Business Credit News

Why limit your choice of employees to those in your local community when you can have a whole world of talent at your disposal? No, that doesn’t mean you have to pay their moving costs. It means hiring virtual employees.

Using virtual employees (also known as remote or off-site employees) not only expands your options for talented workers, it usually means a huge savings in payroll and operations costs. Since you don’t need to provide an actual work space or equipment for virtual employees, you can hire them all as independent contractors, which saves you money on taxes and benefits.

On the downside, managing remote workers takes a well-organized system of communication. You can’t walk down the hall and check on your employees’ progress on certain projects. Outline from the start what you expect in terms of response times, deadlines and working hours. If you’re working in different time zones, communication may be more difficult. Try scheduling weekly conference calls so everyone is on the same page.

If you want to present visuals during your calls, use services such as GoToMeeting.com to share slide shows and PowerPoint demonstrations. Require face-to-face time once in awhile? If distance isn’t an issue, try setting up meetings in your home office, business office, or restaurant. Even meeting for coffee to review a few items keeps virtual employees engaged and in the loop with the business.

Technologically speaking, even though you may not be supplying computers, you may need to make sure your remote workers’ systems are compatible and comparable with your business’s systems. If you use any specialty software you’ll need to supply that also. Will the person need scanning or faxing capabilities? Is e-mail too slow? You might need to get your remote workers to utlize instant messaging (IM) for quick communication. Look into AOL’s AIM, Windows Live Messenger, and Yahoo! Messenger. If you don’t want customers to know you’re using remote employees, set up one phone number to reach anyone at the company.

 You might need a way to share and store files among virtual employees. Check out services such as Carbonite, Basecamp, Box.net, Google Apps and Zoho that let you access your company’s files from any location. (This is also helpful when you’re traveling.)

If you’re not ready to go all-out virtual, consider offering on-site employees some work-from-home days. Most people can easily be set up to work efficiently from home, and it’s a nice perk to attract and keep employees.

David Gass
Founder, Business Credit Services, Inc. &
Earn.com Expert Advisor

The 2009 Stimulus Plan allocated approximately $375 million to the SBA for higher loan guarantees to lenders, and waived borrowers’ fees. The initial funding was consumed before the year’s end. A number of weeks elapsed, and a second infusion was made of approximately $150 million. That too expired shortly.  Since then, on March 2, 2010, President Obama signed the Temporary Extension Act of 2010 for another $60 million infusion to the SBA. This last infusion has a known termination date of March 28, 2010. The SBA has not announced what will happen beyond that date.

The effect of the higher guarantees is an increase in the amount of loans made. Banks that would not have loaned money are lending. Banks that would lend smaller amounts are increasing the size of loans. This is not to say that every lender is maximizing either the number of loans or the size of loans.  However, it is clear that the program is working and having a positive impact.

The frustration is created from the intermittent support the SBA is receiving. All lenders and most business people thrive on some degree of predictability. Some amount of consistency in the economic climate needs to exist in order for American small business to flourish again.

Recently, the benefit of small business employment numbers has been widely discussed in the media, and there is consensus that small business is an economic engine with a far reaching positive employment history. Unfortunately, SBA funding and the benefits that can be extended to borrowers lack consistency. It would be beneficial if the SBA could be funded sufficiently over a longer period of time to eliminate these repeated changes in lending terms.  The program is working and should be allowed to operate on a more consistent basis.

Dave Von Holten
Co-Founder, Business Credit Services, Inc.

The Credit Card Act of 2009 (in effect as of February 22, 2010) will have a significant impact on small business owners. Many entrepreneurs use their personal credit cards to finance their fledgling startup businesses. While most of the changes are beneficial, other changes may have negative unintended consequences. The act addresses the following topics:

Over limit fees. Currently, credit card issuers typically allow cardholders to exceed their credit limit, but impose a financial penalty for each occurrence. Credit card experts say the penalty can be as high as $30 per transaction. The new rule allows the holder to continue exceeding card limits for a prearranged over limit fee, or the holder may opt out of that coverage. Should the holder opt out, the card company will not allow charges over the credit card limit.

Interest Rates. Some card companies charge different interest rates on different segments of the balance. The act requires all amounts paid over the minimum to apply directly to that balance that carries the highest interest rate.

Past policies allowed card issuers to change interest rates, and implement those changes with minimal notice. The new act requires a 45 day notice of interest rate or fee hikes, and any new cards received after February 22, 2010 will have the initial fee and rate structure locked for a year.

When the conditions to increase rates have been met the card issuer notifies the card holder of the increase.  The card holder may then decide to accept or deny the new rate. The card holder should try to negotiate a lower rate, but if unable they may decline the new offered rate.

If the new rate is declined, the account will close even though the holder will have 5 years to pay off the balance by installments.  If the new rate is accepted, the new rate will not apply to existing balances, but only to new purchases. There are exceptions that can negate the one year rate lock; those include financial workouts, going 60 days past due, and any preannounced and agreed upon variable rate term expiration.

Co-Signers.  Card holders under 21 must have an adult co-signer or prove they have an income sufficient to pay credit card debt. Card companies are also prohibited from offering free incentives to enroll card applicants.

Due Dates.  Card companies must use the same due date each month.

Additional Fees.  Special fees for internet and phone payments are prohibited.

Ability to Repay Debt.  Issuers are now required to consider the applicant’s ability to repay the debt incurred by issuing a new credit card account. The easiest way to determine repayment ability is to know the applicant’s income. In response, the Federal Reserve was asked to issue a ruling which states issuers may use a reasonable estimate of income based on statistically sound models. The issuers do not have statistically sound models, but the three big credit bureaus do. This will become a new sales offering by the credit bureaus. The bureaus use a data base of wages, interest and investment income estimates, total available credit, number and size of monthly payments, as well as a number of other factors.

According to the Wall Street Journal, Experian and TransUnion admit their income estimates can be off by as much as $15,000 to $20,000. They also state that 85% of their estimates of a $35,000 income will be below $50,000. Because of these inaccuracies, their contracts with card issuing companies state the earnings information cannot be the sole reason for a denial of credit. This aspect of the ruling will force more credit grantors to ask income oriented questions on credit applications.  

Dave Von Holten
Co-Founder, Business Credit Services, Inc.

Approximately six weeks ago, I wrote about how federal government contracts intended for the small business sector were being awarded to large businesses. The excuses were many and varied, but we were assured the “watchdogs” were working with the appropriate parties to remedy the problems.

On January 20, 2010, USA TODAY reported that approximately $25 million in federal government contracts destined for minority or disabled veteran owned businesses that operate in poor neighborhoods, was awarded to ineligible businesses.  Upon discovering that one of the businesses was ineligible, the SBA proposed eliminating its approved contractor status, but did not. The ineligible company won a roofing contract several months later from Andrews Air Force Base. Andrews Air Force Base then found the roofing company to be ineligible, but has not cancelled the contract.

The Government Accountability Office (GAO), a government watchdog agency, has discovered 39 businesses that improperly received $235 million in government contracts since 2003. These were contracts set aside for small businesses. Those who review government contract records claim the value of contracts diverted from small business amount to billions of dollars. Records show this diversion from small businesses to large businesses has been going on for years. At this critical time for small businesses, one would think every effort would be made to award small business contracts to their rightful recipients.

On January 25, 2010, the American Small Business League made a troubling announcement. The federal government uses the Federal Procurement Data System - Next Generation to track government contracts. This system incorporates a “small business flag” to identify the contractor as a small business, or in the absence of the flag, a non-small business.  Any party that reviews the contract records can see which contractors are small. 

This would seem to be a well reasoned and well implemented process, and not a process requiring extensive mathematical skills to properly award the contracts. The current administration’s General Services Administration, decided to delete the “small business flag” marker, which will make contract reviews exceedingly more complex and difficult than need be. The marker will be deleted in all future contracts, and has been deleted from all past contracts.

Even more troubling is the GetList Rules of Behavior which allows the General Services Administration to demand all parties doing contract reviews to sign an agreement preventing the reviewing party from releasing certain facts.  This includes percentages of contracts going to small businesses. The penalty for disclosing the forbidden facts is a possible block from contract data.

The GAO’s two pronged announcement of deleting the small business flag and non-disclosure of government contract audits seems suspicious. Why hide this information? Where is the transparency? Small business needs help. These actions do not seem consistent with helping small business. 

Dave Von Holten
Co-Founder, Business Credit Services, Inc.

The new Credit Card Act went into effect on February 22, 2010. Since many start-up businesses use credit cards to fund their business, it is appropriate to discuss this topic. First, let’s review the recent past:

• RK Hammer Investment Bankers reported an increase in bad credit card debt of 59% in 2009 over 2008. Write offs were $89 billion in 2009, versus $56 billion in 2008. Estimated losses of interest income are $5.5 billion in 2010 and $11 billion in 2011.
• A Federal Reserve report from November 2009 shows 58% of all banks will lower credit limits for clients with lower credit scores, and 53% will increase minimal qualifying credit scores. CITE?
• In 2009, the two largest credit card issuing banks, Bank of America and other banks lost billions in their credit card division.

The above financial results are bad news for credit card issuers, but how does this data impact the future? When the bill was passed, The American Bankers Association complained that individuals with credit scores of 750 or more would subsidize those with less attractive credit.  However, that initial assertion appears to be incorrect. Great credit account holders continue to receive promotional incentives and attractive offers from credit issuers as they are the demographic needed to rebuild the credit card business.

For example, American Express seems to have a more affluent membership than the other card issuers.  The average credit score of an American Express card holder is 754, while the average score for the balance of the industry is 722. American Express holders spend more, have lower default rates, benefit quicker from an improving economy, and their write offs and late payments are declining. Although they may try to extract as many fees as possible, American Express is keenly aware this demographic will simply stop using the card should expenses climb to an unacceptable level.

In addition to targeting great credit score holders, a preponderance of increased fees will be heaped upon the subprime account holders (scores under 660). While the new Act will offer protection, issuers will most likely implement new fee structures.

How does one prepare for these changes? Work on getting your personal credit score to 750 or higher. Review your credit bureau files. Take advantage of receiving your annual free credit report. Be sure to challenge any and all wrong information. The benefits of the next phase of the credit card business lie with those who have great scores; join them!

We refer our clients who need personal credit repair to a very successful company. Call us at 1.866.254.6076 if you would benefit from such a service.

Dave Von Holten
Co-Founder, Business Credit Services, Inc.

A steady cash flow is the lifeblood of your business–and getting paid in a timely manner could mean the difference between success and failure. To ensure you’re maximizing your collection techniques, try these quick tips:

1. Don’t wait to bill. Creating and sending an invoice takes minutes to complete. Today, sending an invoice by e-mail is perfectly acceptable (and in many cases preferred). Find out exactly who the invoice should be directed to and what information they need (such as a tax ID number). Ask for a “read receipt” on the e-mail, and send it ASAP.
2. Offer incentives. Give the client a small discount if they pay within 30 days and a larger discount if they pay even sooner. They’ll appreciate the discount and you’ll appreciate the cash flow.
3. It’s late! When a payment doesn’t arrive on time, get in touch right away. Find out if there’s a problem and be friendly, but firm. Can you set up a payment plan for the customer? If they haven’t paid, it most likely means someone hasn’t paid them. Be understanding, but if they miss another payment, follow up again.
4. Dump the deadbeats. Not to be harsh, but you really can’t afford to carry clients that are consistently paying late or not paying at all. Explain that you need to stick to your policies and move on.
5. Call in the experts. If the amount owed is big enough to make the expense worthwhile, consider using a collection agency. They’ll take a percentage of the amount collected, but something is better than nothing. To find a reputable agency, contact The Association of Credit and Collection Professionals (ACA).
6. Look into factoring. Factors buy your receivables and immediately give you approximately 80 percent of what you’re owed. They keep the remaining percentage on hold until they collect the receivables. Once it’s paid in full, they pay you the rest minus fees. Contact the International Factoring Association for more information.
7. Consider bartering. If a client is having trouble coming up with the cash to pay you, but sells a product or service that could benefit your business, you may want to offer a barter agreement to pay their debt.

 

David Gass
Founder, Business Credit Services, Inc. &
Earn.com Expert Advisor

As an entrepreneur you should always be looking for ways to promote your business.  In order to survive in today’s economy you need to not only bring in new customers but also have repeat customers.  One of the best tools online today for promoting your business and bringing back customers is Facebook and Twitter.I have to admit I wasn’t a fan of either site a year ago.  However, after personally using the sites and having our company use them I’ve changed my mind.  These sites have the ability to create a loyal customer base.  If someone is following you on a social networking site they are likely to work with you or purchase from you in the future.  I use Facebook daily, although I still don’t personally understand the buzz around Twitter.  However, many people love Twitter so don’t ignore it.

The trick is making sure you use the sites correctly.  You don’t just want to post up everyday a link to a sale you are having asking people to buy.  Instead you want to provide valuable content and reasons for your customers and potential customers to keep reading your tweets from Twitter and feed on Facebook.  Don’t worry if you aren’t sure what those are.  The important thing is that you post valuable content daily, then on occasions sprinkle in a link to a special offer or promotion.  You’ll see sales start to increase.

If you’d like some examples, visit:

My Facebook.com page: http://www.facebook.com/businesscredit

Here is Business credit Services: http://www.facebook.com/bcscredit

You’ll also want to join The Company Corporation and Earn.com fan pages:

http://www.facebook.com/pages/Incorporatecom/91524074515

http://www.facebook.com/earndotcom

On Twitter.com you can find our companies at:

http://twitter.com/EARNdotcom

http://twitter.com/businesscredits

http://twitter.com/Incorporate_com

Join Facebook.com and Twitter.com if you haven’t already.  Then invite me as a friend, join the fan group and follow us on the sites.  See you in the online social media world!

David Gass
Founder, Business Credit Services, Inc. &
Earn.com Expert Advisor

The economy goes through cycles; the financial markets go up and down, and the lending environment vacillates between risky and aggressive loan approvals to conservative and questionable loan denials.  Lending and market conditions change; they are rarely stagnant.   And yet, a loan denial for an applicant that seems qualified leaves one wondering why.  Further, how are loans approved for applicants that appear barely able to repay?

Underlying the various lending models are the five C’s. These five characteristics of a loan rarely change, and some would argue never change. The lending market may be aggressive, or it may be slow, but the five C’s continue to be the foundation. Here are the five C’s and a brief discussion of their importance.

Capacity - does the applicant have enough income from their revenue stream(s) to make the payment? This is most important.  The applicant can be well qualified in all other lending criteria, but if the applicant has insufficient cash flow the payment will not be made.

Capital - does the applicant have their own money invested? With more money invested, the borrower will work harder to insure payments are made. Declining housing markets are the perfect example. When houses are worth far less than what is owed, some people simply walk away from the house and the financial obligations associated with the house. If the house has equity, it is unlikely that the owner will walk away.

Collateral - are there assets that can be used if the borrower defaults? If so, the secured collateral is then sold by the lender to satisfy the debt. Normally, the proceeds of the loan are used to buy an asset which then serves as the collateral. Should loan proceeds be used for a purpose other than buying an asset, collateral is typically offered by the borrower to secure the loan.

Conditions - do the current economic conditions have a negative or positive impact on loan repayment? Additionally, conditions describe how the loan proceeds will be used. It is far more comforting to a lender if the proceeds are used to buy assets, rather than to pay off a liability such as a tax lien, payroll expense or other underfunded liability. Lenders are reluctant to lend on paying liabilities because there is often nothing to use as collateral. If the borrower defaults; what is available to the lender to sell?

Character - what is the applicant’s nature?  This is difficult to categorize because of its subjective nature. If the applicant establishes a friendship immediately with the loan officer and the other four C’s are in order, a loan approval is probably forthcoming. Conversely, if all is in order, but the loan officer suspects the applicant to be fraudulent or dishonest, a loan is probably not going to be approved.

In summary, the five C’s listed above should serve as a common sense guide to successful borrowing. If applicants follow these guidelines, they should be in a position to be considered for a loan. While there are additional details to be completed, by following these guidelines many will be done.

Dave Von Holten
Co-Founder
Business Credit Services, Inc.

You won’t see this headline splashed on the news and magazines, but it’s true.  In the fourth quarter of 2009 SBA 7(a) lending was up 100% from the fourth quarter of 2008.  Although we are comparing this to a time when the economy appeared to have the floor drop out from under it, it’s still something to celebrate.

We can make numbers look anyway we want.  Politicians are the best at manipulating.  They love to twist the numbers to provide the data they want to back up their claims.  We could have changed the headline from “Small Business Lending up 100%,” to “Small Business Lending down 300% from 2005 levels.”  I like 100% better.

The SBA 7(a) loan programs include the community express loans and micro loans in addition to other loan programs for larger businesses.  Of the top 10 lenders in the 7(a) programs the average loan size was $462,409.  One of the top 10 SBA 7(a) lenders average loan size was $158,366 (Zions Bank in Salt Lake City, UT).

If you are looking for a small business loan in 2010 a great avenue is the 7(a) loan program.  However, I would encourage you to make sure you go to a bank that is doing some substantial lending with these programs first.

Here is the latest data for the top lenders from the fourth quarter of 2009:

1.       Wells Fargo Bank, Minneapolis, MN

2.       Excel National Bank, Beverly Hills, CA

3.       Live Oak Bank, Wilmington, NC

4.       JPM Organ Chase Bank, New York, NY

5.       U.S. Bank, Minneapolis, MN

6.       Compass Bank, Birmingham, AL

7.       First Financial Bank, El Dorado, AR

8.       Huntington National Bank, Columbus, OH

9.       Main Street Lender, Chevy Chase, MD

10.   PNC Bank, Pittsburgh, PA

11.   Zions Bank, Salt Lake City, UT

Excel National Bank had a 298% increase in loans while Main Street Lender had a 197% increase.

If you have any experience with applying for a SBA loan or have a local bank that you know offers the SBA 7(a) loans, please provide information in the comments for everyone.

David Gass
Founder, Business Credit Services, Inc. &
Earn.com Expert Advisor

State taxes usually come in three forms: property tax, sales tax and income tax.  Many business owners and real estate investors get into trouble without realizing they aren’t in compliance with the state tax laws.

The First Step
The first step to turning your state tax exposure into state tax opportunity is to identify the states in which you or your entities may be required to file state tax returns.

To do this, make a separate list for you and each of your entities.  Include the multiple states where you or your entities do business.  This includes states where you or your entities:

1.       Have employees

2.       Have inventory

3.       Own or lease real estate

4.       Own or lease other property, such as vehicles or storage units

Next, add to your list any states not already listed where both you and each of your entities:

1.       Have independent contractors

2.       Have sales representatives

3.       Have sales

The Next Step
Even though you have a state on your list, it doesn’t necessarily mean that you or your entities are responsible for taxes in those state.  However, here are some guidelines you can follow to clarify your state tax obligations.

Items #1-4 (listed above)
Items #1-4 are good indicators that state tax obligations do exist.  Any states you listed as a result of items #1-4 are states that you or your entities most likely have state tax obligations for property tax, sales tax, and/or income tax.

If you are not already filing state tax forms for each of these taxes, be sure to research your filing requirements immediately.

Items #5-7 (listed above)
Items #5-7 are indicators that state tax obligations may exist.    Research any states you listed as a result of #5-7 to determine if you or your entities are required to file property, sales, or income tax forms in any of these states.

Check ALL the Types of Taxes
The state tax requirements vary by state as well as by type of tax within the state.  Don’t make the assumption that just because you don’t have to file one type of state tax that you don’t have to file any type of state taxes.

For example, a business may be required to file sales tax returns in a certain state but not be required to file property taxes in that same state.

Be sure to check each type of tax to make sure your state tax exposure is minimized!

Where to Start Your Research
Most states provide good basic information on their websites.  This can be a great starting point to gather information and make some initial decisions about your state tax filing requirements.

A state tax study is a great option for businesses that operate in several states because there is greater potential for exposure and opportunity - both of which can justify the cost of a state tax study.

No matter which approach you use to do your research, I always recommend running your findings by a CPA who is well versed in state taxes.    Discovering that you have new state tax filing requirements is not necessarily a bad thing.  In fact, many state tax savings opportunities only exist when multiple states are involved.  This is why it is so important to discuss your specific findings with a CPA who knows state taxes well enough to know that what appears to be exposure is really an opportunity to minimize state taxes.

Tom Wheelright
Earn.com Contributor
ProVision Wealth Strategists