2015, Volume 1, Number 2
Adequately funding the business is an ongoing challenge for most entrepreneurs, especially if you are a woman. Banks are still more likely to turn down a loan request from a woman business owner than her male counterpart. Start from a position of strength by becoming creditworthy:
#1: Immediately stop co-mingling your personal and business accounts. This is a red flag to lenders and can be interpreted as bad fiscal management. You should also separate your business account from your personal account for ease of reporting the profitability of your business; and to avoid a possible audit by the IRS when taking advantage of the many deductibles allowed for small business owners.
#2: Understand what a credit-to-debt ratio is, who uses it and why. As you know, lenders look at credit scores to help assess your attractiveness as a borrower or credit card holder. The credit-to-debt ratio is used to determine FICO scores. It is derived by taking the outstanding balance on any debts you have; and dividing it by the amount of the loan or credit you were approved for. The higher the percentage, the closer you are to being over your head in debt. If you do receive a loan, expect to pay a high interest rate.
Important tip: Don’t close your paid-off credit cards or accounts. When you do this, you wipe out all the history of your payments. You need this proof of credit worthiness to pump up your credit score.
#3: Did you know that having whole life insurance can help you secure funding? This type of insurance increases your credit worthiness in several ways:
- It can be designated as a business asset. The cash value of the policy when listed on your balance sheet adds to your credibility as a borrower.
- The cash value can be used as collateral to secure a loan.
- Having a whole term life insurance policy demonstrates that you take responsibility for your business, creditors and your family which can enhance your credit standing.
If you would like to discuss financing for your established business, please contact us at 212 563-0499.