Wealthy & Wise: Fool Proof Business Credit

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Cort Christie and Marshall Davis discuss the importance of business credit and financing for new and existing businesses. Plan now for optimal business success!

Prefer to read? A full transcript is provided below.

Cort:

Hello and welcome to Wealthy and Wise. I’m your host Cort Christie, CEO of NCH. Now, today on Wealthy and Wise, we’re going to be looking at startup funding solutions. And one of the most difficult things when you’re just getting the business going is having enough capital around to launch your business properly. To buy the inventory for the company that you have, to pay for advertising and all the unexpected bills that come up. And we find that so many people that start businesses fail because they don’t have access to enough capital or trade lines or just plain cash to successfully launch their business. And, on Wealthy and Wise today, we have a special guest, Marshall Davis. Marshall has been working with clients of NCH in the area of business credit development and business funding for over a decade now. And we’re going to have a fantastic program and I’m excited. So welcome Marshall the program.

Marshall:

Thanks, Cort.

Cort:

Yeah, absolutely. And Marshall, boy, you’ve got so much experience working with so many clients at NCH over the years. And, you know, I know that they’re just about any type of business you’ve had conversations with them about ways of going about getting access to funding to launch their business ideas or even developing their own business credit profile. You know, what do you find are some of the most common things that they ask about or they’re lacking with their businesses as they’re thinking about kind of launching it?

Marshall:

Well, some of the most common things that I see, I would honestly say is just a misunderstanding how money moves and business financing. A lot of business owners have an idea of, it’s simple. It’s quick and easy. And in most cases, if they’re not prepared and planned, they don’t do well. They don’t do well at all.

Cort:

Well, it’s interesting because, you know, I have several friends that are contractors and they built some fantastic businesses. But I remember years ago when they got started in business and they didn’t quite understand how long it can take to get paid for jobs that they’re doing. And so they started off doing painting, and pretty soon they do a job and they get paid, you know, a couple of weeks later or a week later or whatever the job’s done. They’re happy but as they started to hire people to do the painting and then they had crews out, and then they’re juggling multiple jobs and they’re not getting paid until the job’s 100% complete. They still have guys out there that are wanting to get paid along the way and it’s just so interesting is how few business owners, you know, I really think in long term about the business and what kind of capital needs it’s going to have. So, when you start the conversation with an individual that’s a new business owner, you know, what are the things that you’re looking for? What are you asking them to try to understand about their business needs?

Marshall:

Oh, this is easy. I have a hard set of questions that I ask typically, because it’s the most important piece is when it comes down to obtaining funding. First, how long have you prepared and planned for this business? Secondly, you know, what kind of moneys have you set aside? What do you have at your disposal to give you a good starting chance? And then more importantly, how is your credit how well have you managed credit over the years? And, you know, in most cases, a lot of new businesses fare well, but they don’t have that long term approach to their business at that point.

Cort:

And you’ve got, you know, considering you’ve worked with thousands of small business owners, I mean, a lot of stories of people that, you know, haven’t figured it out and or those that have just, you know, really knocked it out of the park. What do you think are just what are some of the main differentiators between those that are successful in getting through the process of business credit and business funding versus those that just never get anywhere?

Marshall:

Well, you know, when you start a new business is exciting, right? You have an opportunity to become something bigger and better. You know, in some instances, change the course of your life. And those that have always been successful with their business or my perspective is those that are planned. They’ve looked at the market, they see what the cost of monies are. They understand their industry and the competition that they have to contend with. And then more importantly, how do I get some money when I need it most? Right. Even those that start out with really strong credit in some situations, that could be an anchor to your business. So planning and more importantly, understanding how credit works. So that you can have longevity in your business.

Cort:

Interesting. So, when it comes to credit, you know, we’re talking about so many small business owners out there that are hustlers, right? They’re just trying to make ends meet, trying to do something so they don’t have to work for somebody else. They can ultimately work for themselves, but they haven’t always paid attention to their own personal credit. And so they might have a poor FICO score. You know, they might have some blemishes on their credit reports. How does it work when it comes to business credit? How is it different than personal credit?

Marshall:

That’s a great question. One of the biggest differences between the two is that business credit is fully reliant on your business’s habits. Just like personal credit, hey do have factors that are measured based on historical activities to promote how well you are aligned to. You know, generally speaking, when you talk about business credit, it is just like personal credit. You know how we all started out. We get the entry level credit card.

Cort:

Broke, you mean?

Marshall:

Exactly. I remember and I always ask this of my clients, what was the first line of credit that you received? And you’d be surprised how many actually can recall that credit line because it’s a big deal and no spaces. The most common response is it wasn’t as much as I was expecting to get Right? And that happens in business as well. So, when you talk about business credit and personal credit being able to rely fully on the business’s credit and not have to show your credit if there are some challenges, can make all the difference in getting the financing you need.

Cort:

So, if I’m a small business owner, I have my personal credit score and then I have a business credit score. And so if I have issues and correct me if I’m wrong here, I have some challenges on my personal credit, there can be some solutions on the business credit side where that isn’t necessarily a factor for me. Is that true?

Marshall:

That’s true. And the way that it works is, when it comes to business credit, they are measuring the same behaviors that they measure with personal credit. However, it’s more specific to your industry so it’s more relatable to that underwriting team that needs to understand how well your industry performs. And then more importantly, what are the needs of that industry? How do we measure what you can afford and what you can be approved for based on how strong this industry is as a whole? And those are factors that business credit reports to, and they actually translate for the underwriters to simplify the process.

Cort:

Interesting. And I know we’ve got a lot of clients that are real estate investors and, you know, they have special needs. They’re different than, you know, a person over in a coffee shop or somebody, you know, doing a landscaping company or anything, somebody selling online, you know. What do you find are the needs of the real estate investors? What’s different about them versus just the small business owner that isn’t investing?

Marshall:

It’s interesting you ask that question. I have a friend. She’s a small business owner out of Florida, a 20-year-old business. And her model, you know, we had a conversation on it. $20,000 she was up and running and generating revenue. Whereas to your basic, you know, real estate investor, they’re looking for much larger limits. They’re not buying refrigerators and stoves right. So, when you look at large limit lending, now we’re talking higher risk factors, right? So the microscope comes out when you go to your banking institutions, they’re much more critical of credit. You know, in most cases, you have to be highly qualified in today’s climate simply because there’s a lot of people that are new businesses looking for funding. So, when you talk about business credit and its long-term effects, it allows you access to those daily costs that you have to account for fuel costs, office supplies. And then as you gradually continue to grow your profile, you begin to start accessing higher value limits that you need credit card business, credit cards that are reporting to your business and not you personally. So those are the things that business credit can provide versus just having good, strong personal credit.

Cort:

Okay. So I guess when I think about it, you know, the 16 year old that didn’t have any credit, any credit score, and I’m thinking to myself, when I bought my first car and my dad, when I went to him and said, Hey, Pops, you know, can you give me a loan? And he laughed and he said, you have a bank account. And you should walk into the bank and find out what they’re willing to do for you. And so I had to work my way up to the bank and had to find out what was involved in getting an auto loan. And, you know, I had no credit. I had no credit history. And it was a, it was a process. Let me say that I had to put a lot of money into that car in and order to even get the loan for them to feel secure enough with my background, you know, and my lack of credit. So, on the business side, as you’re building business credit and helping people kind of develop that, how important is that business credit to eventually getting to a bank loan, a line of credit for your business that a lot of businesses need, you know? Are these separate or are these things together?

Marshall:

Well, they’re married and in the way that it works is just like with personal credit, the same process that you explain in your story. It’s a progressive approach. And those that do it well you know, slow, methodical, generally will have the access that they’re looking for. And when you talk about measuring risk, underwriters are notorious for looking for any and all factors they can get their hands on to really identify how well you manage credit. So, when you look at the risk factors that are taken into accord, you know, business credit, one, establishes patterns that you have a high frequency of usage, that you have a high frequency of ON-TIME payments. And those historical activities are what they’re using to predict, If I give you a $50,000 line of credit, how long of a term do I put you on based on the information available to me from what we’ve measured so far? So, the more that you have, the more that’s available and you can continue that path and eventually transition to where your business is completely reliant on its own credit.

Cort:

Interesting. So, clients that are coming to, I know you deal with this, you know, they would immediately say, hey, Marshall, you know, how much money can you give me and how quickly, right? And it’s like, I want money today, and you’ve got to put them on a reset course. And you know, how does that conversation go? Brand new business owner says, Marshall, I need a $100,000 line of credit so that I can go out and buy a bunch of inventory or buy some fixtures for my building or my retail store or whatever it is they’re doing. How do you bring that back around through that process of teaching them? There’s more to it than that.

Marshall:

Well, you know, I normally will start out, you know, I love passion and I get a lot of passion, as you can imagine. And then even in that you know, passion doesn’t educate you, unfortunately. And, you know, generally speaking, when I get into the line of question is to find out how strong you’ve put your effort and energy and what do you anticipate as an outcome? Then I have to establish, one, I think everybody understands how much good credit can do for you. I think that’s fair, right? So, bridging the gap between good personal credit and good business credit generally does the trick. It’s not an ugly conversation. And those that are really committed to the business, they buy it right then and there because they understand that long term, I don’t want to be back in this position and asking for funds and not be really qualified. Because it’s only so many of those occurrences before you have to close your doors.

Cort:

You know, as years ago, I had a mentor that had taught me about using banks and financial institutions because I didn’t want to, right? I didn’t want to borrow money from the bank. I wanted to do it myself. I want to bootstrap the entire operation. And, you know, he said that was commendable. It was nice that that’s how you want to do it. But if you want to really grow, there’s going to be a point in time, you need to have these relationships. You need to have these doors open to you at banks and financial institutions. And he said, and the best time to go out and work on that is when things are going well. It’s not when you need the money because it’s when you need the money. The doors are shut. It’s usually during a recession or during some other difficult time that, hey, the banks aren’t lending right now. You know, we went through that in the previous recession. It’s like there was no money. And I had a lot of friends trying to find any money they could get and you couldn’t get it. And so the great advice was, you know, go out, build the lines of credit, borrow money from a bank, even if you don’t need the money to build the business credit, to build the history. And still today, you know, we’ve got half a million-dollar lines of credit and several businesses that I’m involved with. We don’t need it. We have the cash flow to support it. But I keep them alive as sort of that rainy day what if scenario, if things get really bad out there and in business cycles, things do get bad once in a while. Hopefully it’s not too often, but it does happen. And I think that’s where so many people just don’t understand. It’s like, hey, I’ve got money. You know, I don’t need money. It’s like, no, no, no, no, you do. And you will at some point in time. And it’s only when you don’t know it that it becomes so important. And I think, you know, when people are thinking about, you know, why do I need a business credit? I perfect person no credit. I don’t need to go down that path. And it’s like, no, you do. Because if you really want to grow and evolve, whatever business model that you’re in, these things will become so important to you ultimately. Now, when a client comes to you and says, hey, I’m going to go through this process, I’m going to establish my business and I want to get business credit so I can start opening doors to financing the money. You know, how long does this process take? Are we talking years? Are we talking months? Like what? What’s involved and how much time are we talking about?

Marshall:

Well, you know, it’s funny. I get that question quite a bit. Right? And as I explain it, it’s tailored to your plan, your model, how well you’ve prepared. But when you talk about building business credit, you know, I would like to see that first and foremost, just like with personal credit, you want to have a good score, right? So, the first trick is to get an A rating for your business, right? No different than getting a 700 or better FICO score, right? Now I know I qualify for credit. And as you continue on that course, just like with personal credit, you’re continually adding and strengthening that profile so that eventually when the need arises, like you said. I have. And, interestingly enough, you’d be surprised how often I have to explain to clients that lenders don’t like to lend to people that really need money because it’s a risk factor, right? It shows that, you know, there’s a lack of preparation. There’s a lot of factors that are taken into accord. So, when you look at business credit, the model that we typically promote is, one, it’s slow and progressive. And as soon as the opportunity allows, we go after credit and just like with most credit, you get that entry level limit that you want. Hey, this is not enough, but it’s an opportunity to show how well you perform with that credit. And then more importantly, now I can come back and ask for increases. And, generally after that, I’ve established that I’m a good race, and that’s where your big limit lending comes into play. So, in most cases, generally after we’ve achieved an A-rating with a client, you know, we immediately start looking for those resources for you transportation companies having fuel cars, which are revolving credit lines, you know. Rehabbers, they love those supply chains like Home Depot, Lowe’s, Menards, companies that are helping them with those in between expenses. Gap funding, if you would. So, you know, I would like to say even at a good, healthy pace within a six-month window, you can really proactively go out and start securing funds for your business that are going to give you day to day operational cash, the ability to have fuel cards and things that are really necessary for your industry. And as you continue, well, just like with personal growth, more, more, more and more.

Cort:

It just continues to grow. You know, it’s interesting we were doing some market research a couple of weeks ago, and we’re looking at online search traffic for, you know, business startup funding and funding solutions. And there’s a lot of people looking for funding and startup capital for a small business. But most of all, I think 90% of the companies that I saw online provided zero funding solutions for startups. It said once you have, you know, $100,000 in revenue a month, come and talk to us. Once you’ve got a couple of years under your belt in business, come and talk to us. Startups, it was so hard to find anything. And I think the service that you’re providing these small business owners in helping them build, it’s like building blocks, you know. Working on the credit and then working on trade lines and working on revolving credit lines slowly kind of developing things, getting the A-rating. And then it opens the doors to financial institutions and other things as their business starts to get its legs. But, you know, most small business owners or most people thinking about starting a business, don’t realize. There isn’t money for you out there. You might be talking to Uncle Joe or you might be, you know, tapping your retirement account to fund your own startup. And a lot of times that’s how people do it, you know, and it’s not easy. But you provide such a cool solution that once you get them reset or properly set up that they understand that, you know. There’s not a bank that you’re going to walk into tomorrow that’s going to give you a whole bunch of money to start your coffee shop. It just doesn’t work like that. And I think that’s where it’s really, really powerful. You know, you’ve had some incredibly successful clients that you’ve worked with over the years. Do you have a couple of examples of people that have just really crushed it?

Marshall:

You know, it’s interesting. I recently had a conversation with a longstanding client and longstanding been actually just shy of three years and my younger days as a coach, I actually worked with this client to help them build his credit profile. And looking at it bigger picture, he came back to the table because he was one, committed to the process. Very, you know, very successful with the process. And, you know, I felt super proud because he explained that not only did he secure $250,000 in business credit lines for his business, non-personally guaranteed, and yet at least six vehicles that he had purchased using his business credit profiles. So much success in that one story that he did it again. He set up another LLC and he said I could use this business to get what I need but I want to start again. And he started from ground zero. So that commitment shows that this stuff works, it works well.

Cort:

And it’s like, oh, you need, you need a truck, you need a backhoe, you need equipment, you need you know, if you’re a contractor, you need these things who’s going to give it to you? If you don’t have the right type of business credit that you’ve developed and you can show that you have an ability to pay back, you know, the debt that you have or the leases that you have. Like there’s so many avenues that this works for small business owners, which I think is just so powerful. And yet small business owners or startups think, well, I’ll get to that. I’ll get to that at some point in time. And when you’re talking to people and they’re like, well, you know, Marshall, in a few months I’ll get that started. What do you tell them?

Marshall:

The most common question that I have to entertain on a day-to-day basis is, do I have to start now? And truth, I have the same response. Yes. And the reality is, that you should start as soon as you have an opportunity just like personal credit. They rely on those historical activities. They rely on those accounts that you’ve managed well over the years to predict how well you’re going to perform if you’re entertaining a loan. So, when you when you talk about business credit, you know, ultimately there is a formula that you can use that will, one, allow you to get a good credit score in a very short period of time and then begin building on that and be able to reap the benefit. And in most cases, like I said before, it’s, you know, six months to a year and you’re already in motion where you’re securing things that your business needs to survive. And I always explain to clients when you talk about credit on any scale, especially business credit, if you’re not using, you should be building. Always build credit simply because, like you explained earlier, there will come a time that COVID, if you would, where it will be a bit tougher to secure funding. And that is where credit will always save us. It does it into personal credit realm. It’s so powerful that if you just do the small little steps of just little incremental activities or just using the account that your business uses organically, you can make a tremendous gain and really give your business financial freedom.

Cort:

And that’s a big deal. You know, it’s just like the leg up that you get by being able to, you know, I call it almost self-finance, but you’re not self-financing. Others are financing the development of your business but because you’re managing it and you’re on top of it, you kind of are self-financing because you’re growing it. Marshall even today I kind of find it a challenge to myself when I have credit cards and I look at the statement that comes in, I see the credit limit and I’m like, I haven’t called that bank for two years. It’s time I find out if I can bump that credit limit up another $10,000. And I get on the phone and there’s that process that you go through. They want to know how much you’re making and how much debt do you have and do you own your house and rent it. And there’s always a series of questions. I’ve done this a million times, but it’s just kind of fun to see how large of a credit limit you can develop. But I also know it serves that very important purpose is that rainy day when it comes along. I know personally I probably have $200,000 there, just personal revolving credit lines that I get to tap into. And on the business side, it’s much, much more than that. But I think it’s something that once people get the hang of it and understand that it is a thing that you’ll be doing for years in your business. And even if you haven’t launched your business, like somebody that comes to you that hasn’t even started their business, you can help them build their business credit from day one, can’t you? And that’s a big deal. And the other thing that people need to understand is, is Marshall, this is not you that’s doing this day in and day out. You’ve got a big team. And how many clients on average are you working with on a month, on a monthly basis, you and your team?

Marshall:

Quite a few.

Cort:

I mean, you’re talking a large number.

Marshall:

I mean, to say 300 or better. I mean, business credit is the new credit for the startup business. It’s an easy you know, it’s an easy vehicle to get the things that you need. And as I stated earlier, you know, good personal credit is great, but it can also be an anchor because, one, it could put you in spaces where now it’s dependent on your annual income and there’s a ceiling there. You know, your balances you know that good personal credit is constantly being charged when you have those business expenses that arise that are unexpected. So, business credit is, it’s a fine wall between personal and business, but more importantly, it’s a great way to really build a long-standing model.

Cort:

That’s awesome. Well, thank you for being on the program today, giving us a little education on what’s involved in business credit, why people need it, how it directly relates to funding and access to capital for your business. You know, it’s something that every startup needs to pay attention to. And nobody really talks about it when you’re starting a new business. Like this is even a thing.

Marshall:

The unspoken word.

Cort:

It is. It’s so true. So, thank for being on the program. I appreciate your time and thanks for educating the viewers here today. And for all of you that have been tuning in, this has been a fantastic edition of Wealthy and Wise. Or you’ve got some inside knowledge on what it takes for a startup to actually go out there and find funding for your business. Trade lines for your business, credit lines, revolving credit lines, all the things that you’re going to need as a new business owner. And there’s a clear path and an intentional program that you need to be looking at and following in order to do this correctly, where you can have great personal credit and you can have great business credit and open up a lot of doors for your business, your business’s growth and its expansion. So, thanks for tuning in. I’m Cort Christie, your host. Have a great day.

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Tags: Business Credit, Incorporating Your Business, New Business, small business, Start a Business


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