Building a Solid Business Foundation for Financing
The single most important thing a business owner can do for their business is to build their business to sell it.Sell it you ask?Yes. Build to Sell.Every decision a business owner makes should be based on that thought. If an entrepreneur can base their business decisions with that underlying idea (in terms of financing), they will be set up for long term success.The lending institutions base their acceptance or declination on one thing.Is the business an attractive lending risk.There are 20 key points every business owner must have in place to be approved by financial institutions when their underwriting team is determining to approve or decline a loan app. Many of these are small, seemingly meaningless ideas. However, lets take a look at it from the eyes of the lenders.Banks and lending institutions get so many applications from business owners who, quiet frankly, have no business applying for a loan. Their business is not set up to be lent to. The banks are not even viewing these entities as a viable businesses. So the first stage of getting past the computer guidelines is to have these in place.Additionally, if you were to go to the bank and not have these in place, the loan officer would get a two digit code back from the computer system and all it was say was “Loan application declined.” Your loan officer, without investing some time into the issue, would not know exactly what you needed to do differently to be approved. The loan officers surely do not have the underwriting guidelines for their firm.In this article we will examine the top three reasons business owners fail at business credit building and business financing.The first is simply the business owner does not have all the I’s dotted and the T’s crossed in their business. Things like having an 800 number, being listed in the 411 directory, and having a dedicated fax line is a must to a business owner seeking financing. Many business owners I speak with are small businesses, who are just seeking their financing options. It’s impressive to see the amount of businesses that do not even have these first three steps accomplished. Remember, the goal here is to have your business look attractive on paper. In the eyes of a lender, if you do not have an 800 number it is suggested you own a “mom and pop shop” and are not setup for success.Secondly, business owners have not started to build their business credit. There are right ways and wrong ways to go about building your business credit structure. In the eyes of the lender business owners who go out seeking to open revolving lines of credit and are turned down (due to reasons outside the scope of this article) it appears as though they are fishing for financing. It’s imperative to apply for the right types of credit lines and being approved for those lines when establishing your business credit from the get go.Thirdly and most relevant to most entrepreneurs: they have not separated their personal liabilities from their business. It’s important for a business owner to have good receivables in his/her business. But, and what’s equally important, is that business owners personal credit is not tied to the business, in any possible way. There are two reasons why you’d want to separate yourself from your business. If something happens to your personal financial situation, you do not want that to be the reason your business is unsuccessful in obtaining financing. Secondly, should something happen to your business, you do not want that to affect your personal credit.
How to Invest Money Vs Where to Invest for 2015 and Beyond
It is one thing to have a handle on where to invest; but quite another to have confidence in how to invest money for 2015 and beyond. The big difference lies in asset allocation, or how to invest money across the asset classes. The “how to” will depend on your financial objectives, comfort level and the markets in 2015 and beyond.There are 3 or 4 basic asset classes, and we’ll start with where to invest in stocks. Stocks are the growth engine of your portfolio, and most investors should concentrate on large-cap diversified stock funds that pay dividends of about 2%. This way you’ll own a small piece of a large portfolio of America’s largest, well-known companies. For the vast majority of Americans with longer-term financial goals (like retirement) this is how to invest money for growth without excessive risk.To keep market risks lower stay away from low-cap (small-company) stocks and funds; and growth stocks and funds that pay little or no dividends. With the stock market hitting all-time highs, this is not where to invest for 2015, especially if riskier stocks don’t fit your comfort level. Down-side risk is rising for 2015 and beyond, and a market reversal will likely hit the smaller-company and high-growth sector hardest. And don’t increase your asset allocation to stocks in general. That’s not the success formula for how to invest money when prices are high.For most of the people most of the time, a 50% to 60% asset allocation to stocks is commonly recommended as the standard answer to how to invest money for longer-term goals. If retirement is approaching, or this just doesn’t fit your comfort level, a lower asset allocation is your answer to how to invest for 2015 and beyond – for greater peace of mind. If you would sleep better with an asset allocation of 40% or less in stocks, go for it.The second asset class is bonds, and when held in conjunction with stocks they add balance to your portfolio and offset risk. Few individual investors have either the experience or the inclination to sort through bond issues. That’s why professionally managed bond funds are the average investor’s answer to where to invest for 2015 and beyond. With today’s high bond prices (due to recent record-low interest rates) you’ll want to be careful here in terms of exactly where and how to invest money.The answer to how to invest money here: avoid the temptation of higher dividends offered by high-yield (junk) and long-term bond funds. Junk funds pay more due to the low quality of bond issues held and the risk associated with default (of interest payments and/or principal). But the real risk for 2015 and beyond is interest rate risk, and long-term bond funds are high risk in that department; and are definitely not where to invest money in bond funds at this time. Your best bet for risk vs. dividend income: go with medium to high quality, intermediate-term bond funds for 2015, 2016 and beyond.For many years now the financial industry has suggested an asset allocation of about 40% or so in bonds as a rule of thumb for how to investment money for longer-term goals. As we look down the road to 2015, 2016 and beyond keep in mind that there is a bond market and it works much like the stock market. Bond prices and bond fund values fluctuate and usually less so than stock prices and stock fund values. If interest rates rise significantly, bonds and bond funds will lose money. Long-term bond funds will be hardest hit. That’s the way bonds work, and why it is crucial that you know how to invest money in them for 2015 and beyond.If high bond prices and an asset allocation of 40% don’t fit your comfort level, go with a lower asset allocation to bond funds. Now the question is how to invest the rest of your money if your asset allocation to stocks plus bonds adds up to less than 100%. The third asset class is often referred to as just “cash”, or safe liquid investments. As to where to invest for safety and easy access to your money consider a money market fund. As interest rates rise money market fund dividends automatically follow suit. Plus, you can easily move money from fund to fund within your fund family.If you are more adventuresome consider adding the fourth asset class, called alternative investments, to your asset allocation. These are your alternatives for how to invest money to make higher returns in 2015 if the stock market tanks. Examples include: real estate, gold, and natural resources like oil. The good news is that there are specialty stock funds that specialize in these sectors, so that’s where to invest to keep things simple. While stocks and bonds have become pricy, both gold and oil have dropped in price. If either starts to look cheap, that could spell opportunity in 2015, 2016 or beyond.