Do You Have A Borrowing Checklist?

Part of keeping your business agile and ready for ever-changing opportunities in today's marketplace is to keep your borrowing information up to date. For most leases under $75K, a one-page credit application and possibly recent bank statements are all that we require. However if you are looking for a higher dollar amount or a special circumstance arises, more information is often needed. To save time, frustration, and possible declines take a few steps each year to keep updated info on hand.

Sam Thacker from Allbusiness.com has put together a borrowing checklist. A few of the most important items that we trip across at First Star are listed below:

1. "Make sure all shareholders who own more than 20% of the company knows what their credit scores are. A shareholder should be fully informed about any negative characteristics of their report and be prepared to proactively explain them. If a principal finds any discrepancies, they should be handled
expeditiously. Negative entries on a credit report that are explained honestly will have less impact than if the lender finds them and must ask about them.

2. Keep accurate and up to date business organization records available in one place. For a sole proprietorship, this would be any business license and assumed name certificate. A corporation should keep original and copies of a)articles of incorporation b) certificate of incorporation, c) corporate bylaws (up to date), corporate minutes, and copies of all corporate resolutions. The operating agreement is often requested if you are an LLC. There are similar documents for partnerships.

3. Keep good accounting records. Lenders are often more concerned about the accuracy of the records then the actual information presented. Keep a set of interim financial statements for each month end or quarter and keep a set of end of year statements for the last three years.

4. Have all shareholders who own more than 20% of the company keep a personal financial statement up to date. Generic forms or forms from nearly any bank are often acceptable. Generally a personal financial statement that is less than one year old is acceptable as long as it has not materially changed.

5. Management should keep easy to find proof that all necessary taxes and governmental reports have been filed and that the company is in good standing."

Brad Harmon is the President at a leading financing company, First Star Capital (http://www.firststarcapital.com/ ). Brad is a frequent contributor to online publications and newsletters, and is the author of this blog on commercial financing topics.

FAQs: Equipment Leasing

If you are researching equipment finance companies or equipment leasing in general chances are you have several questions and would like a great resource to assist in your decision making.

How long does the process take?

With most transactions that are under $100K the prequalification process is completed within 1 - 2 business days. We will then issue the final documentation and when the equipment is delivered we are ready to pay the supplier. In most cases the financing only takes a few days. The longest lead time is typically associated with the equipment availability.

What factors are used to determine credit worthiness of the business?

The length of time in business, references from bank and trades, Dunn & Bradstreet and credit bureau ratings.

How is a lease structured?

A lease is flexible and can be tailored to your business needs. Lease terms typically range from two to seven years. Payment schedules can be fixed or timed to fit your needs. The most common is equal monthly payments.

What are the tax advantages of leasing?

In some instances the monthly lease payment is treated as an operating expense and creates a "line item deduction" against revenue. In other instances the equipment is depreciated and written off over the useful life of the asset. Because every business is unique, we encourage you to seek out a qualified accountant to assist with the specific situation regarding your business or organization.

Brad Harmon is the President at a leading financing company, First Star Capital (http://www.firststarcapital.com/ ). Brad is a frequent contributor to online publications and newsletters, and is the author of this blog on commercial financing topics.

Paydex Scores

Good credit is the lifeline of your business and knowing your Paydex score may be one of the most important aspects. Your company’s score is the key to obtaining financing, setting lease payments, creating payment terms with suppliers, and even determining insurance premiums.

Paydex is a business scoring model developed by the financial reporting company, Dun and Bradstreet (D&B). The Paydex score is a dollar weighted average of how a company has paid its bills over the past year, based on the vendors that report to D&B. Simply put, Paydex scoring looks at one thing: whether a business makes payments on time and meets creditors’ payment terms.

It is important to keep in mind that while your Paydex score is crucial, lenders will often pull and weigh personal credit for the company’s principals as well.

It’s not impossible to attain business financing without a Paydex score, but the process won’t be as automated so it will take longer. It often entails the potential creditor calling listed credit references and waiting for their replies.

Paydex scores range from 1 to 100. A high Paydex score (much like a high FICO score) means a lower risk. Most lenders want to see that a company’s Paydex score is at least 65 - 70. Low Paydex scores will almost always lead to limited access to business credit as well as significantly higher interest rates.

A score of 100 represents a business that pays their bills prior to the invoices being sent. Businesses with a score of 80 are those that pay their bills precisely on time. To increase your score beyond 80, you must pay your bills ahead of time. Businesses must be vigilant in making payments to vendors and creditors within the terms of payment. However, keep in mind that you only receive ratings from those vendors that report to D&B.

The table below helps to illustrate the scores:

Paydex Score - Payment
100 - Anticipated early
90 - Payment within discount period
80 - Prompt Payment
70 - Payment if 14 days beyond terms
60 - Payment is 21 days beyond terms
50 - Payment is 30 days beyond terms
40 - Payment is 60 days beyond terms
30 - Payment is 90 days beyond terms
20 - Payment is 120 days beyond terms
UN - Unavailable

As with your personal credit, it is important to monitor your business’ score to watch for errors and avoid sloppy reporting by vendors. To check your Paydex score or for more information: visit the D&B website at www.dnb.com/us or contact them by phone at (877) 753-1444.

Brad Harmon is the President at a leading financing company, First Star Capital (http://www.firststarcapital.com/ ). Brad is a frequent contributor to online publications and newsletters, and is the author of this blog on commercial financing topics.

Focus on Innovation

Change is a part of any business. But there’s a difference between change and innovation. Innovation is what separates you from the competition. Simply put, most companies fail at continuous innovation. Ultimately, that failure puts many companies out of business. The key is to understand how incremental innovation- as opposed to huge change- can benefit your company.

Innovation doesn’t have to be ground-breaking- in fact, for most businesses, trying to achieve big innovation can be destructive. But consistent, ongoing innovation can change your business for the better.

While we tend to think in terms of radical when we discuss innovation, it doesn’t need to be. It can simply be an incremental innovation extending a product you already offer, like a new color M&M or expanding the capacity of an MP3 player. Or it could be focusing inwardly on changes that help you take out costs or perform tasks more quickly or less expensively. It can be an adaptive innovation like making your company easier to do business with, like making it easier to shop with your company online.

Remember, as a small business owner- you can’t be good at everything. Focusing innovation efforts into the areas in which you have skills is likely the most benefit. Figure out what your organization is good at and focus on the things that create value for others- find the sweet spot where others aren’t playing yet. There are many different strategies for how you innovate to handle the things that don’t fall into the sweet spot; outsource, get rid of low-value things or even learn to improve on your abilities in a given area.

Brad Harmon is the President at a leading financing company, First Star Capital (http://www.firststarcapital.com/ ). Brad is a frequent contributor to online publications and newsletters, and is the author of this blog on commercial financing topics.

Grow in a Shrinking Economy

It seems like every night the news is reporting more sour news about the economy. No doubt that our economy is on shaky ground lately but that doesn’t have to be worrisome news for you and your company. There are some things you can do in order to protect your business during an economic slowdown.

• Cut costs cautiously. As soon as the economy starts slowing down, many business owners think they must cut costs. But this is a short-term solution. Only cut costs or decrease your prices if it won't harm your business later. You can always lower your price - but you can't always raise your price.
• Advertise, Advertise, & Advertise! During the last recession, McDonald's almost tripled their advertising campaign at a time when their competitors, namely Burger King, were cutting back. So even though this may seem counter-intuitive, a recession may be the time to increase your marketing. Hard economic time’s weeds out your competition, leaving the field wide open for you.
• Revamp your marketing tools. For those marketing techniques that are working for you, this might be the time to revamp your marketing tools. Could your sales people use more training to close the deal? Online training cuts costs and time.
• Automate wherever you can. Find ways to automate any tasks to reduce the workload on yourself and your staff. What have you been doing manually that a computer system can do for you? Take a look at all your daily tasks and see if there is a computer solution to these time-wasters.

If your company is in need of new equipment, look at leasing as an alternative to paying cash or using up the bank line of credit. Preserve your cash for marketing and other day to day needs while still getting the equipment you need to further increase your sales and efficiencies.
Above all, stay positive. There is always of opportunity out there. While some markets might slow down others will be growing.

Brad Harmon is the President at a leading financing company, First Star Capital (http://www.firststarcapital.com/ ). Brad is a frequent contributor to online publications and newsletters, and is the author of this blog on commercial financing topics.

You Are What You Think

Why think positively? All of our feelings, beliefs and knowledge are based on our internal thoughts, both conscious and subconscious. We are in control whether we know it or not. This affects our lives at work and at home. You'll only be as successful as you think you can be. We are constantly having inner conversations with ourselves, whether we realize it or not. Is what you are saying to yourself helping you or hindering you?

There are three C's that we should be saying to ourselves:

Commitment: Make a commitment to yourself, to learning, work, family, friends, and other worthwhile causes. Be enthusiastic. Dream of success!

Control: Keep your mind focused on important things. Set goals and priorities and develop strategies for dealing with your problems. Learn to relax. Enjoy success.

Challenge: Be courageous; change and improve every day. Try new things. Consider several options. Ask lots of questions. Be optimistic.

Studies show that people with these characteristics are winners in good times and survivors in hard times. Business will always fluctuate and there will be times when sales may be less than desirable, but our attitudes make all the difference in the world.

Brad Harmon is the President at a leading financing company, First Star Capital (http://www.firststarcapital.com/ ). Brad is a frequent contributor to online publications and newsletters, and is the author of this blog on commercial financing topics.

Tossing Out that Old Credit Application? Wait!

All businesses have occasion to discard confidential data. Customer lists, price lists, sales statistics, drafts of bids and correspondence, and even memos, contain information about business activity which would interest any competitor. Every business is also entrusted with information that must be kept private. Employees and customers have the legal right to have this data protected.

Without the proper safeguards, information can end up in the dumpster or recycling bin where it is readily, and legally, available to anybody. The trash is considered by business espionage professionals as the single most available source of competitive and private information from the average business. Any establishment that discards private and proprietary data without the benefit of destruction, exposes itself to the risk of criminal and civil prosecution, as well as the costly loss of business.

Protect your business and your customers by properly shredding and discarding sensitive information. Also, store needed documents that have personal information in locked, secure areas. Feeling overwhelmed? Your local listings can provide you with companies in the business of shredding and storing old documents.

Brad Harmon is the President at a leading financing company, First Star Capital (http://www.firststarcapital.com/ ). Brad is a frequent contributor to online publications and newsletters, and is the author of this blog on commercial financing topics.

Collateral Tips

It is an all too common practice that entrepreneurs put forth every possible dollar towards building their business, often at the expense of other personal finances. In this industry, it is not unusual to see small business owners taking out home equity loans in order to have funds for new machines and other equipment. But what happens in the event of an unforeseen drop in business?

If you own your own home and need to borrow money for your business, a home equity loan may be an option. As with any loan, there are risks, but home equity loans are unique in that if you default on your loan, you may lose both your home and your business.

If your company is in need of new equipment, leasing offers an alternative to personal loans. Instead of your entire house being used as collateral, it is simply the specific equipment that is being leased or financed. No one likes to think about his or her own business being in trouble, but the reality is that forces outside of our control can negatively impact our businesses. It's wise to be prepared and protect your family. Explore all the options that are right for you and your company's situation.

Brad Harmon is the President at a leading financing company, First Star Capital (http://www.firststarcapital.com/ ). Brad is a frequent contributor to online publications and newsletters, and is the author of this blog on commercial financing topics.