There’s not a business owner anywhere who wasn’t unsure of what he was getting himself into at the onset of his company. Whether it was who to choose as suppliers or which bank to trust or which credit card would best serve his needs, there is always a sense of worry about whether he was doing enough to provide a solid foundation that would allow his company to truly grow.
One of those important aspects is understanding the business lingo. Let’s face it, there are very few businesses that don’t need some type of start up credit. Understanding the lingo is the first step of ensuring you sleep at night. With that thought in mind, we thought we’d check in with a few of our financial experts to see what they think. We asked them: “What’s the one thing you wish more small business owners understood?” Here are a few of the great answers we received:
D&B Rating
Creditworthiness for businesses is determined differently than for consumers. This is referred to as a Dun and Bradstreet, or D&B, rating. While there are many similarities to the way banks or credit card companies determine a consumer’s creditworthiness, the stakes are decidedly different. Once a business owner stops looking it as something he’s done a thousand times in his own personal finances, he begins to see the shift of how those differences can set the pace for his early successes.
The Difference
When a small business owner is looking for funding for opening or growing his company, his end goal is to secure those funds with as little frustration as possible. What he often dismisses or at least doesn’t factor into those baseline objectives is from where the money initially comes from – long before the banker cuts a check. A loan guaranty, of course, is the contract that states the money will be repaid to the bank and according to those stipulations outlined in that contract.
An SBA loan guaranty is the same thing – but it’s the government making those promises to the small business owner’s bank. It’s often seen as the government co-signing a loan, but it’s a bit more complicated than that. The government only guarantees a percentage of the total loan and the government, in return, can put some stiff compliance guidelines in place until it’s off the hook. It’s important for business owners to understand all of those nuances and the first best resource is an attorney who can explain the legalities.
Equity Financing
This is another type of loan that’s coming not from the bank, but from investors. It’s basically a leap of faith that equates to
We have faith in your company and we know you’ll make your monthly lease payments and credit card payments, so we’re going to invest via a loan.
Many small business owners prefer these types of contracts for several reasons – first, they’re dealing with folks whose hands aren’t tied by federal banking regulations. That’s not to say they’re illegal or unethical, they’re just playing by different rules. Instead of you and your bank owning your company, you and your investors own it.
7(a) Loan Program
Many small business owners aren’t aware of the many options the Small Business Administration offers including the basic 7(a) Loan Program. This is offered, of course, from SBA and it is an ideal way to secure start up capital and other financing.
Credit Cards
It’s very important that a small business owner not combine his business efforts with personal assets. This can cause a myriad of problems. One mistake many business owners make is that they will put business charges on their personal credit cards. You should opt for new business credit card account. It’s safer and will keep the IRS happy, too.
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