Small Business Loans and Bad Credit Result

Banks and lenders use credit histories and credit scores as a time saving measure. You request a loan, they pull your credit. If your credit is bad or below their threshold, they don’t waste anymore time on your deal request and can move on to other deals that have a better chance of getting funded.

I deal with entrepreneurs everyday that complain about how their bank or a private lender just won’t look at their deal because they have bad credit. I constantly hear the same thing:

“Why won’t they just look at the merits of my business and not focus so much on my personal credit as it is my business that will be paying the loan back!”

My answer is always the same:

1) That is how the financial markets work, and

2) If you want to get approved based solely on the merits of your business then find the right business loan that focuses only on the merits of your business.

Sounds simple and it really is.

Yes, there are business loans (and other types of business financing) that either do not look at your credit at all or if they do, do not place much weight on it (great for those credit scores that are borderline).

Let’s look at three examples:

1) Accounts Receivable (Invoice) Factoring: Your business writes an invoice for goods already shipped or delivered to your customer but you have to wait 10, 30, 60 days or more to get paid. Then, factor those invoices and get your cash today so that your business can pay its employees, suppliers or to complete that next job.

As your business has already completed the job and shipped the goods and is merely just waiting to get paid, the lender has no reason to even consider your credit history. Instead, they focus on the next cash event – which is your customer paying you. If your customer shows a strong promise to pay as agreed, then your loan request should be approved (without pulling your personal credit history).

2) Purchase Order Financing: Your business has already won over the customer and you have their job order in hand only to realize that your business does not have the cash on hand to purchase the materials and labor to complete that order.

Factor that job (purchase) order for up to 100% of the cash you need to complete it. When the job is done and you collect payment from your customer, you pay back the advance and keep the profits to be plowed back into the next deal.

Again, since your business has already demonstrated that it can win business, the focus of this loan approval is not based on your personal credit or the cash position of your company but in the next cash event – when your customer receives the completed order and pays you.

3) Business cash Advances: If your business accepts credit card payments from its customers, then your company could qualify for a business cash advance; based on your company’s ability to continue to get customers to purchase your goods and services.

Based on past results (your business’s past results and not your personal credit history), your firm could receive a cash advance to be used as working capital to re-stock inventory, pay employees, generate new business or whatever your business so desires.

And, since repayment of this advance (loan) is based on future cash flow from your credit card paying customers, these lenders are not that concerned with your personal credit scores but more concerned about your business’s ability to keep getting those paying customers in the door (which is what you wanted – a business loan based on your business results and future potential and not your past credit mistakes).

Now, while Business Cash Advance lenders place the onus of their loan/advance decision on your future cash flow potential, they may still pull your personal credit. The reason is that should your business shut down tomorrow, they want to be assured that you will still pay them back.

Value of a Business Between Owners

Buyers who are involved with the business will not pay for the “know-how” or “good will” of a business that a buyer outside the business would consider purchasing. Generally, an inside sale (where the market consists of buyers involved with the business) will not have as high a purchase price as an outside sale (where the market consists of buyers not involved with the business). The term “fair value” is used in legislation and court decisions to indicate the value of business interests between owners of a business. The term “fair market value” is used to indicate the value of a business to those purchasing the business and not involved in the business. Fair value, the value between business owners, results in computation of an overall business value that is less than a presumed fair market value. A minority interest in a closely-held business will be highly devalued for lack of control by a market consisting of buyers not involved with the business, while a market consisting of buyers involved with the business might place a premium on an interest that when acquired would merge with an existing interest to become a majority interest.

Owners will have as a goal the increased value of the business, but when it comes to measuring the value of the business and then incorporating the value concepts into an owner’s agreement which contains buy-sell provisions, the concepts often become convoluted. It can get worse because there are more complications, those involving terms of sale and circumstances motivating the sale.

There is an old saying among negotiators: “If you give me my terms, I will give you your price.” Simply put, if all the proceeds of the sale are not paid immediately then the time involved before payment will decrease the present value of the sale. If the purchaser is not going to pay the entire purchase price immediately, the time factor involved in the payment discounts the value of the price. If purchasing owners do not have the funds to buy out another owner, it is still preferable to have a sale with payment of part of the purchase price deferred. (Usually this means that the future success of the business will determine whether the selling owner is paid.)

If the owner selling the business interest is dead, there are circumstances that create the nature of the market which will cause potential buyers to offer less. If the owner selling the business interest is disabled, there are circumstances that create the nature of the market that may cause a discounting of the price a buyer will offer. If the owner is selling because of a dispute with other owners, especially if the departing owner is going to compete with the business, there are circumstances that create the nature of the market which will cause the discounting of the value of the business interest. Note that none of these circumstances potentially affect the essential worth of the business interest over time – they are market causes for a decrease in purchase price for a certain transaction.

Scrapbooks Make for a Great Home Business

Scrapbook, Home Based Business Idea 1: Teaching Scrapbooking

If you’re already adept at scrapping, and you’ve been creating beautiful mementos for a while, you might be able to make money teaching new scrappers how to create their own albums or pages. Consider advertising in your community, include the cost of a set of basic materials in the cost of training, and teach people how to get started.

An alternative would be to create a series of training videos, have them put onto DVD’s (or sell them as a downloadable product) and sell them through mail order or on a website.

Scrapbook, Home Based Business Idea 2: Your Own Online Store

Another great idea that can help you to turn your love of scrapbooking into a money spinner is to start an online scrapbook materials store. Look for websites that offer wholesale or dropshipped scrapping materials and tools, and create a site where you sell them to other scrappers online. You don’t have to have an expensive retail store, you can sell globally, and thanks to super easy to use site builders, anyone can create a professional looking online store these days!

Scrapbook, Home Based Business Idea 3: Scrap for Profit

If you love creating beautiful, creative memories by scrapping, then you might just be able to create custom commissions for clients. Advertise in your local newspaper, online or anywhere else where people might be looking for this type of service. You can specialize in one type of scrapping (weddings, christenings and other special occasions for instance) or you can offer a general ‘scrap to order’ service.

Scrapbook, Home Based Business Idea 4: Write a Book!

These days, it’s easier than ever to create an e-book, or even a book that you publish on demand. You can sell your book through online stores like Amazon and Barnes and Noble, and if you can’t write very well, then there are plenty of freelancers out there who will take your ideas and put them in words. Self publishing costs very little to set up, and there are people who make a good living off of their self published books.

Whether you choose to start one of these types of scrapping businesses, or whether you have another idea up your sleeve, there are a few things you should do before you leap right in.

Scrapbook, Home Based Business Idea 5: Scrapping Kits

Another great idea is to make up scrapping kits for a variety of occasions, and for different skill levels. Sell them in your community, or by mail order. Include a variety of different scrapping safe papers, embellishments and other items, and include basic instructions for designing and making your own scrapping pages or albums.