Archive for July 7th, 2010
The reality of Business Credit today
Looking at the year 2010, there are certain realities that have changed that was probably possible three years ago but today is next to impossible. The biggest selling points of business credit was the whole idea of getting credit without personal guarantee (PG). This is becoming less and less likely to happen nowadays, at least for now as we come out of this financial crisis.
What is possible today? If you really want to create wealth through starting or expanding a business, then the best first step is to develop a good viable business idea instead of trying no-PG funding then try to make it work out. Here are some pointers that should work in a tight environment.
1. Business Plan
You should focus on developing business plans that you can use for funding purposes. At minimum, you can do these in one page format in order to understand what makes in terms of financial and market reality. There are many companies out there to help with this. This means to develop a business plan in a professional format for easy sharing with the real world.
2. Small scale Business funding
This step basically look at incorporating a corporation, build a basic credit profile then apply for small amounts of credit up to about $50K. One technique is to get vendor credit convert to gift cards then sell these gift cards for cash. You could get about 90% of face value this way. bear in mind that vendor credit is getting tight as well. In terms of the ability to get credit, you need a score of about 80 with the major business credit agencies (especially DNB and Experian). I have also seen that even with these scores, you will need about five trade lines with Dunn and Bradstreet and about three with Experian.
3. Private Investors
Now if you get $30K to $50K of business funding, that should be enough to pay the legal fees to go after private investors. Part of the money could be used to pay for refining your business plan for prime time. The best private investment approach for starting out is what they call Private Placement Memorandum (PPM), where you follow some regulations to sell shares of your company to multiple investors in an offering. This offering could also be in the form of a loan with specified interest over a period of time which is like a note. This approach overall is the best way to attract a large sum of money to really strengthen your business and really succeed. The chance of success is higher since you can approach much more accredited investors at smaller amounts to each.
The market is tight but it does not mean you can’t succeed with good business ideas, proper planning and networking. Networking with the right group does help as I could have saved over two years of looking at Shelf Corporations when the PPM route was around. Just need to speak with the right person at the right time.
