Small businesses are extremely important to our culture and our economy, especially in the current economic challenges we face as a nation. In fact, small businesses make up a very significant portion of our economy.
The financial success of America’s small businesses lies heavily on their ability to attain credit in order to maintain their business. It is shocking that nearly all small-businesses fail in their first months or years of business. One of the primary flaws is how business owners do not start their business on the proper foundation to put their business in the best position to obtain cash and capital.
Another problem is the way people run their businesses is being lax when is comes to book keeping and cash flows. However, taking some steps to alleviate and deter credit problems can ensure a continuous supply of capital and will more than likely put the small business owner in a position to succeed!
The first step is to stop using your personal credit cards to finance your small business. That means form a corporation or LLC (not a sole proprietorship) and obtain a business credit card in the name of the corporation or LLC. Yes, the debt will be personally guaranteed but the debt will not affect your personal revolving debt ratio!
It is very important to keep your personal revolving debt on your credit cards below 30% or less. This will put you in a better position when you work with the banks and other business credit resource to help your business to obtain cash and capital. This is very different than business trade credit which is a different strategy.
Separating your personal and business credit also has been shown to improve cash flows and maintaining accounts. This allows you to increase your credit and even help you save cash.
Different kinds of credit are needed for all business owners and you should know what you need. For example, if you are running a major office based business with many supplies and office employees, you may need a forty thousand dollar line of credit with Office Max. But if you run a small business from home your line of credit may come from the bank that you do business with. Either way, lines of credit are like cash, they increase your assets and help the success of a business.
You may even use a line of credit to directly give you cash, say to pay for marketing expenses or office space. Either way, these are all things that ultimately benefit your business. It is important for businesses to have capital, especially if they have these other lines of credit. This is because you cannot use your line of credit with Office Max to pay rent or payroll expenses.
If you have a corporation, you may be eligible to receive a lot of money in credit, if you follow the proper steps (even in today’s tight credit markets). This is very important for new businesses because they need to have significant amounts of capital to remain in business. Often times, companies that are incorporated can get one hundred thousand, five hundred thousand, or even one million dollars in credit limits, which is a great start up amount of money.
New small business owners should be sure to increase their chances of getting capital and should consider the benefits of separating personal and business accounts. This should be done for the sake of organizing cash flows, increasing capital, and ultimately increasing revenues.
