Credit workshop

Build Credit For Your Small Business

Credit Defined
When someone lends you money, and you pay them back with interest, they have “extended you credit.”
Credit is the ability to borrow money and manage it responsibly.
Buy now, pay tomorrow.

Why is it good for my small business?
Credit helps a business:
Grow
Buy inventory
Publicize its goods and services
Buy equipment
Obtain working capital

Cost of Credit
Principal is the amount of money you are borrowing.
Interest is the amount the lender charges you to let you use their money. It is a percentage of the principal (charged per year, month, or week.)
Fees cover the lender’s costs to review your credit application or to service your account (maintenance fees, service charges, late fees)
Example: You need $5,000 to buy equipment for your business
Principal $5,000
Interest 10% ($500 if you pay in one year)
Maintenance Fee $100
Total cost of the loan: $500 + $100 = $600 (paid in one year)

Cost of credit (continued)
Interest Rate
With an annual interest rate of 10% instead of 25%, you are saving a total of $7,294!

What is a Credit History?
Your credit history is a record of how you have paid your credit card debt and other loans in the past.
Why do lenders want to know how you have paid your debts in the past?
Because they assume you are likely to behave in the future in a similar way to how you have behaved in the past. If you paid your debts well in the past, you will also pay well in the future!
In sum, your credit history is like a report card on how you use credit.
The better your credit history, the better chances of getting credit with lower interest rates to finance your business!

Who Stores Your Credit History?
The three biggest credit reporting agencies that keep records of your credit history (your credit report) are:
TransUnion : 1-800-888-4213 or visit www.transunion.com
Experian : 1-888-397-3742 or visit www.experian.com
Equifax : 1-800-685-1111 or visit www.equifax.com
• ~•
Each year you can request 1 free credit report from each agency at:
www.annualcreditreport.com
or by phone at 1-877-322-8228
You will need to pay a nominal fee for each additional report or to see your score.

Why is a credit history important in the U.S.?
Your credit history is reviewed by many different groups to evaluate your financial behavior. Among those who will check your credit history are:
Landlords
Employers
Banks
Insurance companies
Cell phone companies
Mortgage lenders

What is the cost of not having a credit history?
As we mentioned before, it will be difficult to expand or invest on your business if you don’t have access to credit!
Besides the cost to your business, there are other personal costs of not having credit:
It may be difficult to get a job . Without a job you will have no source of income!
You may have to pay a higher deposit to move into an apartment and in some cases you may not be able to rent
You may be charged higher interest and fees on loans and credit cards
You may have to pay a higher deposit to get a cell phone or will have to use a prepaid phone

What is included in my credit report?
Credit reports include:
Personal info
Judgments
Trade lines
Inquiries
Credit reports do not include:
Ethnicity
Income
Marital Status
Immigration Status
Medical History*
* If you DON’T PAY your medical bills, medical collections do appear on your report!

Sample Credit Report

What is a Credit Score?
A Credit Score is a number attached to your credit report between 300-850, with 300 being the lowest and 850 being the highest.
Credit scores take into consideration:
New Credit Amounts owed Types of Credit Used Length of Credit History Payment History 10% 35% 30% 10% 15%

If there are errors on your credit report…
Request a dispute form from the credit agency. Return it with copies of all documents that support your dispute.
Or, write a brief letter explaining your dispute.
Attach supporting documentation
Include ALL specifics you have about the account
The credit report agency must verify the information you dispute, and should answer you by mail within 30 days.
If the credit agency will not correct the information, call the creditor directly to request a review of your account.
If everything fails, you are allowed to add a 100-word statement to your credit report, explaining why you believe the information is inaccurate.

Warning Signs of Credit Problems
You are at or near the limit on credit cards
You are only making minimum payments
You have recently been denied credit
You have defaulted on a payment or on your rent

How to improve my credit history?
Pay your bills on time to protect your credit and to avoid late fees.
If you cannot pay on time, call your creditors before payment is due to explain the situation .
Get current and stay current if you have missed payments.
Recent late payments are more damaging than a bankruptcy discharged a few years ago.
The longer you pay your bills on time, the better your score.

How do I improve my credit history?
Pay off your entire bill each month. If you do, you pay zero interest and you build your credit at no extra cost. If you can’t, try to pay more than the minimum payment due.
Keep low balances on credit cards ( less than 30% of your limit ). Remember, 30% of your credit score is determined by how much credit you use!
Don’t open a lot of new accounts too quickly , especially if you have been managing credit for a short time.

How do I start a credit history?
Apply for an ACCION small loan to start your credit history and make all your payments on time (we report to credit bureaus).
Open a secured credit card . These are credit cards backed by money in a savings account. Use this card every month and pay it in full to establish a good payment record.

You need to build both types of credit
To strengthen your credit history you need to have experience with both revolving AND installment credit. If you only build credit with 1-2 credit cards, you will have what lenders call a THIN file.
Do you dream of buying a car or owning a house? If so, you'll need to apply for installment loans. If you do not have experience with installment loans it is likely that your lender will charge a higher interest rate and fees.
Apply for an installment loan with AUSA today and strengthen your credit history!

What about business credit?
Just as each individual has a credit report, so does a business.
Corporations can have a business credit report, mostly through Dun & Bradstreet, which is the main business “credit bureau”.
However, if you are starting a small business, you are more likely to start off as a sole proprietor (not a corporation).
You need not be concerned about building business credit to sustain your business on your personal credit until your business is solidly established and has over 9 employees.

What are my alternatives for financing my small business?
Term Loan: A term loan may be best for financing the purchase of equipment, vehicles or machinery. Banks and ACCION can extend these loans.
SBA Guaranteed Loan: The U.S. Small Business Agency (SBA) sets the guidelines for the loans while SBA’s partners (banks, Community Development Organizations) make the loans to small businesses. SBA backs those loans with a guaranty.
Lease: You borrow the entire purchase price of new equipment or vehicles, plus some soft costs, such as taxes and delivery. The loan is secured by the equipment.
Line of Credit: A line of credit may be best for short-term working capital needs, or seasonal fluctuations. You are pre-authorized to borrow up to a certain amount, but you only borrow the funds as you need and you only pay interest on the money you need to use.

Thank you for watching!
If you would like more information,
please contact us at:
(312) 275-3000 or
www.accionchicago.org

http://www.accionchicago.org	266
http://www.slideshare.net	6
http://translate.googleusercontent.com	2

Credit workshop

by Sophia Darugar on May 06, 2010

Accessibility

Categories

Tags

Upload Details

Usage Rights

3 Embeds 274

Statistics

Credit workshop — Presentation Transcript