1. You don’t have a real business.
If you’re operating as a sole proprietor without a formal business structure like and LLC, S-corp, or C-corp, then you’re not considered a true business entity. Yes, you may have an EIN number but that means that YOU as the individual are hiring, buying, and selling. Not a business. You. Every type of funding you apply for will be in your name and connected to your tax ID and personal credit. No way around it. You need a real business to get business funding.
2. You don’t have a proven business model.
Okay, so maybe you have a business, but is a GOOD business? And is it good to whom? To you? To your clients/customers? Maybe your customer service is excellent, but how about your financials? Your payment history? Your bank balances? Having a proven business model means your business appears sustainable. If anyone (and in this case lenders) were to run an analysis on your business, what would they conclude? Would they see a business that is thriving and has well-laid-out business plans and goals and a path to reach them? A business model that has proven itself profitable and will more than likely continue to profit (acts of God withstanding); or will they see a business with it’s training wheels still on, unsure of itself with big red flags waving “RISK! RISK!” You have to prove you’re profitable, sustainable, and therefore a reasonably wise investment to a potential lender.
3. You deal in cash.
Believe me. I get it. My parents taught me “cash is king,” “the debtor is slave to the lender,” and “don’t spend more than you make” just like yours. Or maybe you deal in cash because you don’t want anyone else to know your business. It’s your business. Why should anyone know what you’re buying or what you pay your employees? And we all know business owners want to pay as little in taxes as possible. (Don’t we all?) So what’s the big deal?
Well, when you have a business, you want to LOOK GOOD ON PAPER. What’s the big deal? Well, like it or not, one day that rainy day is going to come, and you’re going to need a helping hand—and remember #2? proven business model—yeah, well someone is going to ask you what you’ve been doing this whole time, and all they are going to have to go off of is your word. “Hi, I need you to loan me money or finance this thing. I PROMISE I’ll be able to pay it back because I KNOW I can. This will work!” What? So you expect them to take your word for it? Nuh-uh. Not going to fly.
You have to have excellent records of your business transactions, vendor relationships, bank statements reflecting high bank balances, consistent deposits, documentation showing your time in business, show profits on your tax returns. It’s all about the paper trail. You want more people than just YOU know that you are responsible with your money.
4. Your credit score isn’t the best.
Well guess what? Most people’s aren’t. Because an excellent personal credit rating is hard to maintain. Even if you pay all your bills on time, if you pay it off 100%, you get points docked for not leaving a balance. If you max out a line of credit that they gave you, you get punished for it. If you have too many lines of credit and not enough income, you get penalized. If you have too little lines of credit, they say you’re unreliable. If you carry to low of a balance, if you submit an application for an apartment, mortgage, car payment, get a divorce….the list goes on and on and on. Your personal credit score is unreliable at best and doesn’t always reflect how you run your business. And why should it?
The business has it’s OWN credit profile that is completely separate from yours. So why are you using your personal credit for business? Don’t. Stop now.
Not sure where to go from here?
Call us for a free consultation. In as little as one phone call, we can teach you how to tackle the issues your business is facing and revolutionize your business!
