How I Went from $0 Business Credit to Over $300,000 by M.U. Sylvester - HTML preview

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Unstoppable

TO PG OR NOT TO PG

Personal guarantee is a promise entrepreneurs make to repay their company debts in the event of going out of business. Personal guarantees are a way for lenders to protect themselves; it is insurance for the lender and their depositors against unscrupulous business owners as well. It tells the bank that the business owner has a commitment to their business and a commitment to repaying their debts.

Without the guarantee, there is not much a lender can do if your business is unable to repay its obligations. A personal guarantee is the reality of life for most small businesses. Also, incorporation won't protect your assets if you sign a personal guarantee.

The draw back to personal guarantees is that even if a business owner is very responsible in paying their business debts, unexpected events can still prevent a business from making their debt payments. When the owner is unable to cover the debts personally, the bank will start to seize personal assets.

Defaulting on a loan, or credit cards, there is a good chance that the guarantor does not have significant assets to go after for a number of reasons. Some guarantors hide their assets in the name of their spouse or a trust to protect them from lenders, while others have little financial assets to go after, because they were spent trying to keep the business from going under.

A personal guarantee is in place as a reminder that you are responsible for loan repayment, credit cards payments, should your company become unable to do so. If your business loan was approved, it was most likely approved for reasons outside of your personal assets. More than likely, it’s because you have great business and personal credit histories and scores.

Lenders may not approve small business loans without a personal guarantee, even if you have assets to offer. It is just a business practice for some lenders.

If your company defaults, your personal credit history will be affected. A Dell catalog regularly arrives at my home office. I had a computer that worked just find for a few years. However, it was noticeably slowing down, so I decided to give Dell a call to see if I could be approved for a purchase of a new computer set.

After speaking briefly with a sales representative, she informed me that my business was approved for $25,000.

What? Excuse me? How much did you say I was approved for?" "$25,000, ma'am. What would you like to order today?" Wow! I was astonished.

The approval was based strictly on my business credit reports. This was the largest tradeline I had ever received for my business. I had my Paydex 80 with 8 accounts showing positive payment history. And my highest trade line before this approval was 10k.

I was so pleasantly surprised I went and purchased about $1600 in computer equipment.

 

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OVERVIEW

At this point you should have your Paydex 80 with at least 6 trade lines reporting. You have at least a 90 days payment history with 3 or more accounts.

HERE’S WHAT TO DO NEXT

Ø Apply for 3 or 4 business credit cards

• Key Bank MC
• Discover
• Frontier or US Airways
• American Express

The four listed above are popular business credit cards.

A LIST OF BUSINESS CREDIT CARDS

1. Key Bank – keybank.com

 

2. Discover – discover.com

 

3. Chase – chase.com

 

4. Frontier Airlines – juniper.com

 

5. US Airways – usairways.com

 

6. American Express – americanexpress.com

 

7. Citibank – citibank.com

 

8. Bank of America - bankofamerica.com

 

9. Wells Fargo - wellsfargo.com

 

10. US Bank - usbank.com

11. Advanta – advanta.com Still, life was not a bed of roses. There were some thorns to overcome! I decided to try again for GE capital business card, nearly 8 months after my first decline. There was a lot of drama surrounding my application the second time around. After completing an online application, and allowing a couple of weeks to pass without hearing any response, I decided to call requesting status information. Every time I called (usually once per week) to inquire about the status of my application, no one was able to find my application.

I continued to call every week to see if they had located my application. Nope. One rep told me to go back online and re-apply. What? You must be kidding, I thought to myself. I was wondering where all my personal information had gone. Disappeared into cyber-space? Right.

Nearly three months went by, and finally, somehow, I got connected with a lady who knew what she was doing and was able to find and forward my application to an underwriter. My patience and persistence was rewarded, as this time around my business was approved for $5,000. Yaaaah!

OVERVIEW

Has your business reached the two-year mark? Some banks require two years In business before they will consider you for a business loan or line of credit. Other banks require three years. Just be patient. After all, this is your business, not a hobby, and you are in it for the long haul! Two years, even three, will fly by as you build your business, gain new customers, and establish your credit and payment history.

Stay diligent!

COMING UP NEXT

A strategy to acquire 100k cash within 21 days Lenders are fully aware that new business start-ups are the riskiest investment around. They don’t gamble. Or care if someone by the name of “Luigi” is on your team. Repayment of a loan with interest is their number one concern.

If you are a relatively new business with only one, two or three years of business history, I would not recommend applying for 50k loans, especially now in 2009's current climate of hyper-suspicion, skepticism, and credit crunch atmosphere.

A smiling bank representative will gladly hand you A 4506 T for your signage for sure.

 

Do you really want to sign that?

 

Some ground rules is in order before proceeding:

 

v First and foremost, if you are maxed out on any business or personal credit cards, please don’t attempt this, because it won’t work, period.

 

v If you debt to income ratio is over 40%, please don’t try this, for goodness sake’s.

 

v If your personal credit is below 680, please hold off until you raise your scores to 700 or above.

HERE’S WHAT TO DO NEXT

What I would do is open a business checking account depositing $5,000, and apply for a 20k loan. At the same time, apply for a business credit card.

Then, I would take 5k from the first bank and go to a second bank and open a business checking account, depositing 5k, and apply for a 20k loan, and again apply for a business credit card at the same time. I would repeat this domino process with 4 or 5 banks. Go and apply all in the same week.

What you’re essentially doing is killing two birds with one stone; applying for the loan and business credit card at the same time.

I’m sure you have heard the phrase “money talks”. You’re not walking into the bank empty-handed, asking for a loan. You have made a sizeable deposit which will encourage lenders to help you too. However, only if you have done your part, by making sure all your ducks are in order.
Once my business was slightly over two-years-old, I decided to apply for business loans with four banks. I had applied for a loan with Wachovia Bank, Bank of America, Chase Bank, and Sovereign Bank, online with the exception of Sovereign. I had requested 50k from Wachovia and Bank of America. I requested 60k from chase, and 40k from Sovereign.

I placed a follow-up call within a few days and spoke with a Wachovia representative who told me everything looked good. My Experian credit report was still chilling out on a freeze vacation. I knew my TransUnion report was at an all time high of 775 and my Equifax credit report has reach 799. Then a few days latter he called me back requesting that I fax over copies of my tax returns.

I asked him about the popular “no documentation” loans, I had heard so much about, and he said that is not something they did.

 

Needless-to-say, I did not fax them my tax returns, and so about three weeks later I received a "decline" letter from Wachovia.

 

A week passed.

 

I had not heard a word from Bank of America since applying for 50k loan, so I decided to place a follow-up call regarding my application.

Initially, I was told that I was being decline due to my business only earning $26,000 for the year. I told the young lady on the phone that an error was made; It should have been $260,000. I told her I probably made the error and left out one zero when filling out the application online.

She stated that I needed to clarify what my business’s projected income was; $26,000 was the figure placed on the application and that was what they had to go by.

After more clarification, she transferred me to an underwriter who told me he could not approve my application for 50k, only 48k. Great! Hurray! My very first business loan approval and I was so elated.

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HERE’S WHAT TO DO NEXT

Ø In today’s 2009 market climate, banks are fearful of lending; in fact, they’re scared to death to lend. Even those with the greatest of credit scores are being decline for credit.

But remember: They MUST LEND because this is the business they’re in.

 

Apply for Dell computers for equipment – However, do this only if you have your Paydex score of 80 or above and a DUNS rating, because you will need both.