Establishing Small Business Credit??

[GG Allin]

So I have this small business that I run. It's at this point sort of a hobby, educational experience, part time job.... It consists of two semi tractors and five drivers including myself. The trucks are contracted with a larger trucking company. It's been running fine since October of 2016. Haven't had to shell out any of my own money since March of 2017.
It's occurred to me that I need to start the process of the business establishing it's own credit. The two big ones which are backed by personal guarantee are Volvo Financial and my Speedway fuel account.

Where do I start?

[GH85Carrera]

Good question.

We decided to buy an Cessna 182T for our company to go with the two leased 172s. The leased ones were easy, just write a check for the year lease, and we fly off after we show the insurance binders.

It was worse than buying a house to get the 182. My business partner and I both had to use our personal credit to get approved to buy the airplane even after putting down 25% down payment on the airplane.

I suspect after we have paid on the airplane for a few years they will consider the company assets as collateral for future credit. We hope to never need to borrow money again. It is the first loan I have had in many long years. Of course after getting I get loan now the interest rates are going up.

[DonDavis]

Small business? Avoid debt at all costs. Build only with cash. It can be done.

[berettafan]

no such thing for small business.

it's YOUR credit that gets loans for it. you will personally guarantee any loans.

[911 Rod]

Originally Posted by berettafan

no such thing for small business.

it's YOUR credit that gets loans for it. you will personally guarantee any loans.

^^^This

[GG Allin]

Originally Posted by berettafan

no such thing for small business.

it's YOUR credit that gets loans for it. you will personally guarantee any loans.

'til what point? At some point the company must stand alone.

[Seahawk]

What is your business type: LLC, S or C Corp, etc.? What type of accounting processes do you have?

Do you have a detailed, written business plan (https://guykawasaki.com/how-to-create-an-enchanting-business-plan-officeandguyk/)?

Have you done your five year financial plan including earnings before interest, taxes, depreciation, and amortization (EBITA) - if not, get started.

It is indeed now just a hobby unless you want to get serious...no one will lend you a nickle (maybe friends and family) unless there is a coherent business and financial structure in place.

The biggest limiting factor to growth is the ability to absorb the cost of doing business while waiting for payment from clients - access to capital in this instance is often called a bridge loan. You'll need the above and a recognized accounting system in place with a history. The fact that you have no debt is a major plus.

Get started now.

I love small businesses. Best of luck.

[GG Allin]

Originally Posted by Seahawk

What is your business type: LLC, S or C Corp, etc.? What type of accounting processes do you have?

Do you have a detailed, written business plan (https://guykawasaki.com/how-to-create-an-enchanting-business-plan-officeandguyk/)?

Have you done your five year financial plan including earnings before interest, taxes, depreciation, and amortization (EBITA) - if not, get started.

It is indeed now just a hobby unless you want to get serious...no one will lend you a nickle (maybe friends and family) unless there is a coherent business and financial structure in place.

The biggest limiting factor to growth is the ability to absorb the cost of doing business while waiting for payment from clients - access to capital in this instance is often called a bridge loan. You'll need the above and a recognized accounting system in place with a history. The fact that you have no debt is a major plus.

Get started now.

I love small businesses. Best of luck.

LLC, one partner.

No clue, show her the income. give her the receipts, wait for the K1's.

No business plan. (I'll have to start working on that)

This thing that we're doing certainly has the potential to turn in to something significant. Neither one of us is in too big of a rush though.

No doubt that if we were to get to the point when we are billing multiple customers, we'd be waiting on payment. Right now we're paid weekly within 14 days.

[Seahawk]

Originally Posted by GG Allin

LLC, one partner.

No clue, show her the income. give her the receipts, wait for the K1's.

No business plan. (I'll have to start working on that)

This thing that we're doing certainly has the potential to turn in to something significant. Neither one of us is in too big of a rush though.

No doubt that if we were to get to the point when we are billing multiple customers, we'd be waiting on payment. Right now we're paid weekly within 14 days.

To grow you will definitely need the discipline of a business plan - even if you grow by luck and just being smart without additional investment you'll need to know how to manage that growth.

There is a knee in the curve of every business in terms of managing as an LLC (I hope you keep all the records required - most do not) and planned, efficient growth.

When I merged with the company I am a partner in three years ago we were doing about a tenth of the revenues we are doing now and the growth curve is solid. We are a C Corp and have a very structured corporate financial structure. We also manged the growth without debt or outside investment. Our business plan and financial planning led us to believe we could, so we did.

A business plan and the EBITA five year projections help you understand employee requirements, insurance, audits, etc...all the little things that bite small businesses in the financial butt. The planning also helps you adjust forecasts and think outside the day-today issues all small business folks go through.

PM with your email address and I'll send you the five year EBITA projection spreadsheets I use.

Again, big supporter of small business since I won part of one. I love what I do.

As a quick aside, we are at capacity in our current facility, which we own. Instead of trying to figure out the ins and outs of expansion, we hired an old squadron mate of mine who does that for a living.

The stuff I had no clue about was embarrassing.

My point is seek advice: there is no doubt a State agency in your area that provide in person advice for nearly nothing. There are a ton of programs at the State level to incubate small companies and help them manage.

Check out programs in your area.

[Seahawk]

I am not affiliated in anyway, I am on an very dense engineering telecon making sure the smart kids get along so I got to putz around a bit:

https://www.floridatrend.com/small-business

Services - Florida SBDC Network

[GG Allin]

Originally Posted by Seahawk

I am not affiliated in anyway, I am on an very dense engineering telecon making sure the smart kids get along so I got to putz around a bit:

https://www.floridatrend.com/small-business

Services - Florida SBDC Network

I sent you my email address. I'm in the Chicago area, not FL.

Thanks.

[Seahawk]

Originally Posted by GG Allin

I sent you my email address. I'm in the Chicago area, not FL.

Thanks.

Oops!

The State and Federal government angle can be vexing.

We just got out first Maryland Grant after two years - $20K of direct payments, not worth the effort in the short term but we have established a toe hold, all part of the business plan.

https://www.cityofchicago.org/city/en/depts/bacp/sbc/small_business_centerhome.html

I'll send some stuff out tomorrow. I am finishing the tech meeting at 1630 and headed into to haze of hot wash-up. Wish me luck.

Again, support is key...nothing new that me or someone else hasn't gooned up.

[cabmandone]

Is the Volvo financial loan in your LLC name using your EIN with you giving personal guarantee? If so you're technically building credit for the business. You'll get business credit once your business has enough cash that it doesn't really need credit. I wish I was joking but until your business has enough assets to cover the credit desired, you're always going to be personally on the hook.

[GG Allin]

Originally Posted by cabmando

Is the Volvo financial loan in your LLC name using your EIN with you giving personal guarantee? If so you're technically building credit for the business. You'll get business credit once your business has enough cash that it doesn't really need credit. I wish I was joking but until your business has enough assets to cover the credit desired, you're always going to be personally on the hook.

IIRC that's how the truck was purchased. Honestly I don't want to even try to expand until both trucks are paid off, in a little less that two years. I'd hope at that point a couple of paid off assets are worth something. Then maybe double up to four trucks. The work is certainly there.
My thought was that if there are other things I should be doing to establish a credit history, I'd want to know about them.

[Tidybuoy]

I believe that whether you are a sole proprietor or LLC, the credit will still be in your name.

In my own personal case, I am starting a property rental business and I am in the process of getting it setup. I started by creating the LLC which you can do online thru the state's website (search how to setup LLC). Once you establish the LLC, you will need to get an Employer ID (EIN) which you can do online via IRS website. After that, you need an LLC operating agreement. This is simply a document that states who the members are (can be just yourself or multiple partners), the fiscal year, the purpose of the business, and various other items. In my case, I searched LLC Operating Agreements and there are lots of Legal firms that do this but they also allow you to complete the questionnaire online and then....they trick you by not letting you print until you pay. In my case, I viewed the final document and then recreated in Word. Word for Word. This legal document also has all of the rules spelled out for when you dissolve the company or an owner dies, it will state what the initial investment is (can be just a few hundred dollars), it will state how and when owners can be paid or withdraw money. It also has to be notarized once you finalize it. This basically took me a couple of hours to do but I needed it because I was applying for an equity line of credit in the business name.

Once you have all of the above, you can open a business banking account (and they will want all of the above). You can also apply for various credit cards - in my case Amex and Home Depot Commercial. All of my accounts were based on my own personal credit score.

For the record, my day job is for a food processor that is an LLC. All of our loans (which add to about $45mil) are secured by both the business and the owners personal guarantees. The owners are required to supply our bank with personal financial statements as well as the business statements.

Hope this helps a little bit.

[berettafan]

Originally Posted by GG Allin

'til what point? At some point the company must stand alone.

not sure but I have clients clearing $1m a year on $6mil in sales through their business and they still personally guarantee every loan they take.

I suspect its like how rich do you have to be as a fat guy to land a hot wife. at some point the up side is so attractive (to the bank or hot chick) the rules for regular people stop applying. certainly public co's don't have officers and the like guaranteeing debt.

[cabmandone]

Originally Posted by GG Allin

IIRC that's how the truck was purchased. Honestly I don't want to even try to expand until both trucks are paid off, in a little less that two years. I'd hope at that point a couple of paid off assets are worth something. Then maybe double up to four trucks. The work is certainly there.
My thought was that if there are other things I should be doing to establish a credit history, I'd want to know about them.

The difficulty becomes you're dealing with depreciating assets. They'll be worth "something" but in the overall picture a structure is what the bank wants to see and a lot of money in an account.
I don't know if it's worth much but I have one credit card in my business name.

[wdfifteen]

Originally Posted by berettafan

no such thing for small business.

it's YOUR credit that gets loans for it. you will personally guarantee any loans.

Pretty much this, and it’s your credit based on assets, not income. I had employees who got mortgages because they got W2s from me. I couldn’t borrow except against my assets. My business income didn’t count for squat, even though everyone knew the W2scame from the same source as my income.

As others have said, you will have to personally guarantee any loans. That's what my wife and I did with our business. That said, they were also concerned with our business's performance, and we had to provide current financials at renewal time, and if we hadn't been doing well enough, the loan would have been hard to renew. And, of course, all assets were cross-collateralized six ways from Sunday. I couldn't fart without somebody filing a UCC-1.

I'll add this: be careful how you depreciate assets. Our first CPA chose an accelerated depreciation schedule, which had the effect of "shrinking" the value of assets on our books. Our second CPA said "why did you let him do that?" Uh, 'cause I'm not an accountant?

[berettafan]

In regards to business performance as reviewed by a bank it’s smart to ask your banker if they add back depreciation when calculating cash flow. Most do but it’s helpful to know.