is not compliant with the market, this can send a negative signal to grantors and credit bureaus such as absence of a business license or a phone line. Most businesses out there wouldn’t give credit to a business that hasn’t taken the right steps to set up the company by getting the proper license to meet the local, state or federal requirements.

Secondly, you can always negotiate.  You need to be willing to negotiate a deal or walk away from it. 

Lastly if you do not want to provide a personal guarantee, there are cases where it can be avoided and some where they are required and you certainly cannot avoid them. So understand the battle at this point and face it whether it is required or not. Whether a personal guarantee is needed is dependent how important the lease, loan and line to your business is.

When you report the payment habits of your commercial clients, it can help them to build business credit especially for those who pay on time and it is also a bad consequence for those who do not adhere to the terms of payment.

No, it is impossible for your competitors to steal your clients. This is because Experian maintains a highly confidential standard created to limit access, verify the integrity and protect the privacy of new business details. The business credit report does not show the name of your company, neither is it shown to other clients when they access Experian’s business credit reports and products. What is displayed there is a general description of your company. Competitors cannot identify existing relationships so they cannot target your clients.

When you report your account receivable data, you can reduce the occurrence of defaults or late payment in your account base.

Here are some of the ways you benefit from reporting:

Better leverage on debt collection — most clients would most likely not default on their debt when they know you are reporting their payment activities to Experian.

Growth — sharing the trade payment activities with fellow credit managers can bring growth to your company and also the entire business community.

Access to Experian’s Management Reports — Experian’s Management Reports identifies customers who defaulted on payments with other creditors and who are still currently with you. This can help you lessen the risks on future sales.

Product discounts — you can also get some discounts on some other Experian business credit solutions.

Experian offers business credit data reporting online via Secure HTTP. Experian makes use of Connect: Enterprise, it is a tool that manages the intricacies of receiving or sending data in a secure and reliable way online. The transfer session is encrypted by Experian using Secure Sockets Layer (SSL) technology, the Internet security standard.

As a supplier or creditor, you can learn more about reporting business credit information online and also get a user login details and password. To begin the process, you can get in touch with your authorized Experian reseller or Experian directly on 800 478 0650 or http://www.experian.com/business-information/data-contribution.html.

Similar to the personal credit report, Experian only accepts company payment and credit history from suppliers and creditors. If you want your credit and payment history reported to Experian, send a request letter to your creditor or supplier to do that. Experian BusinessCreditFacts gives you all the tools you need to do this easily. Visit our supplier page to get a template of the letter.

Similar to the personal credit report, Experian only accepts company payment and credit history from suppliers and creditors. If you want your credit and payment history reported to Experian, send a request letter to your creditor or supplier to do that. Experian BusinessCreditFacts gives you all the tools you need to do this easily. Visit their supplier page to get a template of the letter.

http://www.businesscreditfacts.com

If your report has a wrong business demographic details, you can request for an update via the site by going to the Update My Business Information page.

To dispute certain information on your business credit report, kindly write to Experian Commercial Relations by following the instructions and providing all the information below:

Circle the item you want to dispute and provide the information.  Also attach supporting documents when available.

List any variations in the company name on the current letterhead of your company. This should include any former names that your company operated under in the past ten years.

List both current and previous addresses including the physical and p.o box addresses for the past ten years.

Give the signature and phone number of an officer of the company.

Please send this details to:

Experian — Commercial Relations BCF

PO Box 5001

Costa Mesa, CA 92628-5001

Or email it as an Adobe® PDF file to: BusinessDisputes@experian.com

A business credit report is a comprehensive reporting of a company’s credit report history. A ContractorCheck report summarizes the financial stability, it is created for consumers to make more informed hiring decisions on potential contractors for their home improvement projects. The contracting business’s credit report information is used, but not shown in full, to create Experian’s summary ContractorCheck report and rating.

ContractorCheck Pro is a combination report package that enables home improvement professionals to comfortably access their business credit report and their ContractorCheck report at the same time.  This comes with a year business monitoring in order to proactively manage their profile. Visit contratorcheck.com for more details.

Experian accumulates a score of points to determine your overall ContractorCheck rating. Some of the things that give you points include having a bond, license and insurance information.  If you do not have these details on your business credit report, go to the update section of this website to request for an update of your Experian business credit profile. Some of the things that can give you a negative score includes defaults on past credits and also delinquent. Visit SmartBusinessReports.com or contractorcheck.com to see a complete copy of your Experian online business credit report and contratorcheck report on a layout that is easy to read at the same time.

Small business lending and financing.

Credit monitoring is a major tool used in maximizing revenue and risk management.  When creditors have the first information about financial distress, it can help them get their assets from distressed accounts. The reverse is also true. Quickly seeing accounts that are on their way up gives them the opportunity to grow which may not be available to latecomers. Monitoring systems employ event-based notifications, or triggers (delivered in the form of an alert).  Using triggers effectively can help credit manager’s partner with business customers who are growing and limit exposure to those going down.

With business credit monitoring tools, it’s not possible to overemphasize the significance of evaluation credit data for changes, especially, among the more unpredictable small businesses. Data that may be monitored includes:

Credit scores:  Check for major changes for better or worse

Credit balance attributes, such as high credit, percent current, total balance or credit utilization

Payment behavior: paying slowly or in a lesser amount of time

Major derogatory events such as collections, bankruptcy, judgments and liens

Positive alert might mean a change in score for the better; days beyond terms decreasing, indicating bills are being paid in a lesser amount of time; balances going down; or balance-to-limit ratios declining.

Positive alerts can help credit managers identify the customers that they’d like to extend or increase their credit. Maybe an account with a credit line of $5,000 should be increased to $10,000 or an account’s score has been boosted by 10 points, and the company has been increasing its spending gradually while paying on time. If it’s a business that’s growing, that business may be interested in an offer of improved service or better terms.

For instance, a customer paying on net 30 terms can be given a 2 percent discount for paying within 10 days, or this customer shouldn’t be limited to terms requiring payment of the net balance within 30 days of delivery or receipt of the invoice. Maybe the customer should be given net 45 terms in exchange for a bigger percentage of the business.

Once changes are loaded by Experian into the Experian business credit file, this will have an immediate effect on the business credit report and score. Requests for business credit information update are loaded weekly; during the weekends. However, depending on what the request is about, investigation and approval of the update request can take from 30 to 60 days. For instance, investigating, approving and the process it takes to dispute trade credit details is longer than that of a simple demographic update to the address of a business. Click here to begin the process of requesting for an information update on your Experian business credit report.

Experian accepts credit obligation details from thousands of business suppliers and lenders across nations. Experian only provides reports on trade relationships given to us by these third-party suppliers and lenders (Experian’s data contributors) to ensure that our business credit database is reliable.

Experian counts on these data contributors to supply Experian’s business credit database with small business payment account information, known as trade credit transactions. However, not all company contributes to the Experian business credit database.

The major way to build a business credit report and score, especially for small businesses that are just starting is to find companies that will create credit for your business and also report the company’s payment experience to the business credit bureaus, like Experian.

Experian makes it very easy for you to write your present supplier or business credit issuer so they can report your payment experiences. Visit the page and download our template for request letter by clicking here.

It is not unusual for a business credit score to vary slightly sometimes. Experian’s proprietary model for business credit scores looks at over 140 modeling variables to get the business credit ranking score, so there are other reasons beyond what is visible on the business credit report that can cause a score to slightly vary or change

Reasons include, but are not restricted to:

Having derogatory public records on the business profile, such as, liens, collections, judgments and bankruptcies

The status, recent status, frequency and dollar amounts of any applicable judgments, liens or bankruptcies

Increase in slow payment of obligations

An increase in the amount of business credit inquiries or applications that are created by the business or owner

The number of trade experiences, balances outstanding, credit utilization, payment habits and trends over time

Number of active years in business, Standard Industrial Classification (SIC) or line of business, size of business and other demographic data

There are a lot of things or factors that could have an adverse effect on your company’s business credit score. Those factors can include, but are not restricted to:

Having derogatory public records on your business profile, such as collections, judgments, liens and bankruptcies

The status, frequency, recency and dollar amounts of any applicable judgments, liens or bankruptcies

A trend increase in slow payment of obligations

An increase in the amount of business credit applications or inquiries that are created by the business or owner

The number of trade experiences, balances outstanding, credit utilization, payment habits and trends over time

Number of active years in business, Standard Industrial Classification (SIC) or line of business, size of business and other demographic data

A business credit score is created based on the payment history of a particular company, existing credit obligations, background history and past or current legal filings. This is often used as a gauge for a company’s “financial health”, a business credit score is most normally used to help a lender decide if a company can handle extra financial obligations, and the probability of the company paying those obligations on time.

Fulfillment of derogatory items, such as collections, liens and judgments and collections, will have a positive effect on the general business credit score. The business credit scores always get better with time.

A business credit score is created based on the payment history of a particular company, existing credit obligations, background history and past or current legal filings. This is often used as a gauge for a company’s “financial health”, a business credit score is most normally used to help a lender decide if a company can handle extra financial obligations, and the probability of the company paying those obligations on time.

Fulfillment of derogatory items, such as collections, liens and judgments and collections, will have a positive effect on the general business credit score. The business credit scores always get better with time.

Annual or periodic reviews of your Experian business credit report does not affect your business credit score as a whole. Such reviews of your own report are called “soft” inquiries, and are part of the standard business management practice of a business owner.

It is very good to always monitor your business credit report regularly to ensure it is accurate, this is the first thing to do in order to have a good credit standing. Most of the lending institutions consider payment behavior trends of a business when they want to determine the borrowing power and interest rate for business loans.

Examining the strengths and weaknesses of your business credit report can help develop an approach to improve your company’s credit standing.

If the names and tax ID numbers of your business changes your previously established credit history cannot be transferred because a new business has been formed. The previous credit history will remain with the old business while the new business with a different tax ID will build its own credit history afresh.

What are the benefits of keeping personal credit separate from business credit?

There are many benefits that come with to starting and maintaining a solid business credit. Some of these advantages are:

1.) You can get more operational capital for your business or borrow money at reduced rates with a better business credit.

2.) When you have a different line of business credit besides your personal credit like a business credit card, it makes it easy to separate business expenses from personal expenses. This makes your life and that of your tax attorney easier when it is time to file your taxes, because you already have different financial records for both your business and personal expenses.

3.) When you have a business credit line, you can also give credit to your staff by requesting for extra cards. You can also be in charge of how much they can spend by changing their credit limits.

4.) Cash Back Rewards for your business, like the ones offered by the First Equity Platinum Visa, will make more money available for you to spend growing your business.

5.) Perhaps the most essential benefit of separating your personal credit from your business credit is that your personal credit is secure peradventure something happens to the business.

If you are a small business owner, a credit card created for your sort of business is good. A small business card is a commercial card that builds in your business’ name and it gives a higher credit line when it comes to working capital compared to an equivalent consumer card.

A credit card provider for small business may also be able to grant an account for your business even though you are yet to for an account have a commercial credit history in the name of your business.

You can get the most out of your credit provider and also increase the likelihood of being approved easily by having a better business credit.

A commercial credit line is a way to get working capital for your business. It can help with the payment of business resources while waiting for the payment from your customers, and most times the financing costs are tax deductible. Using a credit card to access your commercial credit line gives you additional convenience and security, it is also a self-documenting statement of transactions for the sake of record keeping. You can get a free credit card for any staff of your choice, with a credit limit regulated by you as the Authorizing Officer.

Of course, the costs of business credit can be tax deductible. You should contact your tax attorney for more details on that, but finance and interest charges on your business account are tax deductible. This is a crucial difference between personal credit and business credit. This is why it is of your best interest to separate your personal expenses from your business expenses.

There are different ways which you can get credit for your business. Some types of credit involve closing costs and loan fees.  Most of these are often secured bank loans which use assets or other collateral as a guarantee for the loan. If peradventure you cannot repay your loan, the creditor has the legal right to take the property used as guarantee in the loan.

There are no loan fees or closing costs associated with other types of business credit. Applying for a business credit card is one of the simplest and fastest ways to gain access to credit for your business, without closing costs or loan fees.

Small businesses have one of the most suitable credits from credit cards. Just like the consumer credit cards, you can use a business credit card in a large number of retail locations and ATMs worldwide. You can also shop online, which is very difficult without a credit card. It is different from a fixed payment loan in that you can choose to pay off a part of the balance in a given duration. This gives you the freedom to buy things when you need them and also means that you can have money available to you when you need it the most because it is flexible.

Using a suitable credit card products will help you use your credit responsibly and this is the best way to create a high credit limit. For every time a small business credit card makes a timely payment, their credit improves. As soon as you see that your credit standing is improving you can request for a credit line increase from your credit issuer, some credit card programs also have an automatic increase in credit line periodically. You can create a significant credit line for your business by using a credit card account and paying monthly before the due date.

Applying for credit in your business name does not require an EIN or a federal tax ID, a social security number is sufficient. You can get in touch with the Internal Revenue Service for Form SS-4 in order to get a federal tax ID number. You can also go to the IRS web site at www.irs.gov/pub/irs-pdf/fss4.pdf to download the form. To get more details on creating and building a new business, do visit the Small Business Administration website at www.sba.gov. For more details on taxes associated with starting a business, kindly visit the IRS’s business tax site at www.irs.gov/businesses/index.html and also contact your local tax attorney.

You can apply for additional cards for your staff if you have a business credit card. Some issuers give these additional employee cards for free like First Equity. With the First Equity Platinum Visa or MasterCard, you as the business owner can make a decision on how much credit you want to extend to each of your staff since every card has its own credit limit.  Purchases made with each card will also be available to you; you can find this in your monthly statement. This is to ensure that your staffs are using their cards for business expenses. Here is the good news, as the owner of the business, you get all the rewards points earned from the purchases made by your staffs.

Absolutely! Applying for a business credit card is one of the fastest and easiest ways to get an unsecured credit for your business. Credit cards are unsecured loans unlike bank loans which are secured loans; this means that you won’t have to worry about having a lien placed on your property.

Firstly, Experian will suggest that you put a fraud alert with Experian and any of the other credit bureaus. To put a fraud alert on your Experian business credit report, simply write a letter on your company letterhead to Experian Commercial requesting for a fraud alert to be placed on your business credit report and include a brief explanation why. You will need to include the signature of the business owner, along with their contact details. Experian will include a letter with the company’s business credit report requesting that the business is informed before any lender extends business credit.

Register, for a business check of your company’s credit report. One good way to help secure yourself and your business name is to regularly monitor your company’s business credit report for suspicious activity that might point to fraud. Experian provides a service called Business Credit Advantage which gives you unlimited access to your business credit report for one whole year. In additions to this, the service checks your profile every day and notifies you via email if there is any changes to your business credit report or score.

To get more details on Experian’s business credit monitoring service, Get started immediately by clicking here to search for your business. 

Search for your business and register today.

http://www.businesscreditfacts.com/pdp.aspx?pg=SuppliersNonReporting&lsv=www

You can put a fraud alert on your business credit If you think or can proof that your business has become victim of business fraud and/or identity theft. To report this you can send Experian Commercial Relations a signed letter written on your company letterhead asking that a fraud alert be placed on your business credit report and also explain succinctly why this should be done. This should include the signature of the business owner and all their personal contact details.  Experian will include a letter with the company’s business credit report requesting that the business is informed before any lender extends business credit.

Keep in mind that a business fraud alert is not a credit freeze. A business fraud alert is a message that shows on the business credit report so lenders can see and take extra measures and actions on verifying the business. The fraud alerts do not show on Business Public Record reports.

http://www.businesscreditfacts.com/pdp.aspx?lsv=www&pg=contact

One of the major challenges of businesses is commercial fraud especially for small businesses.

Commercial fraud is a growing problem for all businesses, but particularly for small businesses. To fight commercial fraud, you need to monitor your business credit report and also the credit of those you do business with on a regular basis. Monitoring it once is not sufficient to protect you and your business. This is a very easy yet important process that many companies skip, but this can make a huge difference between running with legitimate businesses, losing some money, or even your business.

Experian’s business credit reports provides comprehensive financial information, business background and credit risk facts in a clear online format. Business credit reports include:

-Business credit scores that are sophisticated

-Precise and correct information from objective sources (not a self-reported information)

-Comprehensive banking, trade and collection data

-Average and poor financial details on more than 10,000 public companies

-Business public record data including judgments, liens, business registrations, bankruptcies and Uniform Commercial Code (UCC) filings.

-Also, Experian business credit reports supplies data that is gotten from the biggest business database in the industry, which includes more than 27 million credit-active company records. We update our information regularly and they are all third-party verified with no self-reporting accepted from listed companies. This is to assure you that you’ll get precise information from objective sources. Through Experian’s business database you can find all the business information you are looking for in one place, including comprehensive demographic, analytic credit scores as well as financial and public record information.

Experian’s SmartBusinessReports.com also helps you out with extending credit to vendors, suppliers and customers and also guarding your business from varying risk.

We all happen to be well-informed on the increasingly daring moves fraudsters take to steal personal identities in order to secure jobs, cars, homes and many more; but what of business-to-business fraud?

How much consideration have you given to fraud protection as a small business owner?

You have so much to be afraid of when you become a victim of commercial fraud and much more to lose. About 30% business credit losses are linked to fraudulent or deceptive information’s? How do these fraudsters carry out their activities?

“Bus touts” or “overbuys” — these vocabularies explain criminal activity created to acquire large quantity of products without paying for it.

Hit and run — a fraudster moves to a place and orders merchandise COD, and then pays with a fake certified or cashier’s checks. By the time the check bounces, the “con artist” has relocated to a new place to repeat the fraud.

Advanced fee scams — this is when you make an up-front payment for services yet to be rendered in order to cover costs. This advance fee is collected with no plan of providing the service.

The overall result is that financial harm from these frauds and other business scams surpasses the losses from consumer fraud. The average loss is 3 to 10 times higher.

Tips for checking reference in order to stop business fraud before it starts

It is good to verify normal activities for small business owners, however as you make a phone call to check a business reference, have you ever considered that the person on the other end of the phone might not be who they say they are?  Con artists will take advantage of your trust in many devious ways:

References presented by a fraudulent company may appear fishy at first glance. To avoid being pulled into a state of satisfaction by a company with all the right references, re-check those references with a more critical eye. Take caution and time to consult the records if a reference given to you by a new customer gives an instant “glowing” account.

Friends, trade or partners of the fraudulent businessperson can give phony bank references. Be careful when you are given a definite extension from an individual and you are told to “Ask for Joe”.

Call answering services can be a means of providing a false reference or confirmation.

Be careful of fax numbers that are difficult to trace and they are the only way to contact references. This can all lead to one direction or location where a single person can reply a reference check under different business names.

It’s sad that B2B criminal has increased, however you need to protect your business. Data validation of your business information is a very crucial step to take. One of the best ways to protect yourself is by doing regular business credit checks using Experian’s SmartBusinessReports.

There are a huge number of differences between Experian business credit products and their competitors’ products. Three of these large differences are data quality, blended data, and ease of use.

1. Blended data scores: Experian merge up to 200 variables from a business owner’s business credit and personal credit to provide a small business with the most predictive score. Blending data make use of Experian’s vast customer and business credit databases.

2. Data quality: All Experian business trade line data are provided by a third-party and/or is third-party verified apart from the proprietary data in the Small Business Credit Share program. Self-reported tradeline data are not accepted in order to maintain data integrity.

3. Ease of use: Experian offers a customer experience that is very flexible. Products are scalable for any sized company and pricing differ from various subscriptions to pay-as-you-go.

Why should my company make use of business credit reports and scores?

A business credit report or score can help asses credit risks just like the consumer credit report, it also helps to  identify which businesses you would like to do business with, what credit limits should be and what credit or payment terms should be agreed to.  You can grow your customer list better when you know about a business’s current financial obligations and its past payment history.

What business credit reporting experience does Experian have?

Experian has 30 years’ experience in business credit reporting and scoring. In addition to business credit reports and scores, Experian also provides commercial fraud tools, commercial portfolio management tools and collections tools.

Experian has more demographic and credit details on businesses and individuals than any other company around the world, providing power and insight to have a better understanding of customer and prospect needs. We keep credit information of about 215 million U.S. consumers and above 27 million credit-active private and public U.S. businesses.

Experian’s most used scores are the Intelliscore products built on our most sophisticated modeling algorithms.  We calculate Commercial Intelliscore by making use of a company’s business credit data only. Intelliscore for a small business is calculated using a mixture of consumer data of up to two business owners or manager and business data. Experian also provides the commercial leasing industry with two scores.

How business credit scoring models are developed?

Developing a business credit scoring models involves using sample sizes that vary between 1 to 3 million businesses. Development of business credit scoring models is extremely difficult; but in straightforward terms, models are created after analyzing business firmographics, business credit histories, identifying payment trends, and creating predictive algorithms based on findings over a long period of time. You can make use of about 200 variables to calculate a single business credit score. All business credit scoring models are created in-house and are proprietary to Experian.

Blended data is a mixture of business owner credit data and company credit data.  Due to limited business credit information on file for some small businesses just starting, it is difficult to choose who to extend credit to and what terms to put in place. Therefore some companies determine the risk based on the business owner’s consumer score. Nevertheless, a study carried out by Experian in 2005 revealed that consumer scores are a poor indicator of business risk. Blended data provides a solution by combining two sources of credit data – business and owner. It has been confirmed that blended credit data is the most predictive way of determining small business risk with up to three times more predictive than a consumer or business credit score alone.

You can pull blended reports and scores of consumer and business credit data when assessing small businesses. The word ‘small business’ differs according to different companies. Experian classifies a typical ‘small business’ as one that has less than 25 staffs and/or making less than $10 Million in a year. Due to a wide range of consumer and business data resources, Experian succeeds mostly in providing business credit ratings on these small businesses.

Experian has a wide range of business tools that include portfolio monitoring, portfolio management, tax ID verification, commercial fraud authentication, collections and recovery tools. Our business clients include many of the largest fortune 500 companies in the United States.

Business billing.

It is better to sign up for a business-to-business membership and billing rather than buying using a credit card if you need to get multiple reports regularly on businesses aside from your own. Experian pricing are flexible with pay-as-you-go monthly billing subscriptions. Our business credit products can be procured via one of our many resellers or directly from Experian’s SmartBusinessReports.com

Checklist for opening a business

Most businesses start out little. The checklist below outlines some of the basic steps to take in order to start a business. The list does not contain all that is needed as different types of business could require additional steps. The Internal Revenue Service (www.irs.gov), Small Business Administration (www.sba.gov) and the organization SCORE (www.score.org) all provide help at no cost to new small business owners who want to start a business.

1. Submit an application for a federal Employer Identification Number (EIN). Perhaps you may need it for a number of reasons, some of which are not tax-related, such as opening an account in the bank.

2. Talk to a tax advisor, even if starting a business is at the idea phase. There are so many decisions to take when starting a business, some of which include choosing a business structure, tax year and accounting method.

3. Pay the estimated federal and state taxes four times during the year. Your tax advisor should be able to put you through the amount to save in advance for your payment.

4. Save all your receipts and have good business records of your income and expenses.

5. If you plan to employ staffs, make sure you have a thorough understanding of all the forms required before you can hire a staff. 

Business information Resources

Do some research by yourself before going ahead to consult with a tax advisor or consultant? One of the first decisions you must make is what business form to choose as this can have an impact on how much taxes you pay, the personal liability you face, the quantity of paperwork your business may be required to do and your ability to borrow money. Business formation is managed by the law of the state where your business is operating from.

The most widely used forms of businesses are:

  • Sole Proprietorships
  • Partnerships
  • Corporations
  • Limited Liability Companies (LLC)

Subchapter S Corporations (S Corporations)

The federal tax law controls how they tax your business, while the state law manages the way your business is formed. All businesses must file an annual return. The form you get for this now depends on the organization of your business.

Answering the question of what structure makes sense the most is absolutely dependent on personal circumstances of each business owner. Every business owner must evaluate their different needs because this form is not necessarily better than another. Here is how the various business forms look like.

Sole Proprietorship

The most common form of business organization is sole proprietorship, in this type of organization the owner is solely in charge of it and it is very easy to start. However the owners is also personally responsible for all financial obligations and debts of the business.  A sole proprietor can run any type of business as long as you own the business; it can either be part time or full time. This can include businesses like:

Retail trade or shop business

Large company with staffs

Businesses that are home-based

One-person consulting firm

Every sole proprietor is obligated to keep adequate records and account in order to meet the terms of federal tax requirements concerning business records.

Your total business income or loss is added with other incomes you may have like salary (if you also work elsewhere) or investments; you are then taxed at an individual rate based on your personal tax return.

As a sole proprietor, taxes are not withheld from your business income so you are required to make some estimated tax payments quarterly. You are normally required to make estimated tax payments if you will eventually owe a tax of $1,000 or more when you file your tax return.  You can find out what your estimated tax is so you can pay it by using Form 1040-ES.

Partnership

Partnership is the relationship between two or more people who come together join to start a trade or business. Each of the people involved contributes money, labor or skill, property and expects to have a part of the profits and losses of the business.

Each partner is required to report his own share of the partnership net profit or loss on his personal tax return whether distribution is made to them or not. 

Partners are not staffs of the company and so taxes are not withheld from what they get from distributions. Similar to the sole proprietors, they are usually required to make quarterly estimated tax payments if they expect to make a profit.

Corporation

A corporate structure is more difficult compared to other business structures. It requires adhering to more regulations and tax requirements.

Corporations are created under the laws of each state, so they are subject to corporate income tax at both the state and federal level. Also, any income distributed to shareholders in the form of dividends is taxed at the individual tax rates on their personal annual tax returns. A corporation becomes a body that handles the responsibilities of the business. Just like an individual, the corporation can be taxed and can be held legally responsible for its actions. If your business runs as a corporation, you are usually not responsible for the debts of the corporation personally. (There may be some exceptions under state law.)

Limited Liability Company

A Limited Liability Company (LLC) is a fairly new business structure allowed by state law.

LLCs are well known because just like the corporation, owners have limited personal liability for actions and debts of the LLC. Some other features of LLCs are similar to that of a partnership like flexibility in management and the advantage of pass-through taxation.

Owners of an LLC are called members. Ownership is not restricted in most states so they can include corporations, individuals, other LLCs and foreign entities. Most states also allow “single member” LLCs, i.e. those with just one owner.

Subchapter S Corporation

The Subchapter S Corporation is a deviation from the standard corporation. The S corporation allows income or losses to be accepted on individual tax returns, just like a partnership. An S corporation is generally exempted from paying federal income tax apart from tax on certain capital gains and passive income.

To get more details on types of businesses, visit the IRS website, www.irs.gov and type “Choosing a Business Structure” in the search box.

Many new small business owners usually experience a difficult time during the first year. First of all, you have to choose what form of business you want, after which there is an extensive business record keeping. Bad record keeping can be a serious problem for small business owners. Keeping track of your records, receipts and many more throughout the year will help you avoid stress when filing your tax return.

Everyone in business is required to keep records. Good business records will help with the following:

Monitor the growth of your business

Project your tax liability

Prepare your financial statements

Identify where receipts are from

Monitor deductible expenses

Prepare your tax returns

Support items reported on tax returns

Monitor the growth of your business

Keeping good records will help check the progress or monitor the growth of your company. This is because records can tell whether your business is improving or not, which items people are buying, or the changes that are needed. Good records can increase the chances of a business succeeding.

Project your tax liability

You will need to project your tax liability during the first year of starting your business in order to make   estimated tax payments. Estimated tax is the process of paying tax on income that is not subject to withholding. Estimated tax is the method used to self-employment tax, income tax and other taxes and amounts reported on your tax return.

Prepare your financial statements

To get an accurate financial statement you need a good record. Financial statements include income (profit and loss) statements and balance sheets. These statements helps with managing the business and also in dealing with creditors or your bank.

Identify where receipts are from

Perhaps you have received money or assets from many sources. Your records can help you identify the where these receipts are from.  This information is needed so you can separate business receipts from personal receipts and taxable from nontaxable income.

Keep track of deductible expenses

Having a system to monitor your deductible expenses is crucial in business. If receipts aren’t kept you are most likely to forget expenses when preparing your tax return, unless you record them as soon as they occur.

Prepare your tax return

You require your business to have good records in order to prepare your tax returns. These records must support all you report including the income, expenses, and credits. These are normally the same records you use in monitoring your business and preparing your financial statement.

Support items reported on tax returns

Your business records must be available at all times for scrutiny by the IRS. If the IRS checks any of your tax returns, you may be required to explain the items you reported. A complete set of records will make the examination faster. Tax records should normally be kept for three years; however some other documents like records on stock transactions, home purchase or sale, IRA and business or rental property — should be kept longer.

Many new small business owners usually experience a difficult time during the first year. First of all, you have to choose what form of business you want, after which there is an extensive business record keeping. Bad record keeping can be a serious problem for small business owners. Keeping track of your records, receipts and many more throughout the year will help you avoid stress when filing your tax return.

Everyone in business is required to keep records. Good business records will help with the following:

Monitor the growth of your business

Project your tax liability

Prepare your financial statements

Identify where receipts are from

Monitor deductible expenses

Prepare your tax returns

Support items reported on tax returns

Monitor the growth of your business

Keeping good records will help check the progress or monitor the growth of your company. This is because records can tell whether your business is improving or not, which items people are buying, or the changes that are needed. Good records can increase the chances of a business succeeding.

Project your tax liability

You will need to project your tax liability during the first year of starting your business in order to make   estimated tax payments. Estimated tax is the process of paying tax on income that is not subject to withholding. Estimated tax is the method used to self-employment tax, income tax and other taxes and amounts reported on your tax return.

Prepare your financial statements

To get an accurate financial statement you need a good record. Financial statements include income (profit and loss) statements and balance sheets. These statements helps with managing the business and also in dealing with creditors or your bank.

Identify where receipts are from

Perhaps you have received money or assets from many sources. Your records can help you identify the where these receipts are from.  This information is needed so you can separate business receipts from personal receipts and taxable from nontaxable income.

Keep track of deductible expenses

Having a system to monitor your deductible expenses is crucial in business. If receipts aren’t kept you are most likely to forget expenses when preparing your tax return, unless you record them as soon as they occur.

Prepare your tax return

You require your business to have good records in order to prepare your tax returns. These records must support all you report including the income, expenses, and credits. These are normally the same records you use in monitoring your business and preparing your financial statement.

Support items reported on tax returns

Your business records must be available at all times for scrutiny by the IRS. If the IRS checks any of your tax returns, you may be required to explain the items you reported. A complete set of records will make the examination faster. Tax records should normally be kept for three years; however some other documents like records on stock transactions, home purchase or sale, IRA and business or rental property — should be kept longer.