Business Credit: Bottom-Line Profits and Beyond

Business Credit
Bottom Line Profits and Beyond
Wednesday, Feb. 24, 2010, 2 p.m. ET

Brought to you by:
The National Restaurant Association
Christine Janklow, President - SettleSource.com
David Gass– President, Earn.com

Disclaimer

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Introduction
Today’s credit crunch has reduced the options for acquiring business
capital and increased the need to lessen personal risk of
borrowing.

Now more than ever becoming attuned to your businesses financial
credit and creditworthiness may dictate whether you will be able to
survive and grow.

In this series we are going to educate you about business credit, how
to establish and manage it.

The credit crunch may be here to stay but we believe becoming more
savvy about choices may provide long term well being for your
business.

Source: www.settlesource.com

Today’s Business Credit

We will take you through some steps necessary
to build a business credit profile separate from
your personal credit report.

This will enable:

•Entrepreneurs to separate their personal and
business life.

•Business access in the event it will rely on some
type of credit.

•Lowering the risk of using your personal credit for
guarantees.


What is Business Credit?

Credit scores are an index
or rating system created by
credit reporting bureaus to
allow creditors to evaluate
risks in lending to
consumers and
businesses.

A credit score enables one
to borrow on credit to
extend payment beyond the
delivery date of goods,
services or money.

Source: Dun & Bradstreet

Small Business Financing Type Percentage

Credit Cards 59%
According to the National Small
Earnings of Business 51%
Business Administration 2009 Bank Loan 45%
Small Business Credit Card Vendor Credit 30%

Survey; This table describes Private Loan (Friends or Family) 19%

the most common methods of Used no financing 19%

financing used (within the last Leasing 7%

12 months) to meet capital Small Business Administration 5%
(SBA) loan
needs among its respondents. Factoring (Pledging Accounts 1%
Receivable)
Private Placement of Debt 1%

Private Placement of Stock 1%

Public Issuance of stock 0.5%
Source: NSBA 2009 Small Business Credit Card Survey

Capital Trends for Hospitality

Lending is still frozen for many

Seek debt-to-equity deals

Don't forget about angel investors or stealth capital.

Join a purchasing co-operative.

Source: Sarah Lockyer, Finance Editor Nations Restaurant News

Changes In Credit
These are the most common
changes experienced by
business card holders as
made by their credit card
companies since 2008

These changes can wreak havoc
for business card holders and
prompt the need for changes that
will enable continued borrowing and
affordability.


Debt Management
Part of managing credit (debt) and using it wisely, is
knowing the difference between good debt and bad
debt.
Good Debt – Credit or loans that are installment types
utilized for property that has value/equity and will when
paid end in ownership of assets.
Bad Debt – Revolving type debt such as credit cards and
loans that are unsecured but come at a high price to
the borrower. No assets after repayment.


Personal liabilities and business credit
If you run your own business it is likely that at one time or another, you have
borrowed money in your own name to support cash flow.

For: Established Business Entities; Corporations, LLC’s , LLP’s and Sole P’s

Q: Who is liable for debt if the business fails?
A: If a company borrows money from its bank in the company's name then
company is liable for the repayment of the debt.

Q: What if I gave a Personal Guarantee?
A: If you have personally guaranteed a credit facility in a business' name, the lender
will hold you personally responsible for payment.

Q: What if I took debt in my name but put the money into the business?
A: If you have taken debt in your own name and the business can no longer afford
to pay, then you will be held responsible for payment.


Why build business credit?
Small Business With Business Without Business Example 10 Yr With Good Average or no
Owner Mr. Jones Credit Credit Term Business Credit credit
Total Accounts 12 25 Loan amount $100,000 $100,000

Available Revolving 75% 5% Term of repayment 10 Years 10 Years
Credit
Balance on Cards $15,000 $135,000 Interest Rate 7.5% 10.5%

Inquires made last 5 15 Payment $1,187.02 $1,349.35
12 months
Late Payments 0 3 Total Interest Paid $42,441.99 $61,921.99

Personal Credit 765 650
Score
Having business credit saved
Mr. Jones $19,480!
Having business credit increased
Mr. Jones score by 115 points!

Source: D.Gass www.bcscredit.com

Some tips to get business credit with no personal
guarantee
The key to getting business credit with no personal guarantee is to first
establish good business credit scores with all three business credit
reporting agencies.

1. You must be an established business entity with separate Tax ID #
2. Get the proper business licenses and keep them current
3. Make sure you are listed in local telephone business directories
4. Apply for credit with vendor suppliers and banks that will give you credit
without using your personal credit score as the basis
5. Make sure those lenders report your business payments to credit bureaus

OR
Enlist the help of reputable business credit building agencies who can
package and manage the process on your behalf.

Financing

Debt
Equity
Combination
Investor
Private Lender
Bank
Vendor Credit

Source: D.Gass www.Earn.com

What is Trade Credit?

• Trade Credit – Is also known as Business Credit or
Corporate Credit

• Trade Credit is the single largest source of lending in the
entire world, even more then banks loan to businesses

• It is FREE MONEY


Mystery of Business Credit

Why is Business Credit so Widely Used,
- So Widely Misunderstood
- So Hard to Achieve LONG TERM?

• #1 - No Laws Protecting the Business’ Rights from inaccurate
information on the credit report

• #2 - The Other Factor (Compliance): Can end up in high risk status
without it

• #3 – Too many “Credit” shops jumping in the game to offer it because of
lack of regulations of the industry.


How Not to Build Business Credit

• Don’t “buy” good credit

• Don’t only rely on personal credit alone

• Don’t start without being in compliance


Personal vs. Business Credit

• Personal Credit Profile • Business Credit Profile
– FICO™/Beacon™ – Paydex™/Intelliscore™
– Scores from 350-850 – Scores from 0-100
– Credit score determines – Credit score determines
• loan/lease approvals • loan/lease approval
• interest rates • interest rates
• insurance rates • Credibility of your
– Three major credit business
bureaus – Five major credit bureaus
– Tracked by S.S.N. – Tracked by Company


Getting Started


Steps to Build Business Credit

FROM THIS TO THIS

• No Business Credit • Available Biz Credit Lines
The Business Credit
• Burdened/Poor Personal Credit • Limited Personal Guarantees
Bridge
• Not Able To Pay Yourself • Strengthened Cash Flow
• Every $ In Goes OUT Again • Qualified For More Credit
• Personal Assets On The Line • Personal Liability Reduced
• Loans Declined • Sleeping Easier
• NEED $ • $s Remaining In Pocket


Four Tiers of Business Financing


Managing Credit and Debt

1. Assess Your Need for Business Debt

2. Line Up The Credit You Need

3. Cut Business Expenses

4. Drive Up Topline Revenues

5. Negotiate Your Debt Down or Change the Payment Terms

6. Don't Go It Alone!

Small Business and Debt
Debt Distressed or Reasons for Small Business Closures
Underperforming Business

Debt Statistics

*20% estimated by Federal Reserve statistics for total credit card debt 2009 **Small Business Administration 2006
Closure stats Source: BusinessWeek-Data Buccino & Associates Independent study
US Bankruptcy Statistics (+ increases from 2008)

Debt: How much is too much for my business?
Any debt can be too much for a business not generating multiple times the principal
and interest payments in added net profits attributable to the use of borrowed funds.

This table illustrates acceptable levels of debt to capital for selected industries.

Source: Standard & Poor’s

Dealing with Unsecured Credit Cards
Over 59% of small businesses utilize credit cards for daily purchases.
Of those, 16% carry balances over $25,000 in credit card debt
21% with balances between $10,000 and $25,000
More than 60% carry balances month to month

To minimize the risk:
– Know your liabilities
– Evaluate your payment structure
– Communicate with your creditors

See what can be done to lower interest rates
See if there are any “balance liquidation” programs available
If you are late on a loan or line of credit ask if there are any “forbearance” options to
defer payments


Options if debt is overextended
If your business is overextended - what options do you have?

1. Continue to pay as agreed

2. Transfer debt or “Consolidate” if you still can

3. Have the debt negotiated

4. File for bankruptcy protection


Commercial Debt Settlement VS. Debt Servicing*

A one year cost/savings comparison based on $120,000 Business Credit Card
debt owed.

Monthly Annual Cash Flow Annual Interest Debt
Payments Costs Principal Accrued Remaining
reduced
Regular Debt $3,600* $43,200 -$33,660 $9,540 $22,092 $112,552
Service

Commercial $2,160 $25,920 +$17,280 $40,000 $16,640 $96,640
Debt
Settlement

Making only minimum required payments*

After 1 year of Debt Servicing business now owes $112,552
After 1 year of Commercial Debt Settlement business now owes $96,640

Source: SettleSource.com Costs and estimates are based on average client debt loads and minimum monthly deposit requirements. Case references
unsecured and interest bearing bank debts averaging annual decreases/increases at APR of approximately 20%+-. Savings and costs are based on a
50% savings. Results, actual savings and timeframes may vary.> NOT A GUARANTEE OR ENDORSEMENT. Not available in all states.

Tips and Tactics to Remember

• Know what you owe; List all debts, even those you deem
minor or flexible.
• Keep cash flowing, borrowing too heavily will drain cash
reserves.
• Keep expenditures at a minimum until everything's paid
off.
• Limit your exposure: Avoid signing personal guarantees
on business debt; it can ruin your personal credit history.


Contact us
If you have additional questions or wish to learn more about how we can help you
construct a plan to help your business please contact:

For help with Commercial Debt Settlement:
Christine Janklow, President SettleSource
P: 888.676.5606 x 101
Email chris@settlesource.com .com
www.settlesource.com

For help with Business Credit Development and Corporate Compliance:
David Gass, President & CEO of Business Credit Services, Inc.
P: 866-254-6076
Email: dgass@earn.com
www.bcscredit.com and www.earn.com

Question & Answer

Please type your questions in the Q&A area in the lower right corner

Thank you for your continued support of
the National Restaurant Association.

View this and other recorded webinars on the web at
www.restaurant.org/webinars

Business Credit: Bottom-Line Profits and Beyond

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