Business Finance Solutions

Joseph Lizio asked:




Most new (newer) business owners will struggle in accessing money to grow their business.

In fact, nearly 90% of all small businesses in this country have self finance their operations in some way or another.

The problem is, as we are told, using personal assets or personal loans in your business is a no-no.

Every business guru on the planet will tell you to never mix your personal assets with your business – that you should always keep your personal income and expenses separate from your business.

The question though is why? Most will tell you that it is for personal liability protection as well as your tax liabilities.

Let’s say that you mix your personal assets with your business and your business gets sued. If a judge cannot make a distinction between you and your business – then that judge might just conclude that you are the business and vice versa – thus, even though your business is being sued, your personal assets could be at risk to the lawsuit – regardless of your form of business entity!

Or, in completing your taxes, if the IRS or state taxing authority cannot distinguish between your personal and business income and expenses, they may just conclude that they are one and the same and tax you twice on both – or not allow true business deductions.

Therefore, most everyone who thinks they understand business will tell you to keep your personal transaction (income and expense) separate from your business.

I am not one of those people. I understand that for many businesses, there are times that you have to use personal assets (part of your home, your car, your savings, etc) in your business. It just might be the only way you can run your business and satisfy your customers.

So, let’s look at three ways that you can use your own personal resources to finance your company.

1) Let’s say you need a small line of credit to purchase supplies that you will use to complete a job for a customer. Then, when the job is done, you get paid and pay down the line of credit. This is a very typical business situation.

However, you can’t get a bank to give you a business line of credit. In fact, you can’t even get one of the many credit card companies to give you a business credit card.

Yet, you still have to complete the job for your customer and need that small line of credit to do it.

This is a great instance where using a personal credit card or finding a credit union or community bank to give you a small (say $10,000) personal line of credit – to meet your short-term business needs.

The goal – and you will see this throughout – is to keep them separate. Thus, even though you used your personal credit and maybe even personal collateral to secure this personal credit line – you should only use it for your business needs.

Thus, all transactions that happen in this account can be specifically traced to your business only. Therefore, no one looking at this account will see where you took your kids to the local water park or bought groceries for a family cookout. Instead they will see very legitimate business expenses – only.

2) Let’s say you just personally came into some money and you want to use those funds to grow your small business. If you just start to spend that money for business transactions, you could begin to blur the lines here.

Instead, treat those funds as a loan to your business. This includes drawing up and signing loan documents (could be a single page agreement, notarized) as well as a real, relevant interest rate. Then, to show others that this transaction is an ongoing legal business matter make sure that you pay yourself (from your business) regular payment. No skipping them – even if it hurts your business. You have to treat your business just like a third party (say a bank) would and create a solid paper trail that keeps the line between your person and your business separate.

3) Lastly, taking money from friends and family. There may come a time when a spouse or parent will provide you money for your business. Again, put everything in writing and live by that contract. If you are getting money for personal needs as well as for your business – make two separate documents.

Further, for a business investment, ensure that the person giving you the money knows that it will be used only in your business. Just in case you have a falling out, they cannot come back on you later and try to take your personal assets to recoup their losses.

The goal here is simple. If you can’t separate your personal income and expenses from your business – then do all that you can to treat them separately.

Thus, should you ever find yourself in a situation (like those mentioned above), you should have no problem detailing what was actually used for your business.

There will be times that you have to ignore the advice of all those gurus in your quest to run and grow your small business. So, while you might have to use your personal assets in your business – you don’t ever have to treat them that way.
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NerryNod asked:


If, after looking over the finances for your company you, decide that it may be advantageous for you to get a line of credit then you know doubt need to know what the business line of credit process is. Although there is no one established process for all institutions there are some milestones which are common to most and we will be discussing.

Most companies before dispersing a line of credit will require that they look over your financial and accounting statements to see if your company is viable and likely to be able to repay a loan. Typically they will be looking at some of your hard costs as well as your month-to-month operating costs to determine how much funding you have free to repay them. This will establish a baseline from which they will operate in deciding whether or not to offer you a line of credit and if they do offer you a line of credit how much credit they will extend to your company. So it is important to have all of your paperwork in order before seeking out funding.

Which leads us to the next step in the business line of credit process.

Once they have established a baseline for how much money could be available to you the next step typically in a business Iine of credit process is to determine your overall credit worthiness. And also to decide what assets will be necessary to back the line of credit if it is determined that your credit is not good enough to get an unsecured line of credit. At this time other details such as the interest rate for the credit line and the amount which you can use will also be determined.

Consider for a moment that this process is similar to this process you go through if you wanted a personal credit line. You also need to make sure that your business documentation is organized and easy for you to obtain, because if it is not, that will not leave a good impression in the lenders mind. And this is just as important as having top-notch financials.

You always want to make sure that you leave a good impression on your potential lender. You’ll find it easier to not only get what you need in terms of credit, you’ll be able to get larger loans the longer you remain a good customer. This is something that many business owners don’t take into consideration and yet it is very important.

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Joseph Lizio asked:




A working capital line a credit is essentially a revolving line of credit from which your business can draw from and pay back as needed.

Example: Your small business just closed a larger then average customer. However, your business needs to pick up $10,000 in materials to complete this new, very profitable job.

However, your cash situation is a little low given the recent slow recovery we all are facing.

You had a business line of credit years ago, but the bank that held that line was one of the many that had to take the government’s TARP funds and thus, to improve its own balance sheet, reduced your line of credit to your last outstanding balance of $2,000.

After which, you did not renew the line (and pay the hefty fee for it) and thus, your line of credit expired.

So, what are you going to do now? You don’t think your bank or any of the local banks will provide you another line of credit – not for the $10,000 you are seeking.

Most of the banks that remain are struggling themselves – and are unlikely to take your call. Plus, it probably would take them months before you got an approval or decline – time that your business just does not have right now.

A simple solution is a Business Credit Card.

A business credit card is essentially a working capital line of credit. It is designed for short-term purchases and financing. Just like the example above.

The only real differences between a business credit card and a traditional business line credit are:

1) A traditional line of credit typically has to be zeroed out – once a month, once a quarter or at least once a year. This means you have to pay your balance to zero a least once during the term of the line.

The reason is that the banks force you to properly use these lines of credit for the purpose they were designed for – short-term and short-term working capital only.

Business credit cards do not have that restriction. You can draw from the line and pay it back when it best fits you to do so as long as you stay within your credit limit.

2) Traditional lines of credit can potentially have a much larger credit limit. Good if you need it – but, if you only need a little to get by – like our example above – a business credit card’s limit will more than meet your working capital needs.

Other benefits of business credit cards:

- Easy and quick to obtain. You can get an approval in minutes as compared to weeks and months with a traditional line of credit.

- You can easily use your business credit cards to pay for online purchases or to make quick buying decisions when talking to your suppliers – Or, make purchases that are sometimes restricted by your line of credit; like paying your phone or internet bill.

- You can give cards to your employees – with restrictions on the amount they can spend and where those purchases can be made.

- Business credit cards are typically unsecured – requiring no business collateral or financial assets tied to the line like with accounts receivable lines of credit.

The real con to using business credit cards when compared to traditional business lines of credit is the interest rate.

Example: You business line of credit may have an 8 ½ percentage interest rate. Your business credit cards might have a 12 percent rate.

But, if you use your business credit card like you should – meaning for short-term working capital – then the rate should not really matter all that much.

Let say you will use the $10,000 business credit card to purchase supplies and after the job is done in two months – you will repay the $10,000 – the way you should use any working capital loan.

If you held that balance outstanding for two months, your net costs (your interest costs) would be $150 at 12%.

Whereas if your business used a traditional line of credit with an interest rate of only 8% – your net costs would only be $100 – that is if you could get a traditional business line of credit soon enough to make the delivery to your customer.

Now, $50 is $50 dollar – but, compare that to either making the profit on the job by using a business credit card or losing the job all together because you can’t get the supplies you need. Plus, you can always add that additional bit of interest into the price of the job – passing the higher interest cost along.

The bottom line – if you use business credit cards for what they are intended to be use for – short-term working capital and don’t keep large balances on them for extended periods – then they will function very well to cover the working capital needs of your business.

Thus, when that new, large customer does come along – you can jump right into to completing that order and refill your coffers with the resulting profits.


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