Why You Should Consider Building Business Credit

Why You Should Consider Building Business Credit
AOL Hopes To Personalize Content Better With Acquisition Of Startup Gravity
The Case for Cash Advance Companies
Beats Music Launches: The End of Download Business Models?
Stay Interviews: Hold On To Your Best Employees for Less

Posted: 23 Jan 2014 04:00 PM PST

building business credit

Building business credit is both highly misunderstood and becoming more and more important all the time for business owners.

Consider this. In the business credit reporting space, there are the big 3 who sell business credit reports, Dun & Bradstreet, Equifax Commercial and Experian Business Credit. In the first 6 months of 2013, according to Creditera, D & B had 45 million business credit report requests and Equifax Commercial had 35 million. I do not have data on Experian Business Credit.

I have heard some people say that building business credit doesn’t matter. I say, then why are a lot of business credit reports being pulled if business credit doesn’t matter?

According to the 2012 NSBA Small Business Access to Capital Study (PDF), 20% of small business loans are denied due to business credit. The world is changing. I agree that 10 years ago business credit didn’t matter too much. But today, it does clearly matter.

Suppliers pull business credit on manufacturers to know that they pay their bills. Manufacturers pull business credit on suppliers to know they are dependable and reliable. Retailers and distributors often pull business credit to decide if they will issue trade credit to you when you want to purchase their products or services. The business credit report will likely influence the amount of credit granted and also the terms.

Trade Credit is a Common Form of Business Credit

It used to be that Harry’s Plumbing Supply Company would let Joe from Joe The Plumber Inc. take $5,000 worth of plumbing supplies to get his job done over at the local high school. Harry knew Joe was good for it so he issued an invoice, usually with Net 30 terms, and then trusted Joe to get it repaid in “about 30 days.”

That’s a great thing but it’s also not a very “scalable” model. Harry can’t meet everyone and give a handshake deal to them if he wanted to have 10,000 or 100,000 customers.

Enter business credit. Now, places like Dell, Staples and Home Depot, among many others, can pull a business credit report and score. This shows the repayment history and behavior of each company and make a data-driven decision on whether to extend credit to that company or not. It’s not only scalable, but would you rather make your credit decisions with data to support it or do you want to always depend on your hunch? I think I’m pretty good at reading people, but I’ll go with the data option myself.

That may be a simplified version of how business credit works, but it’s only going to continue to grow. In fact, one of the more popular business credit scoring models is the FICO LiquidCredit Score. Fair Isaac Company, where we get the term FICO, has long been the dominant player in the credit scoring and risk assessment space for lenders. With their FICO LiquidCredit Scores they combine data from a variety of sources (including the big 3 business credit bureaus and the personal credit of the business owner applying for the credit) and issue a score to lenders that ranges from 0 to 300.

Still Not Sure About the Importance of Building Business Credit?

Consider this. Starting this year, on Jan. 1, the SBA requires all SBA 7(a) loans of $350,000 and under to use the FICO LiquidCredit reports as part of their loan approval process. Currently, the SBA requires a minimum score of 140 although that number could change and adjust over time. A Boefly.com analysis of previous years loan data suggests that this new rule requiring the business FICO scores would impact approximately 33,000 loans, based on last years volume.

These have been the “secret scores” being used by lenders for the past several years. Large banks like PNC Bank, Huntington National Bank, Sovereign Bank and Zions Bank have been using FICO LiquidCredit Scores as have many smaller regjonal banks like Associated Bank, Bank of Idaho and Union Bank of California. Those are only a small number of lenders using the FICO business scores.

The problem has long been that there was no way for a business owner to know how he “ranked” on this “secret score” because the reports were not available at the consumer level. I can’t go out today and decide to buy my company’s FICO LiquidCredit Score. Fortuntely, that’s about to change. I expect others to follow, but the first to offer this report to business owners will be Creditera when they make it available early in 2014, according to a recent press release.

Building business credit, a portfolio, should be something that business owners look to do. It can become an asset for your company if you are building your business to sell it. Clearly, if a business has good business credit alone that is attractive and should matter to buyers. I realize that it probably has not been something that has mattered in the past but, again, things have changed as it relates to small business lending and this is an area that should no longer be ignored or neglected.

Additionally, if a business has existing funding or business lines of credit that do not have personal guarantees attached to them, then those are often transferable to new ownership. It is important to note that, in most circumstances, these transferable lines of credit – if you’re a small business owner with revenues under $10 million/year – are normally NOT going to be your “cash” lines of credit since those are normally always going to have Personal Guarantees associated with them. The transferable business lines of credit, if they were properly established, will normally be established lines at places like Staples, Office Depot, Dell Computers, Home Depot or a fuel line of credit at places like Shell, Exxon, etc.

One Last Caution

Beware of some of the sales tactics used by companies and individuals who sell “business credit building” programs and services. I do think this is hard to do without some professional assistance but check out whoever you work with closely. When I started my company, I hired someone to help us build our business credit. We provide working capital to companies and I wanted to have good business credit but I knew enough about business credit that I knew I didn’t want to try it myself.

Many people in the business credit building space “over sell” or exaggerate the benefits. Do your due diligence:

See how long they’ve been in business.
Check out their Better Business Bureau rating.
Look at their website, does it have clear contact information so you know where the business is physically located?
Does the owner or leadership team share who they are and perhaps have bio’s on their website?
Are they active on social media?

Do business with someone you can trust, who has experience, who is accessible and who isn’t a faceless, nameless person behind a well designed website.

Lastly, consider the alternative of not building business credit. Do you want your business to either have bad business credit or no business credit? It matters now more than ever that you have a good business credit profile and report. Eighty million business credit pulls from two bureaus in just 6 months is not something to ignore.

What impression are you giving people when a manufacturer, a supplier, a distributor, a retailer or a lender looks up your business credit prior to working with you or to decide if they should work with you – and they find nothing? Is that the impression you want to send others about your business and your brand?

Credit Photo via Shutterstock

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AOL Hopes To Personalize Content Better With Acquisition Of Startup Gravity

Posted: 23 Jan 2014 01:30 PM PST

gravity

Imagine if every visitor that landed on your site was shown content especially geared toward their interests. That’s been the aim of Gravity, a startup that AOL has announced it plans to acquire for $90 million.

Gravity has already been working with some of AOL’s properties including TechCrunch to customize content for individual users as well as companies like NBC and Disney. The company works with websites to deliver personalized front pages, depending on each visitor’s interests.

In an interview with Kara Swisher of Recode, Gravity CEO Amit Kapur says the company’s technology uses the behavior of individual users determining what they most often read and share to customize their experience on a website. He explains:

“So you go to a home page instead of seeing a thousand links on the page, it’s what’s the best stuff for this individual user. And it’s done by leveraging implicit signal. Which means that you don’t have to ask the user what they are interested in. You can actually just look at what they’re reading, look at what they’re sharing and linking, and build what we call an interest graph.”

So when you show an interest in a particular topic, Gravity will show those relevant stories to you. This is done either by a Chrome extension, or by a widget placed at the bottom of each post on a site, in the form of “Recommended For You” or “What You Missed.”

Gravity claims to index more than 1 billion pageviews each month, and that its personalized sites increase engagement by 240 percent compared to non-personalized Web properties. The company has also launched an API which gives anybody the ability to personalize their site.

gravity chrome extension

AOL CEO Tim Armstrong told Swisher:

“We think we can get a clearer signal with content with personalization to improve our results and better monetize what we offer. AOL is going to be a super-customer of Gravity. But this is about extending those capabilities even further as personal becomes the most important signal for publishers and advertisers.”

Armstrong said Gravity will continue to operate as an individual brand based in Santa Monica, Calif.

Images: Gravity

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The Case for Cash Advance Companies

Posted: 23 Jan 2014 11:00 AM PST

cash advance companies

It is easy to criticize cash advance companies. As in almost any industry, there are certainly unscrupulous players in the marketplace who charge interest rates that can approach 60% or higher APR (annual percentage rate) since many advances have a six-month payback period or shorter.

However, it is undeniable that these companies fill a void in the credit marketplace. We saw this in October as small business bank loans stalled during the government shutdown.

Small bank approval rates dipped below 50% to 44.3% for the first time in months during the shutdown, according to the most recent Biz2Credit Small Business Lending Index (Oct. 2013). SBA loans were not processed because the agency was closed. Even non-SBA loans came to a halt because lenders could not get IRS income verification information. October's approval rates for small banks were the lowest since the summer of 2011, when the credit crunch was still near its height. Moreover, big banks approved only 14.3% of loan applications, reversing the steady gains from the early part of 2013.

While traditional lenders were not granting funding requests, small business owners still needed money. They turned to alternative lenders, which are also known as cash advance lenders, accounts receivable financers and factors. Chief among the advantages of alternative lenders is speed. They typically do not do extensive background checks and often make funding decisions in less than three days. Some of them will make funding available on the same day.

These companies will provide cash in advance of expected revenue, and the money is repaid as a percentage of upcoming credit card transactions. Interest rates generally are higher with this type of lending. However, in fairness, the lenders are assuming a higher level of risk and are providing the money quickly and without the substantial amount of paperwork involved in filling out an SBA loan. Basically, the borrowers pay a premium for being able to get money rapidly.

Sometimes entrepreneurs need the money because they may not have managed their cash flow wisely. Seasonal business owners may need an infusion of funding during slow periods of the year. In other instances, vital equipment may need to be replaced. There are times when deals come up and small business owners are able to get a break on inventory that will generate a substantial profit, but perhaps at the time the entrepreneur does not have the cash to pay for it. Getting a cash advance can help close the deal. These occurrences are fairly common.

There are some high profile commentators in the credit marketplace who spend a lot of time criticizing cash advance companies. It is easy to sit behind a keyboard and criticize the practice while not offering a viable solution. I agree that some advance companies have tried to charge interest rates that are too high, and the danger is that the small business owner could get caught in a vicious cycle of having to borrow more money to pay off debts. However, this is not happening frequently. In fact, some companies have entered the marketplace and offered interest rates of as low as 6.5 percent on cash advances.

When players in the marketplace begin to offer lower cost capital, others have to be mindful about the interest rates they charge. Biz2Credit enables companies to lower their acquisition costs and pass the savings onto borrowers in the form of lower rates and helped some lenders develop hybrid products that are almost like a business line of credit. This has enabled numerous small business owners – who, for one reason or another, could not secure a traditional small business loan from a bank – obtain capital at more reasonable rates when they search for matches on our platform.

The small business credit markets have eased since the darkest days of the recession, but it would be inaccurate to say that easy money is available. Banks still are not approving a high level of loan requests, despite what their marketing literature says. With the SBA still backlogged, the approval process has elongated. Any small business owner caught in a cash crunch needs to find capital and many times does not have the luxury to wait weeks or months for money.

Fortunately, entrepreneurs have learned that quick case is available. Frequently, it can be had at reasonable rates. Technology has enabled them to shop around and get the best deals (in the same way that Amazon enables people to find the best prices on consumer goods.) Increasingly, funding transactions are being conducted on smart phones or tablets.

Conducting business in the 21st century is often about speed and convenience, and there is no denying that cash advance lenders are part of it.

Money Photo via Shutterstock

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Beats Music Launches: The End of Download Business Models?

Posted: 23 Jan 2014 08:00 AM PST

beats music

The new digital music subscription service Beats Music launched this week for iPhone, Android and Windows Phone. The new service’s greatest distinction from competitor Spotify may be that there is no free version (all subscriptions are $9.99 a month) beyond a brief trial period.

But the launch of yet another of these services may also mean the streaming music model is beginning to replace music downloads. (Think Apple’s iTune store, for example.)

It may be too early to call it a trend. But, last year in the U.S., downloads of single tracks were down six percent and downloads of albums were flat. It’s the first time digital download sales have decreased, Recode observed.

Meanwhile, the streaming of music was up by 32 percent — presumably from sites as different as Spotify and YouTube.

The big question may be whether or not customers are willing to pay for the service, something artists and entrepreneurs will need to make the business model work.

As tech guru Walt Mossberg explains:

“For years and years, people have predicted that subscription streaming music services would eventually overtake paid download services in the hearts of average consumers. The theory was that people would rather pay monthly for access to all the music they could want, than pay song by song or album by album to own particular music.”

But the new music service is also committed to making sure independent artists get paid. In an official press release, Beats Music Chief Creative Officer Trent Reznor, also front man for the rock band Nine Inch Nails, states (PDF):

“Beats Music is based on the belief that all music has value and this concept was instilled in every step of its development. We want it to be just as meaningful for artists as it is for fans. We’re committed to providing revenue to artists, while helping to strengthen the connection with their fans.”

The service seems to be a hit with users. The site has already been overwhelmed with traffic in its first week.

Image: Beats Music

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Stay Interviews: Hold On To Your Best Employees for Less

Posted: 23 Jan 2014 05:00 AM PST

your best employees

As the economy improves, employees are feeling more comfortable with their career prospects. A new Glassdoor survey found that two in five employees expect a pay raise in 2014 and their fear of layoffs is at an all-time low since 2008. Though this speaks to a healthy economy, perhaps most distressingly for small business owners, one in five employees also plan to search for a new job in the coming year.

So, what can you do to retain your top employees? Many small businesses don't have the funds for lavish benefit packages, but there are cheap ways to improve your employees' satisfaction and morale.

Hold On To Your Best Employees

Stay Interviews

Most employers conduct exit interviews to find out why employees are leaving, often at a moment in time seen as “too little too late.” But stay interviews can be a great way to check in with your top employees and make them feel valued even midst their tenure.

Ask your employees what they love about their job, and what they could do without. Do they feel that they are doing the "best work of their life.” Are they treated fairly by their managers? Do they feel that their work makes a difference to the company? All of these questions are viable and not only a great tool for helping an employee feel valued, but equally great for encouraging an open company culture.

If done effectively, stay interviews are a cost-effective way to boost employee engagement. Interviews are informal, you won't have to train your interviewers, and limiting the interviews to only your most essential employees will save you time and effort. In turn, the employees will appreciate the personalized attention that a stay interview offers. In fact, Webroot Software enjoyed a noticeable decrease in turnover rates after implementing stay interviews.

Additionally, once you’ve conducted a round of these interviews, you will have specific, actionable insights on how to make your company a better place for your employees.

Offer Flexibility

Most employees struggle to balance their career with their life outside work. According to recent study by Accenture, more than half of employees value a work-life balance more than their salary or their specific position. This balance can be especially important to parents who have major outside obligations that often interfere with work.

Make your employees feel like they can always ask for time off if something comes up unexpectedly. These emergencies will most likely be rare, and your employees will really appreciate it. Additionally, consider allowing your employees to work from home, at least part-time. In a recent survey, 94 percent of respondents believe that working from home is an important option for new parents.

As an extra bonus, at-home workers are actually more productive than their in-office counterparts. In one study (PDF), home workers had fewer breaks and sick days than office workers, and there was a 13 percent increase in their performance.

Another great way to give your employees flexibility? Let them take their lunch. According to a recent study in the Academy of Management Journal, about 30 percent of employees feel pressured to work through their lunch break. Instead, employees should have the choice over how they spend that time. This autonomy decreases their end-of-work fatigue, and presumably increases their satisfaction with work in general.

Perks, Perks, Perks!

Can't afford to give your employees a comprehensive health care plan or a month-long vacation? Don't worry. According a recent survey, more than a fifth of employees rank perks among the top office benefits. These include easy and cost-efficient perks like allowing your employees to dress casually or to bring pets to the office. You can also provide free drinks and food on special days.

The survey also found that these perks are especially valuable to women and to those living in the South and the Midwest, so know your company's demographic makeup before implementing any changes. It is also a good idea to send out a survey to your employees to see what perks they'd like to have in the office. For more ideas, check out what sort of perks the top companies offer.

Employees have more career options these days, so you want to make sure your company remains the best option. Conducting stay interviews, allowing your employees flexibility, and offering fun office perks will help to maintain a positive working environment. You employees will do anything they can to stay.

Employee Photo via Shutterstock

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