Business Finance Solutions

Business Venture Solutions asked:




A Business LOC, while concurrently providing your business with additional capital needed to grow and finance your business, also acts a vehicle that you can use to generate a higher return on your business investment. Anytime you start a business, you most likely will have contributed capital towards the startup. For instance, let’s assumes that you start a small business and that you put $20,000 of your own capital into your company’s bank account. Let’s also assume that you acquire a $100,000 business line of credit that will be used to finance the inventory of your business. In this example, we will also assume that this business will make $60,000 of income in its first year of capital.

 

If we decided to forego the use of a business line of credit then we could put $120,000 of our own capital into our bank account. During this year of business, we would have generated a return of 50% on our investment. This is because we earned $60,000 on our $120,000 investment. However, by using a business line of credit (and earning the same $60,000) we have earned a return of 300% on our invested equity capital of $20,000.

 

However, with the use of leverage comes higher risk. Much like the extensive use of credit that caused the issues in the housing market – extensive use of credit can have the same negative effects on a business. In the event that the business does poorly, you will be responsible for the funds that you have borrowed. This is especially true if you have personally guaranteed to the business line of credit – and in today’s economy – it is almost certain that you will be required to do so unless your business has been established for a significant period of time. Banks, finance companies, and other institutions that grant business lines of credit have increased their borrowing standards immensely in order to curb future loses on business loans and business LOC.




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Credit Lines For Small Business

Bart Icles asked:




One of the biggest challenges faced by small business owners is their credit profile. Having good credit ratings is a must as this is one of the measures of the credibility of your business. This is why building business credit even before you start to open the doors of your business is a big help. With a good credit profile, you will find it easier to earn the trust of suppliers, lenders, and other stake holders. So how do you go about building your business credit profile? Does it involve a series of difficult and almost impossible steps? Is it even possible for you to build an impressive credit profile?

The first thing you need to do in building business credit is to establish your business as an entity that is separate from your personal credit profile. This means your business must have structure, very much like corporations do. It is quite common for small businesses to start out as a limited liability company and this is something that you might want to consider. Once you have already developed a structure for your business, you will need to prepare a well-thought out business plan.

Your business plan must be well researched and you must be able to defend its feasibility. There must be sound basis for all the figures found in your business plan or it will turn out to be just another attractive piece of paper that does not really have much substance. If you get lucky, you might even have someone help you finance or fund the business. And more importantly, you should be able to have the commitment to carry out everything that is detailed in your business plan.

The next thing you would want to do is the learn more about the requirements that lenders and credit bureaus have. This can help you a lot in knowing what to expect as you start establishing and building business credit profile. Then comes the initial purchases you need to make. It can help to make purchases from suppliers or vendors who can report transactions made to credit bureaus; also, making a cash advance for small business can also be a good step in building your business credit profile.

These are among the most important things you need to consider in building business credit profile. The task can be overwhelming but it is not synonymous to impossible. And before you know it, you might have already established your business credit history that is sure to impress any lender or credit bureau.

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