No Loans When You Need Them

    COLUMBUS, OH, April 16, 2009 /24-7PressRelease/ -- Have you heard the saying "A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain?"

Consider the ideal scenario for the enthusiastic entrepreneur who wants to obtain a start-up loan and believes banks are there to loan money when it's needed. They have the impression they can explain their reasons for doing the business, show a financial projection of how much money they expect to make, along with how much they need. The banker then loans them money, based on those projections. The new business assets and projections will be the collateral for the loan. What is the problem with this scenario?

First of all, loans must be completely collateralized by personal assets; i.e. cash, stocks, real estate equity and any other semi-liquid assets that can be easily tapped to repay the loan if the business defaults. Bank loans are simply not feasible for most businesses that lack collateral. Even worse, if money is required simply to finance salaries, rent and marketing, bank loans aren't viable.

PERSONAL VS. BUSINESS CREDIT

Just like you a company has a credit score. Your score is your personal credit score why the company acquires a business credit score. There is no need to intermingle the two, and with proper development a business owner will have a completely separate score individual from the business. A business credit score is tracked through the payment history of the business. This is not to be confused with the bills that the owner pays out as "business expenses". (Cell phone used for work signed under personal social security is a great example of what is NOT considered to be applicable towards business credit scoring).

A business credit score is just as equally important to protect as any other business asset. It takes patience and detail to be able to completely separate the personal expenses from the bills, especially in a small one or two person company. It is recommended to start with utility bills which are for the most part a fixed expense for the business. If this step is already covered go on to eliminating the use of any revolving accounts which carry the owners' social security on file.

The difference between personal credit and business credit should be treated just like it sounds. Personal credit should be used for your car, house, children's college, and others. Business credit needs to focus on serious business purchases and expenses. Without the separation what happens when the business fails and personal credit is involved? Down goes the captain of the ship.

Regardless of an owner's personal credit score, corporations acquire their own credit rating, and build a separate credit history. Credit ratings assess credit worthiness of individuals or corporations based on financial history, current assets and liabilities. They reflect the ability to pay back a loan and have been used for insurance premiums and sometimes pre-employment verification. The higher the risk, the higher the interest rates will be.

Initial Underwriting Group helps small business owners obtain financing through strong business credit.

Source: Initial Underrwiting Group
Website: http://www.initialunderwriting.org

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