Managing Business Finances – Credit Guide for Small Businesses and Minorities

Good Credit & Loans

The need for financing is a critical and perennial concern for the owners of small businesses. Many government resources, including guides, exist for small businesses. Many of these tools explain how to shop for and obtain credit, how to maintain a good credit rating, how to dispute unfair credit transactions, and how to resolve billing errors. The Federal Reserve provides a good guide.

There are also free government resources for obtaining loans. Here are some types of loans:

• Short-term loans are usually for less than one year. They can provide interim working capital for a business temporarily in need of cash and are repaid in a lump sum when inventory or accounts receivable are converted into cash.
• Intermediate-term loans are often used for a business start-up, the purchase of new equipment, expansion, or an increase in working capital. The maturity dates range from one to three years.
• Long-term loans generally are made for major capital improvements, acquiring fixed assets, or business start-ups. The term of the loan runs for periods of three to five years and is usually based in part on the life of the asset financed. Repayment is usually made in monthly or quarterly installments.
• A line of credit offers you the ability to borrow money repeatedly, up to your credit limit, without having to reapply. A line of credit is particularly important to businesses that experience seasonal fluctuations. The lender generally will perform a review once a year, at which time the borrower is asked to provide updated financial statements.

There’s a great new tool that allows you to search by state for loans available. This tool allows you to input your business type and provides direct links to view their requirements.

Tips for Applying for Credit

Applying for commercial credit can be tedious – a lot of documentation that you need to prepare for including how you will spend the money. The following are several items to include in a business proposal:

• Business description – An overview of your business, products, customers, etc.
• Personal profile – Your resume
• Business plan - Your strategy over the next few years and how you will generate revenue to pay the loan
• Personal finances - A list of your assets/liabilities and credit references

For more detailed information, go to the Federal Reserve Board.