Maximizing Profits With Better Inventory Management

How Inventory Management Can Make or Break Your Small Business

All small businesses are focused on driving sales in order to boost revenue, but businesses that sell goods rather than services have the unique challenge of managing their inventory in a way that maximizes their profits. Small business owners rely heavily on the profitable sale of inventory to grow and stay in business. Gross margin — the difference between an item’s selling price and its acquisition cost — can be affected by several factors, both internal and external. How a business owner thinks about and handles inventory decisions and accounting can affect the bottom line, and it involves more than just deciding what to buy and when. Here are four of the most important factors related to inventory management:

  1. Economic Environment: It’s always wise to run a tight ship, but never more so than when the economy slows down. When sales slow down due to the economy, a “tight ship” means buying or making only enough inventory that can be sold in a relatively short time period. If the economy turns inflationary (costs of goods increase faster than expected), consider talking to your accountant about “LIFO” inventory management. Using a last-in, first-out inventory costing approach allows your cost of goods sold to mirror the most recent inflationary price hikes. This can benefit your business because it can lower your taxable income and income taxes.
  2. Market Environment: Today’s taste may be tomorrow’s waste — that’s the way it can go with a fickle consumer base. When some of your inventory goes out of style, your best move is often to mark down prices and take an accounting loss. The result is you restate your inventory value at the lower of cost or market, which in this case is market value. The benefit to your business by doing so, is that it boosts your COGS (cost of goods sold) and thereby cuts your annual taxable income — or even hands you a net loss for the year. Either way, it reduces your tax bill. You might have to write off inventory because of external factors like product recalls, boycotts, obsolescence, bad publicity and tariffs, to name a few.
  3. Shrinkage: Shrinkage – no, we’re not referring to George Costanza here — theft, spoilage, damage, short shipments, misplacement are all big enemies of profits. Fight back with cycle counting, in which you perform a daily physical count of a different part of your inventory. Repeat the cycle until you’ve surveyed all of your inventory, then begin again. The advantage is that you’ll detect shrinkage much sooner than if you had waited until the end of the year to perform an inventory check. The sooner you discover a problem, the sooner you can address it. If you uncover an issue, some potential ways to address it include adjusting your storage and security procedures, changing management or security personnel, finding new suppliers, or at worst, fire a dishonest employee.
  4. Inventory Tracking: Even if you’re running a small business, you can still consider automating your inventory tracking from inception to sale. High-tech features such as bar code scanners and radio frequency guns can track all movements of your stock items, allowing you to establish a perpetual inventory system saving you buckets of time that can be invested elsewhere to grow your business. Making investments in inventory tracking pay off with timely, accurate information about goods on hand and COGS. You also might be able to delay or reduce time spent on physical inventory counts. To maximize your benefit, take the extra step to integrate the information into your accounting and procurement systems.

 

Just remember, inventory management is all about maintaining and maximizing your margins. Being mindful of your economic or market environment can help you plan ahead, and implementing proper tracking can help you use all your inventory to its full potential.

Would additional working capital help you optimize your inventory management? IOU Financial is here to help. We offer business loans up to $150,000 that allow you to keep the right amount of inventory you need on hand, and establish the tracking you need to manage it effectively.

Why Your Business Might Wow an Online Lender but not a Bank

Banks operate under a different set of specifications when it comes to business lending. They often offer many additional services, and as such, have traditionally taken a more conservative approach to selecting businesses to lend to. The most obvious characteristic that banks emphasize is credit score. Less than 800 (out of 850), and they’re usually not too impressed. Of course, with a credit score that high, it’s not hard to find organizations willing to lend you money.

Making It Real

Alas, most small-business owners can only dream of that kind of credit score. It’s no secret that when you’re running your own business, decisions have to be made that might negatively affect your credit score, even if you’re running a very successful enterprise. That’s why it’s a shame when we speak with an owner that thought the only place to secure a business loan was from a bank, and had been repeatedly turned down. Our mission is to reach business owners that know that there is more to a successful business than a credit score.

What’s the difference between how an online lender and a bank might view your business? Two words: cash flow. You see, online vendors value your cash flow as much as your credit score. If you have a business that generates day-to-day cash flow, we know that’s impressive, even if your credit score is sub-par. That’s just one of the reasons online lenders have a much higher loan-approval rate than banks. Here at IOU Financial, we pre-approve 85 percent of the business loan applications we receive.

Keep in mind that no loan officer at a bank was ever fired for saying no to a loan application from a business with a lower credit score. Unfortunately, their current lending procedures don’t take into consideration lots of other factors that can be used to measure a business’ health, growth, or ability to pay back a loan. Providing additional information that a bank hasn’t asked for can create confusion and almost never has a positive impact on gaining approval.

WOW Factors

Online lender on the other hand, look at a variety of other factors.  Wondering which ones really impresses us?  Here are 5 more factors that that you can use to wow an online lender:

  • You own at least 80 percent of the business you operate, or 50 percent if you partner with your spouse
  • You’ve owned or purchased a business that’s been operating for at least one year
  • Your business generates at least 10 bank account deposits per month (we’re talking about retail and e-commerce businesses)
  • You have at least $100,000 in annual revenue
  • Your business bank account has an average daily ending balance of at least $3,000.

Meet these criteria, and we’ll say. “Wow.” Unlike a bank, online lenders can typically provide you with an answer the same day or even immediately. Our advanced software quickly evaluates dozens of data points like the ones listed above to provide you with an immediate loan decision.

As an online lender we also appreciate the fact that your reasons for borrowing vary from one business to the next. True, almost half of our customers use our loans to purchase equipment, but a sizable number put the money to work expanding their business, plugging a temporary gap in cash flow, purchasing/building inventory, or pursuing some other goal.

Turn the Tables and Let an Online Lender Impress You

OK, we’ve made it clear how you can impress us. But we also want to wow you too. One way we do this is by taking the red tape out of our 3-minute business loan application process. Not only is it quick to apply, when approved, your money will be available within a day or two, and deposited directly into your business bank account.

Worried about the interest rate?  Believe it or not, online lenders; rates can be very affordable, and often much less than the cost of merchant cash advances. Your loan is repaid with fixed automated daily payments made directly from your bank account, helping you avoid big monthly payments that are due all at once. What’s more, at IOU, we never charge you upfront costs to apply or qualify for your loan, we are happy to renew loans once you’ve repaid 40 percent of the principle, we don’t charge pre-payment penalties, and we charge simple (not compound) interest on your unpaid principle.

So what are you waiting for? Does your business have some of the wow factors we mentioned? There’s no reason to wait. Find out for yourself how easy it is to apply for a loan today.

5 Things You Should Have Done by Your 2nd Year in Business

Congratulations. You’ve made it past the first year in business. That’s no small feat, as the Small Business Administration points out that 20 percent of small businesses fail in their first year. Sure, there are no guarantees when you open a business, and things can always change, often due to forces beyond your control. Nonetheless, you’re on your way. If you haven’t done the following 5 things by now, get moving!

  1. Stabilized Your Cash Flow: By now you’ve learned how much money you need to have come in every week to make sure you can pay your bills, buy your inventory, earn some money to live on, and so forth. If your cash flow seems wildly unpredictable, workout a revised sales and marketing plan so that you have decent estimates of your revenues if you haven’t already. You should also have a fair idea from your books and records of how much you have to spend each week, how much money you can keep in the bank, and what kind of profit margins you should expect. You need to tweak your strategy, tactics and/or operations to get your margins to where they can sustain themselves. Remember, without sufficient cash, your small business is fried.
  2. Made Plans to Expand/Optimize Your Business: You have probably learned quite a few lessons about your small business during the first year. For example, you may have realized that your original plans were overambitious or too timid relative to the market conditions and to the availability of capital. You might have uncovered underserved elements in your market that you can capture by expanding your product /service line, your geographic locations, and/or your operating hours.
  3. Secured Adequate Working Capital: Based on your performance so far and your plans for change, you need to establish an adequate amount of working capital to fund your operations, including inventory purchase. Your best bet after one year in business is to contact IOU Financial to borrow up to $150K effortlessly and at an affordable APR. If you own at least 80 percent of your business, have an average credit score, have a positive daily cash flow that lets you keep on average at least $3,000 in your business account, and you clear $100,000 a year in revenue, you have an 85 percent chance of getting the loan you want from IOU Financial. Forget about bank loans, they are really hard to get.
  4. Hired the Proper Staff: You might have started off as a one-person operation, or maybe you began with a small staff. After a year, you have a better idea of how many and what kind of people you need. If you haven’t done so already, dismiss any unproductive staff  and find the best people you can afford.
  5. Developed Your Social Media Strategy: Your website should be search-engine optimized, bug free, contain perfect content (if not, hire a good freelance writer), and include, if appropriate, a bullet-proof online checkout facility. You should have set up your accounts on Facebook, Twitter, LinkedIn and so forth, and made sure you continually add new material onto your social media sites.

Enjoy your second year – with sufficient know-how and capital, you’ve got a good shot at long-term success.

Get more important tips from IOU Financial as you grow your small business by subscribing to our blog.

 

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5 Things Your Bank Won’t Say About Small Business Lending

We are not out to discredit banks or bankers, but we do believe that many potential borrowers make unwarranted assumptions about banks that we’d like to clear up. The bottom line is that sometimes a bank is a good place to get a small business loan, and other times it’s not.

  1. Banks Are Not Impartial

The small business loans you will be offered by your bank will be “products” that have been prepackaged for the “average” consumer. Certain products are favored and the bank pushes these, often offering incentives to loan officers who sell these products. This is not to say the products aren’t good, they just may not be good for you. Don’t expect you banker to tell you that, however.

  1. Most Bankers Are Not Credit Advisers

Even though bank officers may have fancy wood-paneled offices and wear expensive clothing doesn’t mean they have any certifications as credit advisors. For example, the average banker doesn’t have FICO Pro Certification, a basic credential that attests to knowledge of how credit scores work. Don’t expect this kind of expertise from the average banker, and if you need help with your credit history or score, be sure to speak to a qualified expert.

  1. Bank Loan Officers Are Not Human

Well, that’s a little extreme. What we really mean is that most banks use computer algorithms to determine whether you qualify for a loan and how much interest to charge you. Typically, the loan officer you visit takes down information and forwards it to the loan underwriters at the bank’s headquarters, who will not know or care one bit about any special circumstances attached to your small business loan request. For example, if you want to open a boutique in an up and coming area of town, some far-away analyst will look up the address, see that it’s listed as depressed and likely count that against you. In reality, the area may be on the rebound and your business plans may make a lot of sense.

  1. Banks Are Not the Only Alternative

Often, when entrepreneurs are turned down for bank loans, they feel that the door to credit has been shut on them. IOU Financial has made small business loans to thousands of such individuals, because they take the time to understand the full picture. Non-bank commercial lenders are looking for ways to say yes to your loan application. They have the flexibility to take into account a broad range of information beyond your credit score. Furthermore, non-bank lenders may be able to work out payment terms that banks do not offer. Banks can be a great resource, but remember that they are just one kind of resource – when it comes to small business loans, you have other options.

  1. Where Did My Loan Officer Go?

One dirty little secret among bank employees is that the good ones don’t remain at one place for very long. If your banker can draw a bigger salary from a competitor, chances are you’ll be assigned a stranger the next time you visit. Small business lending companies are run by entrepreneurs who are in it for the long run. If continuity of service and a personal relationship are important to you, think outside the box, er…bank, to include lenders where the owner is on premises and eager to meet with you.

For more small business lending advice be sure to subscribe to the IOU Financial blog.

The 3 Key Factors That Determine Your Rate for a Business Loan

There is nothing unusual about a small business seeking to borrow money. The two biggest questions the owner must face are:

  • How much will I be able to borrow?
  • How much interest will I pay?

The two questions are interrelated, because they are tied to how a lender evaluates your loan application. Whereas banks look almost exclusively at credit score, a good online lender such as IOU Financial takes a more holistic approach to your business and determines your small business loan rate accordingly.

The Holistic Approach

The three key factors we use to determine interest rates are:

  1. Credit Rating: Unlike a bank, we use credit ratings as just one component when underwriting a small business loan. The credit rating is a mix of your FICO score and your credit history. Because we look to other factors as well, a low credit rating doesn’t disqualify you from getting a loan at IOU Financial or force you to accept an astronomical interest rate. In fact, our rates are quite affordable and about half of what you’d pay for merchant cash advances. Folks can boost their credit ratings by handling credit responsibly, pay back loans on time, and keep your company’s debt-to-equity ratio reasonable.
  2. Cash Flow: Lenders set interest rates based on prevailing economic conditions and the risk that the borrower will default on the loan. One way to reduce that risk is to have a positive daily cash flow – that is, you collect more money than you spend on a day-to-day basis. IOU Financial considers this to be as important as credit score. You see, we don’t bill monthly the way banks do. Instead, you repay us daily in fixed, manageable amounts. If you show that you are consistently generating daily positive cash flow, we know that you will be a less risky borrower and can offer you more attractive rates.
  3. Financial Condition: Finally, we take a look at several indicators of your business’ risk. We want you to own the bulk of the company yourself, or share ownership with your spouse. Long-lived companies are less risky, so we want to see borrowers with businesses that are at least one year old. If you run a retail business (online and/or bricks and mortar), we want to see you generate monthly at least 10 bank deposits. Higher volumes can help with loan access and interest rates. It’s also helpful if you earn an annual revenue of at least $100,000, and that you average at least a $3,000 end-of-day balance in your bank account.

Affordable APRs

We use advanced computer algorithms to assess all three key factors when determining your loan APR. These quickly tell us whether you qualify for a business loan (85 percent of our applicants do) and how much interest you’ll pay. The nice thing is that we don’t charge fees for applications, processing or early repayments. You are charged simple interest on the amount you still owe, and no more.

We invite you to apply for a loan of up to $150,000 from IOU Financial. You’ll find our service is superfast and you’ll appreciate the low APRs available. Contact us today at (844) 750-8468!

For more lending advice be sure to subscribe to the IOU Financial blog.

3 Ways to Survive An Unexpected Economic Downturn

Running a small business can be quite rewarding, but it’s also risky. When the economy is brisk, a good business should do well. But economies can suddenly turn down. Furthermore, even if other industries are doing well, you may run into problems confined to your sector or even to your individual business. Whether the issues are national or local, it makes sense to take precautions when times are good so that you can survive the bad times. Here are 3 ways to help ensure your survival during an economic downturn:

  1. Maintain Your Liquidity: All businesses need cash. Small businesses have few sources of funding, so ensuring liquidity can make the difference between survival and bankruptcy. This means you must be able to access additional cash when necessary. As a leading supplier of loans to small businesses, IOU Financial understands that good businesses sometimes have unanticipated challenges and need money quickly. That’s why we have streamlined the application process, provide instantaneous loan approval, and get you your money in 1 or 2 days. Most banks don’t move very quickly and are much more concerned with your credit rating. We on the other hand approve 85%of applications, and we look well beyond credit scores to assess your cash flows and assets.
  2. Conserve Your Cash: Your working capital must pay for your immediate needs. You can conserve your working capital by accelerating collections and postponing expenditures. To speed up collections, you can offer larger discounts for credit buyers who pay quickly. You can also factor your A/R invoices and auction your inventory. If you run a retail store (brick–and-mortar or virtual), extra marketing and markdowns can accelerate sales. At the same time, contact your vendors and ask for more time to pay – many vendors will understand your need to conserve cash and be willing to negotiate relaxed payment terms. Postpone purchases such as inventory and equipment. Also, defer soft costs like travel, education, bonuses, retirement plan contributions and so forth. Your goal is make your operations leaner and more cost-effective, so that you are in a good position once the market improves.
  3. Stick It to Your Competitors: If your sector is undergoing a downturn, turn it to your advantage by making your competitors feel the pain more than you do. This means you need to be imaginative and aggressive, doing things a little differently from your old ways. You can do this in a number of ways:
    1. Actively seek out new business and customers. You can buy customer lists, run email campaigns, increase advertising, offer loyalty rewards, slash prices, extend your hours of operation, and if possible, hire away top talent from your competitors.
    2. Add on one or more salespeople, if appropriate. Find new ways to motivate your sales staff, perhaps with bigger bonuses and other perks. It’s also a good time to reconsider underperforming staff – you may need to consider discipline or separation.
    3. Try to increase the quality of your customer service. When your competitors are falling apart, distinguish yourself by treating the customers better than anyone else does. Don’t ever let your customers see you sweat!

Face the economic downturns with courage and resolve – with IOU Financial at your side, the chances are good that you’ll make it through.  Be sure to check out our blog for more tips for small business owners.

 

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The Right and Wrong Times for Spending

Small companies must be very careful when it comes to spending, because they usually have finite resources. There are definitely good and bad times to expand your business, having to do with your own goals and the state of the overall economy. When done with foresight, spending can grow your market share and increase your long-term profitability. However, if you mistime an expansion, you may cripple or kill your small business.

Some Interesting Stats

If you want to start up a one-person business, you are not alone. In fact, you’ll be one of 14 million single-person businesses in the U.S., according to the Census Bureau. Only 180,000 have multiple locations, while 5 million have a single location. Of these, you want to be among the businesses that survive and grow. That means starting off on the right foot.

Getting Started

First things first. You will be spending some money when you first organize your small business. Even if you are running an at-home business, you will need capital for computer and communications gear, website development and hosting, and perhaps inventory and special equipment. Your initial goal is simply to break even. If you are finding that difficult to achieve, you must evaluate whether to throw more money into the enterprise or to call it quits. If you feel strongly that additional capital would boost you into profitability, think about a short-term business loan, such as the convenient ones available from IOU Financial.

Expansion

Assuming you get over the initial hump, you will know it’s time to spend more money when you are constrained from making available sales, perhaps due to a lack of space, equipment, staff or inventory. For example, you might need to rent a commercial storage locker to hold your inventory, or perhaps you’ll need to lease office space and/or make leasehold improvements to the rented space.

What Do You Really Really Want?

It’s a bad time to expand your small business if you don’t want to take on the increased pressures and responsibilities that come along with growth. That means you have to be honest with yourself. Perhaps you are working at home simply because you can’t stand working in an office, hate hierarchies and cherish your freedom (your humble author included). If you are making a living wage this way, think twice about expansion, as it might completely upset your lifestyle and have you asking why you did it.

Assuming that you are an alpha type that really does want to expand, the next thing to gauge is the state of the economy. The wrong time to spend is when the country is heading into a recession. Inevitably, your business will slacken when the economy does, and you may be saddled with unnecessary and expensive capacity. Conversely, expanding at the end of a recession or the beginning of a growth period is great timing. Things are usually less expensive then, and you might be able to increase your size on the cheap. Interest rates may be lower then, so borrowing from a commercial lender as noted above can be very cost-efficient.

Things to Fret About

If and when you decide to expand, consider the following challenges:

  • Recruiting, supervising and paying additional personnel
  • The need for administrative services, such as bookkeeping, shipping, etc.
  • The logistics of a physical expansion, with all the costs this entails
  • The risk that the additional spending will not pay for itself in higher profits
  • The possibility of morphing into precisely the person you never wanted to be

There are millions of ways to achieve the American dream. You might need to spend money to get there, but knowing when and how much to shell out will depend on you, your market, your capital and the economy. Speak to us about increasing your capital and getting insights into your market and the economy. As for your own psychology, that’s up to you.

If you have a small business spending money on growth then you may be interested in learning why a small business loan might be right for you.  Learn more about IOU Financial and our loan offerings.

Why Firing Might Be the Right Decision

There are times when firing an employee is the right thing to do. It may sound harsh, and yes it is, but sometimes it’s truly the best option in a given circumstance. Sure, you want to do whatever you can to rectify negative situations, but there are times, when that just doesn’t work.  Here are three reasons why firing an employee may very well be the right move.

  1. The employee is negative and is creating a toxic atmosphere for other employees. Sadly, we all probably have worked with people like this. Nothing at the company is ever good enough. They bad mouth the management; they may even bad mouth their coworkers behind their backs. They are disrespectful and the list can go on and on as far as negativity. Of course you want to try to remedy the situation first and talk to the employee. It could be that the employee changes his behavior. But what happens if the negativity continues?  If things don’t change you have to consider the impact this person is having on the group, and the morale at your company. It may very well be time to part ways.
  2. The employee that just isn’t capable of handling the work. Here is a situation where your employee may really be trying. You want to give this person every possible opportunity, and training to improve skills. But if you’ve done all you can, and this person is making mistakes that are causing other employee issues, and costing your company customers or money, you may very well have to let that person go.
  3. Any type of violence. This probably goes without saying, but any type of violence in the workplace should not be tolerated, and that person should not be working at your company.

When dealing with a “problem” employee, and the possibility of firing, you want to always make sure to document, document, document, and document some more!  Communicate with your firm’s legal counsel to make sure that you have all of your bases covered, because when you fire an employee you always face the possibility of that employee taking legal action. You want to make sure that all along the way, when verbal warnings are given, written warning are given, etc. that everything is put in that person’s file, so if and when the time comes and you need to defend your decision, you are able to.

For more advice on managing your employees be sure to check our Blog’s Management section.

 

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Why This Might be The Best Time to Take Out a Business Loan

Owners of small businesses – take notice! 2016 is shaping up to be the best year in the last eight to take out a business loan. Why?

  1. Our economy is in better shape now than at any point since the Great Recession, meaning now is the time to expand your business.
  2. Interest rates remain low, despite the Federal Reserve’s recent interest rate hike.
  3. New alternatives to bank loans have become popular in the last year or two, providing competitive borrowing opportunities for businesses with less than perfect credit histories.
  4. Employment remains strong, putting more spending money into the pockets of Mr. and Mrs. John Q. Public.

A Good Time for a Good Loan

Given that the timing is optimal right now, your biggest decision should be where, rather than whether, to obtain a small business loan. In the first place, you want to approach a lender that is likely to approve your loan request. Unless you have spotless credit, that rules out banks. For most mere mortals, a better choice is a commercial lender like IOU Financial, where we approve 85 percent of loan applicants.

Does Anybody Really Know What Time It Is?

Timing is about more than choosing when to borrow. Timing also refers to the way you repay the loan. Nothing is scarier than the massive monthly payments that banks expect you to cough up. We have a better idea – we divide your repayments into daily installments that we automatically transfer out of your bank account every day. It’s convenient and much easier to budget for. Many of our customers tell us our terms are painless, and we believe them.

Of course, even daily payments can’t compensate for outrageously high interest rates. Guess what – our APRs start as low as 6 percent and are half of what you’d pay for a cash advance.

Cumbersome Bank Process

Banks set up insane obstacles to discourage all but the most dogged business owners from applying for a business loan. We’re talking about mountains of paperwork, never-ending credit and personal checks, and repeat requests for ever more information. We think this is nonsense, and offer instead a streamlined, online loan application process that takes only three minutes to complete and only a few seconds to pre-approve. That’s how we are able to put money in your bank account within 24 hours.

Another difference between IOU Financial and a traditional bank loan is that we look beyond your credit score and consider the totality of circumstances, such as your business equity and cash flows. We don’t send loan applications to some distant corporate headquarters where anonymous underwriters look for ways to deny your request. With IOU Financial, the person you work with is the person who approves your loan. We want to know our customers firsthand and we work hard to say “Yes!” to your loan application.

Feature Galore

Another nice feature we offer is that we can renew your loan once you’ve repaid only 40 percent of the principal. There are never any upfront costs or prepayment fees. We use simple interest calculations, so you only pay interest on your outstanding loan balance. Not all banks provide the same level of service. Maybe that’s why TrustPilot gives IOU Financial a rating of Excellent (Five Stars) – we believe that helping our clients succeed is the best way to grow our business.

So that’s it – now is the time and IOU Financial is the place to borrow up to $150,000 quickly and hassle-free. Contact us today!

 

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Hard Pull vs Soft Pull Credit Checks

For many an individual and business, access to credit depends on FICO scores and the contents of credit history reports maintained at the three major credit bureaus – Equifax, TransUnion and Experian. A “pull” is a credit inquiry from a legitimate entity, made in order to check your credit.

A hard pull is one that can affect your FICO score, whereas a soft pull has no effect. This is important to remember, because too many hard pulls can lower your credit score. The Fair Credit Reporting Acts sets limits on why and when your credit report can be pulled.

Let’s take a closer look.

Soft Pulls

All credit inquiries that are not credit checks by a prospective lender are soft pulls. First, any inquiries you make upon your own credit reports or FICO scores are automatically a soft pull credit check, so feel free to make as many as you like. Other soft-pull examples include:

  • Credit inquiries from businesses that want to offer you goods or services (for example, a promotional offer from a credit card issuer or mortgage lender)
  • Inquiries from businesses where you already have established a credit account.
  • Pre-approved loan and credit card offers
  • Employers and others performing a background check on you. For some reason, employers tend to gravitate towards job candidates with good credit ratings.

As you can see, you may be subject to a soft pull and not even know it. Often, soft pulls help businesses save money when canvassing for new customers, because these inquiries can rule out some potential prospects, saving the business paper and postage costs.

Hard Pulls

Hard pulls result when a potential lender wants to review your credit application. Common credit applications that trigger hard pull credit checks are ones for credit cards, mortgages and car loans. Each credit check is counted as one inquiry. However, you get a break if you are “rate shopping,” in that all inquiries for the same purpose, such as a mortgage, business loan, rental property, student loan, etc., within a 45-day period are counted as only a single hard pull. This has implications – if you are apartment hunting, its best to do it within a short period if you want to maintain your FICO score.

Some pulls might be hard or soft, depending on the particular circumstances. These include:

  • Verification of identity
  • Car rentals
  • Obtaining an Internet or cable account
  • Opening a bank account
  • Requesting a higher credit limit
  • Contracting for a cell phone account

Pulls and Scores

Although a hard pull can affect your FICO score, the impact upon your score can vary. The score is sensitive to several factors:

  • The inquiry must be a voluntary application for credit
  • The number of new accounts you have recently opened
  • The percentage of your accounts that have recently been opened, by account type
  • The number of recent credit inquiries you have had
  • The amount of time that has elapsed since you opened an account, by account type
  • The amount of time since the last credit inquiry

The good news is that a single hard pull might not affect your credit score at all, and even if it does, the cost is usually less than five points. The bad news is that if you have a short credit history or just a handful of credit accounts, a hard pull can have a greater impact on your credit score. So can multiple hard pulls that are not categorized as rate shopping. Wonder why? Here’s the dirty little secret – consumers with at least six credit inquiries are 8X more likely than those with no inquiries to file for bankruptcy.

By the way, you can dispute a hard inquiry performed without your permission. Authorized hard pulls usually hang around on your credit history for a couple of years.

Soft Is Better

Now, if you are looking for a commercial business loan, keep in mind that IOU Financial uses soft credit pulls that won’t affect your credit score. When you combine this with our fast, no-hassle process and convenient payment arrangements, it’s easy to see why IOU Financial is growing into one of the premier commercial lenders in the U.S.