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80% of Business Failures due to Insufficient Credit

Las Vegas, NV, October 1, 2003 -- Stanford University reported recently that nine out of ten new businesses fail during their first two years of operation, usually because of undercapitalization. According to Michael Gerber, founder and CEO of Gerber Business Development Corporation, author of The E-Myth: Why Most Small Businesses Don't Work and What To Do About It, eighty percent of all new small businesses fail in their first five years due to ten reasons including insufficient capital for startup and failure to properly extend and control credit policy and practices.Clearly, establishing credit for a business can make or break a business and often is a key to business success. "Establishing business credit should be started before the company needs it because lending institutions do not want to lend money to a business in need of cash flow," says Scott Letourneau, CEO of Nevada Corporate Planners."Many businesses start out using the owner's or officer's personal credit to gain approvals under the business name, but as the business grows, it should start to establish its own credit history and credit profile in order to take on business credit of its own. This is possible with a Corporation or Limited Liability Company (LLC) using the corporate tax identification number. Distinguishing the difference between you and your business is a very important step when you have a corporation," Letourneau explains. Further, according to Letourneau, there are two reasons business owners should try not to use their own personal guarantee for business credit. First, the individual signer is liable if the business cannot make the payments and second, the credit obtained for the business can affect the person's personal credit score.Some benefits of obtaining business credit is that a business can attain the following lines of credit:

  • Major Hardware Store Line of Credit - $15,000

  • Business Gas Card - $1,000
  • Electronics Store Credit Card - $7,500
  • Printing Company Credit - $2,000
  • Cadillac Escalade Lease - $45,000
  • Computer Equipment Credit $25,000
  • Major Department Store Credit Card - $5,000
  • Business Equipment Lease - $75,000
These can be obtained without a personal guarantee or the need for personal credit checks, when a business owner knows how to obtain business credit. But a very common mistake is thinking a great credit score will qualify the corporation for a loan. A great corporate credit score is only one of many items a bank will look at to make a loan. For instance, if a corporation is two months old and has just achieved a great business credit score, the score alone would not qualify a company for a loan.In the early stages of business credit, realistic expectations are to purchase tangible items on credit, obtain leases, and open credit lines with companies that provide products and services for the client's business.The analogy is similar to personal credit. Just because you may have a personal credit score of 720 does not necessarily qualify you to purchase an $850,000 home. You must have the financial capacity to repay the loan.If a corporation has a 75-80 corporate credit score that does not demonstrate the corporation's financial capacity to repay a large loan. Bank financing, loans, equipment leasing, and large ticket items require, in most cases, that the corporation produce financials to evidence the corporation's ability to repay the loan.The biggest advantage of having a good business credit profile is saving money. By improving your credit score, you will lower the interest you pay on loans and leases.

For example:
Average Credit
Good Credit
Loan Amount $50,000 $50,000
Length of Loan 10 years 10 years
Interest Rate 12% 8%
Payment $717.35 $606.64
Total Paid $86,082 $72,796

Savings for having good credit = $13,285It typically takes between 3-4 years to build corporate credit, but Nevada Corporate Planner's Corporate Credit Builder Program can compress that time to only 3-6 months. The goal is to establish a credit score of 75 or better. A business credit score of 80 is like having a personal credit score of 700, ie, excellent credit. A credit score is built by having lines of credit, credit accounts and trade references that report to the business credit bureaus. For most businesses, it's very difficult to find a business willing to grant credit without a personal guarantee and without any previous credit history. Most businesses need additional trade references that will grant credit and report to the credit agencies. One of the benefits of the Corporate Credit Builder Program is it is helpful to have someone walk through the steps of building your business credit profile with the business credit reporting agencies in the United States.Goals of NCP's Business Credit Builder Program: * Develop a Business Credit Profile using your Business Tax ID number instead of your Social Security Number
* Obtain a Business Credit Score for your business. Without a business credit score, your business will never qualify for credit.
* Obtain open lines of credit for your business with no personal credit checks and without personal guarantees.
* Improves your business' ability to obtain vehicle leases, lines of credit, or loans under the company's name.
* To keep your business out of the high-risk, no-credit status.Call NCP at 1-800-351-5111 for a no cost or obligation business evaluation for business credit.

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