Lending Terms Business Owners Need to Know

Many business owners haven’t had the opportunity to attend fancy college programs in business and finance. Nonetheless, there are many terms related to loans and credit that you need to understand, especially if you are about to apply for your first business loan. Here is IOU Financial’s rundown of important lending terms.

ACH Transfer:

An electronic, bank-to-bank transfer from one account to another, processed by the Automated Clearing House network. Lenders typically deposit loan proceeds and collect payments via an ACH transfer.

Annual Percentage Rate (APR):

An annual interest rate that reflects the cost of a loan, including fees. Because APRs are standardized, they allow you directly compare loans from different sources.

Application Pre-approval Rate:

The percentage of loan applications that a lender pre-approves. A good lender should have an application pre-approval rate of at least 85 percent and should provide the pre-approval within minutes.

Better Business Bureau Rating:

A rating from the BBB that assesses your business’ overall practices. The top rating is A+ .

Business Credit Report:

If you run a corporation, limited partnership or limited liability company, a business credit report functions for your business the same way as consumer credit report does for individuals. Providers include Dun & Bradstreet and FICO.

Fixed Loan Payments:

A fixed amount, paid daily, weekly, or monthly, to cover the interest charges and principle repayment of a loan. IOU Financial offers automated daily or weekly loan payments to avoid large monthly payments.

Funding Time:

The time it takes receive your loan proceeds after you submit your loan application. The funding time can vary from 24 hours (for online lenders) to weeks or months (for banks).

Interest Type:

Interest types are fixed and variable. A fixed interest loan maintains the same payments throughout the loan term. A variable interest loan uses an interest rate that can change over time, thereby changing how much you repay each month.

Loan Application:

A questionnaire you fill out to apply for a loan. Some lenders, such as banks, use very detailed and complicated applications that require large amounts of financial data. On the other hand, online commercial lenders often have short applications that you complete online.

Loan Renewal:

An optional feature offered by some lenders like IOU Financial that allows you to apply for a replacement loan when you repay a set percentage (e.g., 40 percent) of the original loan.

Loan Term:

The amount of time you have to fully repay your loan. If the loan term is for less that one year, it is a short-term loan. Loans with terms of one year or longer are long-term loans.

Maximum Loan Amount:

The maximum amount a lender will lend to you.

Prepayment Penalty:

This is a fee some lenders charge when you pay off your loan ahead of time. Always use a lender that does not charge a prepayment penalty.

Pre-qualification Requirements:

A set of standards that allow you to immediately prequalify for a loan from some lenders. The standards might include business ownership, frequency of daily deposits, time in business, average daily ending balance in your business bank account, and annual revenue.

Simple Interest Loan:

A loan that charges interest on a daily basis, meaning you only pay interest on the unpaid principle amount. Contrast this to a compound interest loan, in which you pay interest on your interest. IOU Financial is a simple interest lender.

Small Business:

Typically, a business with fewer than 250 employees. Many of the best lenders specialize in loans to small businesses.

Upfront Costs:

These are fees, such as origination and processing fees, that some lenders charge. Always choose a lender who charges no upfront costs.

Looking for more information about small business lending? Our small business loan consultants have the know how to answer any question you throw at them.  As industry experts, our staff is ready to find the answers even your toughest business questions!

Tax Season Prep: Five Steps to Get You Ready Now

According to Benjamin Franklin, there are only two certainties in life: death and taxes. Although tax season is still a few months away, it’s advantageous that business owners start preparing for it now. There are certain steps that need to be taken to be able to report the right amount to the IRS and make sure no mistakes are made on your taxes.

Collect Business Records

We’ve all seen movies where frustrated business owner bring a box of receipts to their accountant come tax time. Don’t let this be you—a good rule of thumb for any business owner is to have a systematic way of collecting business records for tax time. If you get in the practice of careful filing of your documents, you will not need to scramble in the spring and spend your time looking for records or frantically calling vendors to ask for receipts or invoices.

An electronic system where you can keep track of all business-related earnings and expenses will make it simple to determine your overall income and deductions you may be eligible for. Plus, this will foolproof your filing system and allow you to access information from anywhere, anytime. Certain programs, such as Quicken and QuickBooks allow you to download your financial information straight unto your tax return.

H&R Block provides a useful checklist of all expenses that will determine your taxable income.

Separate Business and Personal

One of the most common mistakes that small business owners make is failing to separate their business and personal expenses. It’s vital to utilize business checking accounts and credit cards to clearly understand what your business expenses and earnings are to report the correct taxable income amount and determine what deductions you may be eligible for.

If you fail to do this throughout the year, you will spend days trying to determine what amounts were used for your company and what was made for yourself.

Save Receipts

Although it’s not something anyone likes to think about, any business has the chance of being audited. To protect your company, make sure to keep all business-related receipts. The good news is that there are several receipt apps, such as Shoeboxed, which allow you to scan receipts and keep their digital copies. Plus, the apps can be integrated with certain accounting software, making the tax preparation process quick and seamless.

Review Payroll

Before submitting your tax records, review your payroll information with a specialist to verify that everything was calculated correctly and legally. Payroll mistakes can be costly; 40% of businesses pay over $800 to the IRS simply for payroll errors.

Know Your Deadlines

Federal taxes are not the only taxes businesses are responsible for. There are also local city taxes, self-employment taxes, property taxes and payroll taxes, all with their own stipulations, forms and deadlines.

Research these deadlines and note them in your calendar so that you are not penalized for late filings.

If you are anticipating a large payment to the IRS this year, or need funds to invest in getting your business ready for tax time, consider a small business loan from IOU Financial. You may be eligible to borrow up to $500,000 in a quick turnaround of just two business days. Click here to learn more.

How to Make Business Financing Part of Your 2019 Growth Plan

You might occasionally encounter a business owner who has a dim view of debt. That’s unfortunate, because debt, if you manage it properly, can help you grow your business. Here are several ways your business will benefit from the prudent use of debt:

Accelerate growth:

You can use loan proceeds to buy new equipment/facilities, hire more skilled labor and/or purchase additional inventory. This gives you growing room without drawing down your retained earnings. Naturally, you should have a detailed plan that lays out how you’ll deploy the loan proceeds to achieve the desired results. Failing to plan your finances can leave you in a hole when it comes time to service your debt.

Retain full ownership:

You might want to expand your business and are deciding whether to use debt, equity or a mix of both. Remember that bringing on equity investors gives you new “partners” who’s ideas might be different from yours. By borrowing rather than issuing stock, you remain fully in charge and do not have to share profits.

Tax benefits:

You can deduct you loan interest from your business taxes. As you know, every dollar in business is important, so the tax benefits you receive from borrowing are a significant success factor.

Build your credit:

When you pay your loan back on time (or faster), you likely will increase your credit score and boost your credit limit. This comes in handy as you expand your business, because future loans will be easier to access, and you’ll probably get a lower interest rate and/or higher spending limit. Be sure to check your credit reports and scores so that you can correct mistakes.

Avoid asset sales:

If you find you don’t have sufficient funds to complete your growth plan, you might be tempted to sell off your receivables or inventory. However, asset sales have several problems that reduce their desirability. For instance, your customers might not like being billed by a new entity, and this may cause them to question your viability. Furthermore, the haircut you take on asset sales often exceeds the interest you’ll pay on a loan. Why risk doing permanent damage to your business through asset sales when you can take out a short-term loan instead?

Smooth out seasonality:

Seasonal sales variability shouldn’t stop you from expanding your business. Using debt allows you to smooth out the effects of seasonality and keep your growth plans on track. To that end, make sure you borrow from a lender that doesn’t charge prepayment penalties. This allows you to pay off your loan sooner than anticipated without incurring extra charges.

Financing your ideas:

It takes cash, and often lots of it, to pay for the R&D costs associated with a new product or service. You can obtain cash via debt and plow it into your latest research, both from the operational and marketing viewpoints. Using debt instead of equity helps you maintain your trade secrets when they are most vulnerable – in the development stage. Equity investors might require you to reveal valuable information that can fuel the work of competitors.

Cost of capital:

Debt often has a lower cost of capital than does equity. Equity investors not only require a chunk of the profits, but also might require managerial control, a required rate of return and dividends. Debt is simply priced and avoids some of the costs associated with equity financing.

In summary, financing your business’ growth through the prudent use of debt is a winning formula for long-term success. IOU Financial can arrange a business loan of up to $300,000 quickly and with minimum hassle. If you are interested in growing your business, contact us today.

7 Smart Bookkeeping Tips Every Small Business Can’t Live Without

For small business owners, bookkeeping serves as their personal scorecard. Numbers show your success and failure and give a quantifiable shape to your business results

In a small business benefit, your future is on the line. You need to have a good overview of all the expenses and revenue. Perfect bookkeeping can save you a lot of time, money, and nerves.

To help you establish an effective bookkeeping strategy, we’ve assembled this 7-tip list. If you like assessing the numbers and want to keep crucial business matters in your own hands, bookkeeping is the way out. Let’s explore more.

Never mix personal and business finances

For an up-and-coming brand manager or CEO, it may be tempting to achieve as much as possible in as little time as possible.

The over-dynamic outlook could lead to severe financial consequences. In a lot of cases, company heads will use company money for personal expenses and vice versa. Doing so will only cause additional chaos.

When your business is only starting, spending a lot of money is an attractive thought. To prevent tax-related headaches, issue a business credit card along with a separate business account. Taking care of this takes mere minutes and allows you to earn your company a proper credit rating.

“One might find it surprising that a lot of small businesses and startups fail because of improper financial allocation,” explains Josh McCarty, a marketing and economics writer at Brilliantassignment.co.uk. “Separate your finances because mistakes will happen once your business grows.”

Make use of automation

Bookkeeping was once considered a difficult and time-consuming activity. Accountants and bookkeepers had to do everything manually, but a lot has changed in recent years. With the development of AI technology and automated software, bookkeeping has never been easier. There are no more tedious instances of manually creating spreadsheets.

Bookkeeping software makes our lives easier. For one, the data you need is stored in the cloud. Unlike physical storage, cloud storage is safe from any compromising.

No matter the conditions or situation, your data will be stored safely. In addition to this initial security feature, small businesses should immediately connect their banking accounts to bookkeeping software.

By establishing this connection, you will ensure that your books are up to date and that there is no need for last minute checks.

Do regular check-ups

Most bookkeepers and companies keep track of their reports and records on a quarterly basis. A tip that will make your life easier is to check your reports on a weekly basis. The interval here will give you enough time to grow your business, but you’ll also be able to identify any changes in your revenue.

Having a clear overview of your transactions and the overall financial state is a business advantage you deserve to have.

With each new product launch or a promotion, you can see how good the move was by looking at the reports. By analyzing reports from a certain period, you can see if a move was successful or not. If it was, you can repeat it and invest more money or stop implementing it if it was a failure.

Use tracking software to monitor your employees’ hours

Running a small business can face you against some hardships. If you have a dedicated team of employees, tracking their hours might be somewhat difficult manually.

Without knowing exactly how much has someone worked, you risk budgets deficits, imprecise payments and other spending that you don’t need. To prevent this from happening, have your entire small business use time tracking software.

Employees will also find the change refreshing. With time tracking software, they will know exactly how much they’re being owed and when they have vacation time and what was their sick time.

Bookkeeping will be much easier, and your small business will grow exponentially. Integrate the tracking software and the time tracking software for ultimate efficiency and swiftness.

Always track business expenses

Brand growth is something everyone wants to feel, but not to experience. Why is this the case? When small businesses grow, there is another echelon of responsibilities that you have to take over.

Business expenses are just one of them. Even though you might feel good about having a bigger budget, you will find it annoying to file tax reports. Overspending is often a case, and precisely because of that, you need to track your business expenses.

When traveling, make sure you keep every receipt and categorize it accordingly. There are several apps that allow you to scan the receipts and store them on the cloud.

The move might seem simple, but it’s a bookkeeping tip that every small business can’t survive without. By tracking your business expenses, managing your budget and filing tax reports will be much easier.

Don’t be afraid to ask for help

At the beginning of every company’s life, you can most certainly handle all numbers by using off-the-shelf software. However, once you start experiencing growth, you might feel overwhelmed by the sheer number of tasks needed.

Keeping track of everything is important, but many companies tend to shut down because they’re hesitant to hire a professional.

Although it may seem like hiring a professional bookkeeper is unnecessary spending, it’s a massive benefit that can save you a whole fortune. Letting a professional handle your bookkeeping will free up valuable time you can use to focus on making your business grow. Associating yourself with a professional is an investment for the future.

Have your deadlines and tax obligations in a visible place

Bookkeeping is both monitoring the growth of your company and working from deadline to deadline. From tax reports to building business credit, it’s always beneficial.

Tax reports have to be filed, but even the most important deadlines can be missed if you’re overwhelmed. Thus, before undertaking anything new, you should write down all upcoming deadlines and obligations.

Having visible dates will allow you to run your small business without unnecessary stress. Additionally, missing deadlines and ignoring obligations will only bring you problems with the law.

The IRS has many useful tools for calibrating your calendar. If you’re more of an old-fashioned person, you can write them down on a piece of paper. Knowing your deadlines allows you to plan accordingly and increase revenue.

To conclude

Every small business relies on impeccable bookkeeping. Implementing these tips will require minimal effort and bring you maximal results. Remember to always be organized, prepared, and aware of upcoming deadlines. With recent developments in technology, you will rely on software to do the heavy lifting. Just by implementing these tips, you will ensure a fast and beneficial period of business growth.

Guest Post: About the Author

Scott Mathews is a professional content writer in such topics as bookkeeping, work productivity and marketing. Scott`s the biggest passion is blogging and travelling. He regularly takes part in different career growth conferences and contributes his posts to different  websites. Contact him on Facebook and Twitter.

Navigating Business Credit: What it is and How to Establish it

Small businesses play no small role in the U.S. economy. According to the U.S. Small Business Administration (SBA), there are 29.6 million small businesses in the United States, which account for 99.9% of all the nation’s businesses.

Small businesses clearly make up the backbone of the US economy. However, many small business owners remain perplexed by the concept of business credit and how it works. More often than not, small business owners take on personal loans and use personal credit cards to fund their businesses, which can lead to financial and organizational headaches. This article aims to do three things:

  • Help small business owners understand the elusive concept of business credit
  • Highlight the factors that affect business credit scores
  • Assist them in building business credit

What Is Business Credit?

Business credit is a line of credit offered to a business that the business can use to pay unexpected expenses, or expected operating expenses when there is a lack of available cash.

Your business credit scoresare represented by numbers that signify whether your business is suitable for loaning money to or doing business with.

There are three primary credit bureaus (Experian, Dun & Bradstreet, and Equifax) that uniquely calculate business credit scores. Each has a different scoring algorithm. Experian and Dun & Bradstreet’s credit scores both range from 0 to 100, while the Equifax scoring scale ranges from 101 to 816.

Similarly to personal credit, those issuing credit to you will rely on your business credit scores in their decision making. The higher your business’ credit scores, the more likely you’ll be able to secure larger credit limits as well as more rewards and benefits.

What Factors Affect Business Credit Scores?

While your business credit scores vary depending on the specific credit bureau’s algorithm, a few general factors that underlie these scores are:

  • Number of trade experiences
  • Outstanding balances
  • Payment habits
  • Trends over time
  • Public record frequency and dollar amount
  • Delinquencies such as liens or bankruptcy
  • Credit utilization (the percentage of your total business credit that is being used)
  • Demographics such as years on file, Standard Industrial Classification codes and business size

5 Tips To Build Business Credit

Creating business credit is not something that happens automatically. It requires multiple steps on the part of the business owner. Building business credit will not only benefit the business’ credit scores, but open more credit card and loan options for the business. These funds allow the business to keep growing.

In the instance that you have never incorporated your business, or you are starting a small business from scratch, this quick guide will direct you down the path of building your business credit.

1. Incorporate Your Business

The first step on the road to building business credit is to separate yourself from your business through incorporation. Through incorporation, your business will become a distinct legal entity from your person. The U.S. Small Business Administration provides an in-depth guide to launching your business, including incorporation, which would be recommended for all budding entrepreneurs and small business owners.

2. Obtain an Employer Identification Number (EIN) from the IRS

An EIN identifies your business for credit and tax purposes. It’s essential to get an EIN number for an SBA loan. In most cases, it is necessary to have one to open business bank accounts. An EIN allows business owners to separate their social security numbers from their businesses’ credit profiles.

3. Register with Dun & Bradstreet

When a business applies for business credit, lenders and suppliers commonly perform a credit check through Dun & Bradstreet. Register and set up a company profile under Dun & Bradstreet’s database in order to start establishing credit. Dun & Bradstreet will issue a nine-digit DUNS number that is universally used to identify businesses.

4. Open a Checking and Savings Account for Your Business

Open both a checking and savings account in your business’ name. This is done using your recently provided EIN and DUNS numbers. By doing this, you’ll separate your personal and business finances.

A business savings account is not mandatory, but is an intelligent move for any small business owner. A business savings account can assist when an unexpected cost arises and it can also be used as security for taking out a small business loan.

5. Obtain a Business Credit Card & Responsibly Manage Your Finances

Business credit cards are key to building business credit. It’s recommended that these credit cards should be commercial in nature and used for business expenses. Business owners should put any business credit accounts in the name of the business using their EIN and DUNS numbers.

It should be noted that not all business credit cards are created equal. Different business cards provide different types of rewards and benefits. Business owners should do their research and find business credit cards that aligns with the goals of their businesses.

While obvious, it is imperative to maintain excellent financial behavior to build business credit. Make sure to keep your credit card utilization low, pay all bills on time and in-full, and use a variety of credit.

Conclusion

Building strong business credit is not something that’s automatic or instantaneous. It requires business owners to be proactive and behave with financial responsibility. Time and excellent financial behavior are necessary ingredients in establishing high business credit scores for your small business. By understanding the core business credit concepts and following these tips, your business credit scores should be flourishing in no time.

Guest Post: About the Author

Courteney Reed is dedicated to empowering people to make smart financial decisions. As a financial industry analyst, she is driven to provide the most current and highest quality information available.

Six Tips to Raise Your Business Credit Score

A high business credit score will allow you to secure more financing for your business. Business credit scoring works almost like personal credit scoring—credit lenders will report business loans and repayment history to credit agencies, who will then calculate a business credit score.

Because a good business credit score is essential for securing business loans, it is important to keep it as high as possible. If your business has accumulated too much debt and failed to repay some loans on time, your credit score may have suffered. However, it is still possible to improve your score by following six simple tips.

Check Your Credit Report

Having a clear understanding of your credit history is the first step towards building a healthy credit profile. You can talk with a credit reporting agency to assess your credit score—some, like Equifax Small Businessoffer consulting services to help you manage your business credit profile.

Once you get your report, you will know where you stand and what you have to work with. Credit reports will also show you which accounts harm your credit score the most; these will be your first targets. Make a list of all the high interest loans that you had trouble paying off and prioritize which accounts to focus on first.

Pay Your Bills On Time

Building up a reputation for consistent and timely repayment is essential to improve your business credit score. Your late payments may hurt your credit score more than your current outstanding debt.

You should always strive to pay all your bills on time, even if you have to stick to the minimum amount. If possible, pay in advance. Keep up this consistent repayment behavior and make sure that vendors report it to the credit bureaus to raise your score.

Don’t Close Your Accounts

Although it is important to reduce your overall debt, closing all of your accounts will not improve your credit score. Do not only think about the money you owe, but also consider the money you could borrow. This is where credit utilization comes into play, which is a way of measuring how much debt you have versus how much credit you could take on.

For example, if you apply for a business credit card account, your available credit will increase, thus reducing your credit utilization. Moreover, you can use a balance transfer credit card to move debt from a high-interest credit card and pay off the loan at zero percent interest.

If you have credit accounts that you don’t use anymore, do not close them. Having a relationship with several lenders will give you access to more financing sources.

Try to capitalize on your good relationship with lenders and repay high-interest loans that you’ve had for a while. In fact, credit reporting agencies will rank you higher for having long-term accounts with several lenders.

No Credit Equals Bad Credit

If you do not have any credit, you cannot have a credit history. Lenders and financial institutions want to see your history of paying off loans to give you more loans. If you have no history of this, they don’t know if you’ll be a good financial candidate. If you have no credit history, start with taking out and repaying small loans.

Build on Your Positive History

 Lenders are more likely to report a bad experience to credit bureaus than a good one. If you have been a loyal bank customer, ask them to report on the positive experiences. The more lenders assess your creditworthiness, the better your business credit score will get.

If you have failed to repay some lenders on time, do that as soon as possible. In fact, negotiate with them, and, if possible, offer to repay the debt in full in exchange for withdrawing any information about late payments that they have provided to credit bureaus.

If the positive experiences outnumber the negative ones, even at high debt levels, your business credit score will improve.

Keep Your Personal Finances Separated

Your low personal credit score may have an impact on your ability to find financing for your business. One way to prevent your personal credit score from lowering your business credit score is to keep your accounts separated. Do not make personal purchases on a business card, and then write them off as a business expense. Your company’s bank account should be completely independent of your personal one.

If your business is going through some rough times, do not be afraid to take out a small business loan. Of course, the final goal should be to grow your business, so choosing the right option is important. Get your credit score report, identify the worst “offenders,” prioritize, create an action plan and start working on removing those black spots from your credit history. By being consistent, you will be able to bring your business credit score to “excellent.” It’s always worthwhile to consider hiring a professional to help you improve your business score. Talk to a representative from CreditRepair.com to discuss your options.

Guest Post: About the Author

Renata Ilitsky is a writer and editor for CreditCardsReviews.com. She is a freelance content writer with over 10 years of experience. She specializes in creating unique and engaging content for any industry. To read some of Renata’s other work, please view her writing portfolio.

A Small Business Guide to Building Business Credit

While most small business owners are well aware of personal credit scores (like those from FICO), the concept of business credit remains more elusive. Though 65 percent of business ownersuse credit for business purchases, only 50 percent of those cards are in the business’ name. This article tackles the basics of:

  • What business credit is
  • What affects business credit scores
  • How to establish a business credit profile
  • Ways to maintain a good credit score

The Basics of Building Business Credit

For many people, discussing credit or credit cards has become a social taboo. In a study by Experian, the average American’s credit card debt has creeped up 3 percent from last year. The good news is despite the rising debt, credit scores have also increased.

The reality is you need credit to purchase a home, a car, and to sometimes to get business credit. The best way to wrangle this beast is to increase your financial literacy on how credit works, and to get an in-depth knowledge on the ways personal credit differs from business credit.

For small business owners, keeping their personal credit in good standing and separate from their business ventures is crucial. Though, it’s still something that not many people fully understand. Let’s dive into how a business owner establishes a business credit.

What is Business Credit?

Business credit is the result of the information collected by business credit bureaus. They look into your business trade credit transactions in order to create your business credit report. They use your business name, address, and federal tax identification (FIN), otherwise known as your employer identification number (EIN).

Based on your company’s business credit transactions, the business credit bureaus will compile the data and create a report that determines your business’ credit profile. This affects the amount of money your business can be granted, the types of credit cards you can open, and whether or not your business is deemed financially trustworthy.

Establishing Business Credit Profile

Before the major credit bureaus Dun & Bradstreet, Experian Business, and Equifax Business can begin  compiling the data necessary to provide a credit report, you need to incorporate your small business. With sole proprietorships and general partnerships, the business is legally considered the same as the owner. Incorporating a business or forming an LLC creates a separation from the individual, this provides protection to the owner’s personal assets.

Dun & Bradstreet uses a 9-digit DUNS (Data Universal Numbering System) number to identify every business that has a credit file. The Small Business Administration reports the DUNS code is “the most widely used number for identifying companies in the United States.”

With personal credit, your history is automatically tracked; however, if you have a small business, you or your vendors have to voluntarily send your information to business credit bureaus in order for it to be reviewed. Your business needs to have a federal tax identification number or employer identification number (EIN). The process for obtaining this is fairly easy. Go to the IRS websiteto access the EIN Assistant page, and click on “Begin Application” at the bottom to get started. The EIN is required on federal tax filings and to open a business bank account in the name of the corporation or LLC. The EIN is like your small business’ social security number.

The next step would be to open a business credit profile with all three of the major credit bureaus in order to have your information tracked. Each credit bureau calculates business scores differently, so it’s important to note their range and how they rank high credit risks compared to low credit risks.

Factors that Determine Your Credit Score

Business owners are responsible for opening their business credit profiles to establish business credit. Once a credit profile is open business credit card issuers may need to be notified to report credit transactions specifically to business credit reporting agencies. The Experian and D&B credit scoring system uses a range from 0-100; the higher the number, the lower the risk. Equifax’s scoring system ranges from 101 to 816. The primary determining factors of a business’s credit report can be:

  • Number of trade experiences
  • Outstanding balances
  • Payment habits
  • Credit utilization
  • Trends over time
  • Public record recency, frequency, and dollar amount
  • Demographics such as years on file, Standard Industrial Classification codes and business size
  • Delinquencies such as collections, bankruptcy, and liens

Building Your Business Credit Score

In order to begin sending positive activity to the business credit bureaus you should be conscious of keeping your credit utilization low, and managing a variety of credit. Begin by opening a business checking and savings account, apply for small business credit cards in your company’s name, and obtain a small business loan using your business savings account as collateral.

Once you’ve created a business credit profile it’s important to maintain exemplary financial behavior. The goal is to be considered a low risk to banks and other financial institutions. This is accomplished by paying your bills on time and in-full by the end of each month.

Business credit is an intangible asset, according to the NSBA Small Business Access to Capital study. 20 percent of small business loans are denied due to business credit. Of businesses surveyed, 27 percent claimed that they were not able to receive the funding they needed. For those 1-in-4 businesses, the most frequent effect the lack of funding caused was preventing the owners from growing their businesses.

Conclusion

As a small business owner, it is imperative to begin building your business credit profile to maximize your company’s funding potential. Stay informed and up to date with your credit reports, and your business will become a trustworthy borrower.

Guest post: About the Author

Courteney Reed, is a financial industry analyst dedicated to empowering people to make smarter financial decisions.

Finance 101: Keeping Your Business Finances Organized

Managing your company’s finances is the most important part of running a business. Surprisingly, some business owners don’t know the first thing about organizing their finances. This is not only a problem because they can’t pinpoint exactly how much loss or profit they generate in a year, but for other, more serious concerns.

Companies often experience negative cash flows, especially during the startup phase. Some businesses are seasonal, and need a cash reserve to carry them through the slower months. If your business thrives, it will need an investment of funds to sustain growth.

If there is no management of funds, financial planning and savings, it can be detrimental to a business. In this article, we present Finance 101: Keeping your business organized with these tips:

Separate Personal and Business Finances

This may seem like no brainer, but many small business owners don’t realize they must maintain their personal and business finances separately. They charge both types of expenses on the same credit card, finance their business goals with personal loans and transfer profits into their personal banking account.

This presents a major headache at tax time, when either the business owner or their tax accountant must separate every expense into different categories, causing confusion. Plus, fusing finances can raise a red flag and lead IRS to audit your business.

Invest into Accounting Software

If you cannot afford to hire a dedicated accountant to manage your business expenses, purchase accounting software. Although there is likely to be a small learning curve with every new program, this is an efficient way to enter all of your spending, sales, payroll information, etc.

If the software is cloud-based, it will securely maintain your records online, making them accessible anywhere at anytime. This will cut down on your paper usage and make it much more efficient to view and change your financial information at any time.

Register for an Employer Identification Number (EIN)

Just as you require a social security number (SSN) to open personal accounts or register for government issued documents, your business needs its own tax number, called an EIN. You can easily apply for an EIN on the IRS website for free by following this link. This will be required to open credit cards and financial accounts, as well as retirement plans.

Consult a Professional

Every state and some cities have different laws and regulations about running a business. To make sure you are in compliance with these rules, are filing your taxes properly and know the ins and outs of payroll law, it is advantageous to consult a professional about these matters at least once per year.

These can involve certified public accountants (CPA), labor law attorneys and Human Resource administrators. You are not required to hire these professionals on permanently, but can use their services on an as-needed basis.

Although you will need to pay for their expertise, making sure you are following the law will save you from paying penalties or risk ruining your brand image and losing your business.

IOU Financial is committed to helping small businesses become financially secure. We specialize in hassle-free, easy and secure small business loans of up to $300,000. Contact us today at www.ioufinancial.com to speak to us about qualifying for our loans.

3 Ways to be Smart about Business Expenses as a New Business Owner

New business owners become overwhelmed by expenses, taxes, and financial issues in a short time. With so much to do and manage, it is challenging to keep tabs on expenses. But, if you want to stay in business, you must keep your spending in check, stay on top of your tax responsibilities, and prioritize tasks and expenses. Our tips will show you how to do it all.

  1. Hire a Financial Advisor Specializing in Small Businesses

It seems strange to emphasize keeping expenses in check and then suggest hiring a financial advisor, but it is the best way for you to comply with tax laws, make smart purchases and investments, and protect your assets as your business grows. Your best move is to choose a financial advisor who has ample experience in assisting small businesses and who understands the ever-changing tax laws.

If you work from home, you especially need a financial advisor to help you determine whether claiming your home office is the best way to proceed with your taxes. It also is more challenging for small business owners who work from home to keep their personal and business expenses separate, and a financial advisor will ensure you do things by the book to avoid penalties or fees. Your financial advisor also will help you find areas to save costs and prevent you from using too much of your personal money to grow your business.

  1. Create a Budget… and Stick to It

Your financial advisor also will help you create a budget for your small business or your home office. It is critical that you stick to your budget because you don’t want to stretch your new business too thin in the early stages.

In fact, the Bureau of Labor Statistics reports that about 80% of businesses with employees survive their first year in business, 66% survive their second year, and about 50% will survive their fifth year. However, only about 30% survive their tenth year. Why do so many small businesses fail? For many of them, the answer is lack of sufficient capital and cash flow problems. One study shows that 82% of businesses fail due to cashflow problems.

The lessons new business owners must learn are that they need to manage their expenses wisely, and they need to have enough capital to grow. The solution to these common issues is to prioritize your needs by creating and sticking to a budget.

If working from home is the best way to start your business, do so to save overhead costs. You’d be surprised by how much you can accomplish with the perfect workspace in your home and the right technology. You’ll likely be able to get off the ground with reliable, high-speed internet, a laptop or tablet, and a reliable printer and phone. There are even online payment systems that allow remote business owners to receive one-time or recurringclient payments from the comforts of a home office. Reliability and convenience are much more important than spending too much for the latest technology, phones, or gadgets.

  1. Make Priorities

As a new business owner, the bulk of the work will fall to you. Because your time is money when you’re in charge, you need to be as productive as possible and make time for yourself and your family. That may be easier said than done if you work from home, so set your hours based on when you are most productive and make time for your family to strike a work-life balance. The perk of working from home is setting your schedule, so do so wisely.

You’ll also need to prioritize your workday tasks. While answering emails is an important part of your role as a new business owner, other tasks will suffer if you spend too much time checking your inbox and replying to emails that are not urgent.

To spend less time on email, set up an automatic response and take advantage of canned responses. You’ll still respond to customers promptly, but you’ll also be more productive if you schedule time for email throughout your day. It’s also important to prioritize record keeping for tax purposes and to create a system for filing receipts and other documents that will support your business expense claims each quarter.

New business owners succeed when they make smart decisions about expenses. Make it easier on yourself by hiring a financial advisor specializing in small business, creating and sticking to a budget, and making priorities.

Guest post: About the Author

Ms. Fisher has spent more than 20 years as a CPA, and is currently working on a book about financial literacy (due out in 2018). She also runs Financiallywell.info.

Retirement Planning for Small Business Owners

It’s not uncommon for business owners to consider their businesses as their retirement plans. At retirement age, the plan is to sell the business for cash, or to give the business to a family member in return for a share of future wealth. It might work out, but it’s risky, because if your business fails, your retirement plans end up in shreds. Short of bankruptcy, a troubled business would be hard to sell and bring in less money than anticipated. Many owners might face the prospect of delaying retirement until the business “picks up.”

It need not be this way. An orderly approach to retirement planning will help you provide for your later years independent of the ups and downs of your business. Here are five steps to take to save money for retirement:

Do the math:

Figure out how much money you will need for your retirement lifestyle, especially if you don’t receive a lot of money from your business. This is frequently a wake-up call to get your retirement plan moving. Check out online retirement calculators from financial service companies such as Vanguard, TIAA and Fidelity and many others. Use these resources to help you nail down future spending.

Get help:

You are probably an expert on your business, but don’t assume that extends to retirement planning. If you don’t have a solid finance background, hire a financial adviser to organize your retirement planning. It’s a good idea to use one who charges a flat fee rather than one who takes commissions on your trading. The best ones usually have an accreditation, such as Certified Financial Planner.

Begin a diversified retirement plan:

You don’t need to spend a fortune on your retirement plan, but you should make a long-term commitment to it. It will cut your current taxes and allow your money to grow tax-deferred. Here are for options that make sense for small businesses, suitable for sole proprietorships, partnerships, limited liability companies and corporations:

  1. SEP-IRA: A good choice for one-employee companies, because you must fund the plan for all employees. Its works like a traditional IRA, but in 2018 you can contribute up to 25 percent of total compensation or $55,000, whichever is less.
  2. SIMPLE IRA: A plan for owners of companies with up to 100 employees. You and your employees make pre-tax contributions directly from your paycheck. The 2018 contribution limit is $12,500, or $15,500 if you’re 50 or older.
  3. Solo 401(k): Good for self-employed. You can contribute up to 25 percent of your compensation, plus up to $18,500 ($24,500 if 50 or older) in employee contributions, for a total maximum up to $54,000 in 2018.
  4. SIMPLE 401(k): For business with 100 or fewer employees. You and your employees can contribute up to $18,500 a year. You can borrow from your account and make no-penalty withdrawals under certain circumstancees.

Invest simply:

Index funds are simple and cheap, and you will always get average performance, year after year. If you know when you are going to retire, you can buy into a target-date fund that adjusts its investments based on your age. Consider also a REIT investment.

Pay yourself first:

When business gets slow, it’s tempting to cut back on your contributions, and that might occasionally make sense. But resist the temptation if you can, your retirement will thank you for it.