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2013

For many entrepreneurs, whether veteran or rookie, the toughest part of launching a business is finding funding. Some business owners struggle with qualifying for a loan, others struggle with identifying lenders who will best suit their needs, and some simply don’t know where to begin. Access to Capital, an initiative started by Dun & Bradstreet Credibility Corp. to address these struggles and grow local small businesses, is coming to Atlanta on August 14, 2013 and will be sponsored by Bank of America.

 

https://smallbusinessonlinecommunity.bankofamerica.com/servlet/JiveServlet/downloadImage/4542/Image-CTA-v2.1.gifSmall businesses are the core of the United States economy accounting for 64 percent of net new jobs in the last 20 years, but only half of all new businesses survive past five years, according to the Small Business Administration. It is important for business owners to educate themselves about how to fund and grow their companies past this hurdle, and Access to Capital is designed to do just that.

 

At Access to Capital Atlanta, small business owners will be exposed to expert speakers and panelists that will address the ins-and-outs of lending and will also have the opportunity to meet one-on-one with representatives from a variety of lenders.

 

Bank of America participated in the Access to Capital events in Los Angeles and Chicago and will be a key sponsor at the upcoming Atlanta event. A spokesperson from Bank of America will participate in the Traditional Lending panel and eight representatives will be available for lending appointments.

 

It is important to have a well-established business plan that includes future goals and projections before approaching a lender. This event is also helpful to entrepreneurs in the earlier stages of business development trying to hone their business models and gain the footing necessary to garner attention from financiers. The Community Resource Center at Access to Capital Atlanta will host a variety of local resources, like business development centers and chambers, to cater to these needs.

 

For more information or to register for this unique opportunity, visit http://accesstocapital.com/access-to-capital-atlanta/.

 

Access to Capital Consultations and 1:1 Meetings
The information and advice provided by Dun & Bradstreet Credibility Corp. during the Access to Capital event and its Credit Advisors, including without limitation all information provided during informational phone calls or by any third party lenders during 1:1 sessions is provided “as-is”. Dun & Bradstreet Credibility Corp. makes no representations or warranties, express or implied, with respect to such information and the results of the use of such information, including but not limited to implied warranty of merchantability and fitness for a particular purpose. Neither Dun & Bradstreet Credibility Corp. or any of its parents, subsidiaries, affiliates or their respective partners, officers, directors, employees or agents shall be held liable for any damages, whether direct, indirect, incidental, special or consequential, including but not limited to lost revenues or lost profits, arising from or in connection with a business’s use or reliance on the information or advice given during any counseling session.

Troubledcredit_Body.jpgby Iris Dorbian.

 

It’s a Catch-22 situation that many small business owners, particularly those adversely affected by the recent recession, have faced. To successfully apply for a loan from a bank or another accredited lender, it’s important to have excellent credit. Yet suppose your business was hit hard by the economic downturn and as a result, your credit report is less than stellar? What then?

 

You certainly aren’t alone. According to a July 2012 study released by the Small Business Administration, the number of U.S. small business loans, characterized as $1 million or under, dropped by almost 5 percent in 2011, compared to three years before. Factoring into that decline was the low number of approved small business microloans, defined as $100,000 and below.

But that dismal picture could be fading. A recent report by Experian and Moody Analytics revealed that in the first quarter of 2013, small business credit improved markedly from the final quarter of 2012, jumping to a 4.5-percent increase.

However, such welcome tidings may not be of much use to small businesses plagued with bad credit scores. How then can they obtain the financing they need to stay afloat and survive?

1. Review your credit report and correct errors on it.

Before you even think of scouring nontraditional sources for financing, you must first review your credit report to check for errors. Rectifying them could help you hike up your credit score. And if this is the case, you certainly have plenty of company. According to a study released earlier this year by the Federal Trade Commission, the U.S. consumer watchdog agency, 42 million Americans have errors on their credit report.

In addition to correcting outdated information, you will need to remove duplicate or erroneous accounts, which according to Jeffrey Strickfaden, CEO of Improve Credit Consulting, a provider of financial management and credit improvement services, can magnify negative credit items. Strickfaden, who estimates nearly half of his clients are small business owners, also adds that “for any accounts that you may have closed in the past, make sure to verify that they are listed as voluntarily closed, and not closed by the creditor.”

 

2. Stop borrowing on your personal credit cards

Although often thought of as a viable short-term solution for financially pinched small business owners, the consequences of excess credit card use may hurt you in the long run, particularly if you’ve been borrowing way too much. Avoid this desperate measure at all costs.

Rohit Arora, CEO of Biz2Credit, an online resource for small business finance, agrees. “If you owe more than 50 percent of your outstanding credit limits, your credit score drops,” he says. “It is better to use multiple credit cards than maxing out one card.”

 

3. Document your business investments

Troubledcredit_PQ.jpgIf a small business owner can produce an extensive trail of documentation proving that she has invested in her own business, then it might be easier to obtain financing, even with a poor credit score, says Arora.

“It’s easier to tell banks that the reason you have debt is because you are spending to try and grow your business,” he explains. “This is especially true if you are trying to get lower financing, such as an SBA loan.”

4. Make credit card payments on time

This might sound like personal finance 101 but it’s a truism when it comes to maintaining good credit. If you want to clean up a spotty credit history, then it’s imperative you pay your credit card debt on time. Nothing will make your score plummet faster than late payments.

 

5. Use merchant cash advances

For small businesses that have been unable to repair their credit for whatever reason, merchant cash advances, which are funds provided to small business owners via their merchant provider for a percentage of credit and/or debit card sales, could be a viable financing option. The only drawback is the risk it incurs. According to Wanda Strickfaden, president of Improve Credit Consulting, becoming delinquent with monthly repayments “can lower your scores with the business bureaus and eventually cause further damage with a business rating.” But even with this risk, the option can still be a good alternative for small business owners exploring nontraditional avenues of financing.

 

Jeff Strickfaden cites an example to bolster his point. “One of our colleagues that is a certified public account was interested in this option because it afforded him the freedom of having cash flow on hand if needed,” he recounts. “It also gave him other opportunities with different resources for lending.“

 

6. Seek out community organizations or microlenders that provide nontraditional financing

For many start-ups or existing small businesses that have either nonexistent or poor credit history, going to the route of traditional lending is not an https://smallbusinessonlinecommunity.bankofamerica.com/servlet/JiveServlet/downloadImage/4542/Image-CTA-v2.1.gifoption. However, there are a plethora of alternative organizations that can help small business owners secure the financing they need.

 

Rohit suggests ACCION, a microlender, which according to its website, issued its first microloan 40 years ago, as an option. Another alternative is SBA’s microloan program, which provides loans of up to $50,000 to help small businesses.

 

And, according to Dawn Reshen-Doty, president of Benay Enterprises, Inc., a Connecticut-based provider of services to both small and large businesses, there might be development organizations in your state that provide non-traditional financing, loans and/or grants. “They also often provide small business training so that companies can learn how to better manage their money, watch their cash flow, and become more viable in the long run,” she adds.

 

As an example, Reshen-Doty refers to Community Economic Development Fund (CEDF) in Connecticut, which she says provides between “6 to 10-year low interest rate loans and even matching grants that do not have to be repaid.”

 

A caveat is issued with this recommendation. “Of course they require several years’ financials,” she notes. “Applicants have to show that with the infusion of loans and grants, their business will remain at the break-even point or become more economically successful. They even have programs to subsidize payroll costs for new hires so that businesses are incentivized to hire more employees.”

 

Other examples from Reshen-Doty:

 

  • The Massachusetts Growth Capital Fund, which does provide low-interest financing to small business that are “able to demonstrate potential” but have been denied financing through traditional outlets; and

 

Although the paperwork that these community organizations require might seem daunting to some small business owners, Reshen-Doty explains that “the process is worthwhile, as you can learn what your business truly needs to succeed as well as gain invaluable information and support from agencies that want local businesses to grow and thrive.”

 

For small businesses that have been unable to obtain financing due to poor credit scores, there are positive solutions in lieu of closing shop. Just do some research and you will find a wealth of alternative financing options at your disposal.

 

 

Disclaimer: The opinions expressed are solely those of the author and interviewees.  You should consult a qualified professional to assist you in determining the most effective funding options for your business.

Once your business has been operating for at least a year, you should consider applying for a business loan. While many banks require two or more years in business before extending a loan, there are alternative lenders who may work with you before that time. And while large banks will lean toward larger loan amounts, usually in excess of $25,000, there are lenders who specifically handle smaller loans. You should consider all options, but it doesn’t have to be a big loan. It could be for around $1,000 to $3,000, and can be used to pay business expenses like computing equipment or other business services. The purpose of applying for such a loan is to continue to build business credit history, so it doesn’t matter what business expenses you spend the money on – or if you spend it at all. Keep in mind, however, that banks that offer larger loans may encourage you to open a credit card instead of extending you a small loan.

 

Assuming you have been following the suggestions in this series of articles and now have a strong PAYDEX® and good cash flow, you shouldn’t have trouble securing a small business loan. Since credit history is usually the most important determinant of whether banks will give a small business a loan, it’s critical to make sure your PAYDEX score and cash flow are in order.

 

https://smallbusinessonlinecommunity.bankofamerica.com/servlet/JiveServlet/downloadImage/4542/Image-CTA-v2.1.gifBefore applying for a business loan, you should also check your business’s credit history at Dun & Bradstreet Credibility Corp.’s Company Update. Make sure you correct any incorrect data and address any inconsistencies first. A clean business credit history will greatly increase your chances of landing a business loan.

 

After you are approved for a loan, ask your lender for a loan with 90-day terms. Some banks may want longer terms or have steep early payment penalties; you must always read all fine print in order to understand fully your specific loan. However, if your bank will give you 90-day terms, then try to repay the loan in full in 60 days. One month after you’ve done that, apply for a second loan. The second loan should be for a larger account, for example, $3,000 to $5,000. Repeat the same process above of reviewing the fine print then asking for terms of 90 days and repaying in full in 60 days. Now, in just five months, your business has helped prove that it is trustworthy in borrowing and repaying loans.

 

Similar to business credit cards, the 5-3-2 guideline for better business credit can be applied here: a company should have five active trade accounts, three business credit cards, and two accounts paid in full in order to be considered “established.”

 

Once you’ve established your business using the 5-3-2 rule, it’s time to apply for a business line of credit. Go back to the bank with which you’ve already established a relationship. Ideally, the timing of the application would be six months after you secured the first business loan. Business lines of credit enable you to access cash (up to a pre-set limit) whenever you need it. They provide your business with flexibility to obtain funds anytime but not pay any interest until you draw out cash. Think of it as “rainy day” money that will be available in an emergency.

 

Given the choice, many businesses would prefer to obtain a business line of credit before securing loans. However, when it comes to building business credit, securing a loan first enables your business to eventually qualify for a business line of credit.

 

Opening a business line of credit could enable your business to:

  • Improve your cash-flow management. Cash flows often fluctuate due to seasonal or industry-specific factors, and a business credit line can help even them out. For example, a line of credit would benefit a business that regularly purchased raw materials or inventory that will not be sold for several months.
  • Secure lower interest rates than it could with credit cards. Although credit line rates are usually higher than those found in business bank loans, they almost always beat business credit card rates.
  • Make mid- to large-sized purchases. Some business purchases are too large for a credit card, but too small for a business loan. In these cases, a business line of credit can cover those costs. However, it is very important that you do not exceed the credit line’s limit and pay off the balance in a timely manner.

 

For more information, please visit DandB.com or call 1-800-280-0306.

This article originally appeared in Dun & Bradstreet Credibility Corp.'s Credit Resources.

 

 

The information and opinions provided by Dun & Bradstreet Credibility Corp. is provided "as-is" and are solely those of Dun & Bradstreet Credibility Corp. Dun & Bradstreet Credibility Corp. makes no representations or warranties, express or implied, with respect to such information and the results of the use of such information. Neither Dun & Bradstreet Credibility Corp. nor any of its parents, subsidiaries or affiliates shall be held liable for any damages, whether direct, indirect, incidental, special or consequential arising from or in connection with a business's use or reliance on the information or advice offered by Dun & Bradstreet Credibility Corp. You should consult a qualified professional to assist you in determining the most effective business structure for your particular business.

Back in the late 70s, two unemployed journalists went to play a game of Scrabble one night. When they opened up the game, they realized that they were missing a couple of tiles. So they hopped in the car to go buy a new set, and then it hit them: How many Scrabble sets did they buy over the course of their lives?

 

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Right then and there, they decided what they really needed to do was invent a new board game that didn’t require so many pieces. Like many entrepreneurs, they cobbled together the funding they needed using a combination of their own savings, loans and the help of friends and family. In total, they raised a little over $70,000 and each investor got 1 percent of the company.

 

The game they created? Trivial Pursuit. Not a bad investment, right?

 

Click here to read more articles from small business expert Steve Strauss

 

 

Once the game became a big hit, the inventors went to a bank for a traditional loan to grow their business. These inventors understood that banks are a valuable resource in terms of lending small businesses money.

 

This story is still true today and can be seen in the latest iteration of the Bank of America Small Business Owner Report (SBOR), a bi-annual survey that looks at the health of small businesses in the United States. The latest findings indicate that many small businesses are having their financial needs met by the lending community.

 

Consider:

 

  • 67 percent of those surveyed said they had enough access to capital to effectively run their business
  • Almost 80 percent of those surveyed who applied for a loan within the previous two years, were approved

 

Pull Quote.pngThis then raises the question: How do owners use these loans to grow their business, and how can you do the same?

 

Before you answer, it is important to note why you might want to consider getting a bank loan. The fact is that without financial capital, the ability to grow your business is severely restricted. The only funds you will have for growth are your profits, which may be enough for some small businesses, but not for all.

 

The SBOR found that businesses planning to take out a loan intended to use their capital to do the following:

 

  • 43 percent would use funding from a loan to invest in new equipment: Equipment can be expensive, but you simply must stay on top of technological changes in your industry. Without great equipment, it becomes difficult to maintain a thriving business.

https://smallbusinessonlinecommunity.bankofamerica.com/servlet/JiveServlet/downloadImage/4542/Image-CTA-v2.1.gif

  • 40 percent would use it to market their business: The only way to get new customers is by marketing your business, and then marketing it some more. Using a loan to get more business is smart business.

 

  • 34 percent would use it to expand operations: Expansion might mean getting a second store, or even just expanding your current location. Either way, it definitely also means you will be better able to serve more people.

 

  • 29 percent would create a new product or service: If you keep selling the same goods or services, you will keep getting the same results. But with additional capital you have more availability to create a new offering, and potentially set yourself up for growth.

 

  • 26 percent would hire more employees: The same idea applies here. Unfortunately, you can’t do all the work by yourself, and an overworked entrepreneur and staff makes for poor customer relations. By getting the capital you need to bring on additional staff members, you can make your business both more professional and capable of serving more people at the same time.

 

Overall, by obtaining the capital you need through small business loans, your business’ bottom line can be well-served.

 

How would you use capital to grow your business? Share your story below.

 

About Steve Strauss

 

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest,The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss

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