by NFS | Feb 17, 2012 | Archives
Establishing good credit is essential if you intend to apply for a business loan. But it’s not just for loans anymore – a good credit score can also help you:
- Secure a business credit card
- Open a merchant account
- Benefit from lower insurance premiums
- Build relationships and get flexible payment terms from suppliers
- Rent commercial property
- Lease or buy business vehicles
But how do you establish and maintain a healthy business credit score? What if your personal credit score
isn’t as good as it should be? Can that impact your ability to build business credit? This article includes tips for building your small business credit score.
First, however, you need to understand how business credit is measured.
How Business Credit is Measured
Business credit is calculated using what’s known as your Paydex Score – the business equivalent of an individual’s FICO score. Creditors and banks will check your Paydex score to see if you are a risky investment before they’ll extend loans and credit. But what is Paydex?
Maintained by Dun & Bradstreet (D&B), a Paydex score is “…D&B’s unique dollar-weighted numerical indicator of how (a) business paid its bills over the past year, based on trade experiences reported to D&B by various vendors.” Unlike your personal credit score, which is determined by several different factors, Paydex scores your business solely on whether or not you paid your bills promptly and within agreed-upon terms. Paydex is used by business credit bureaus to rate your business credit, although these organizations (D&B, Experion, and Equifax) also take into consideration other factors when weighing your overall score.
How to Build and Manage Your Business Credit Score
There are several practical steps you can take to establish and build both your Paydex score and general business credit score:
1) Register for a Tax Identification Number
If you are a sole proprietor, consider incorporating your business. This will legally separate your personal finances from those of your business so that you can build a separate credit history. Next, apply for a tax identification number from the IRS. You’ll use this to file your taxes as an incorporated business and to register your business with credit bureaus such as D&B.
2) Get a DUNS Number
If you are starting a business, get a jumpstart on building your credit history by applying online for a DUNS number at D&B’s small business iUpdate portal. This nine digit code is used by D&B and other credit bureaus to identify your business and maintain a credit file against it. If you already have a business credit file with D&B be sure to review it and correct any inaccurate information.
3) Apply for Credit From Suppliers
According to business credit specialist Marco Carbajo, the best place to start building credit as a startup is with suppliers. You can do this by applying for lines of credit to finance purchases such as office supplies, computers, inventory and so on, with flexible payment terms of net 30 or 60 days. Carbajo advises that you choose suppliers who you’ll likely deal with on a regular basis so that you can continue to build and maintain your credit (as long as you pay them on time!).
4) Separate Personal and Business Finances
Further separate your business and personal finances and start building a business credit score by opening a business bank account and putting expenses in your business name. You should also apply for a business credit card. Start by approaching your existing bank or credit card issuer – since you already have a relationship with them, approvals should be easier. This blog has some tips and considerations to be aware of before choosing a card.
5) Pay Your Bills on Time!
Since your Paydex score is based on your bill payment habits, never miss a payment date. If your cash flow can tolerate it, you could also consider paying your bills ahead of time to increase your Paydex score!
6) Monitor Your Score
According to D&B, the credit score of about one in three businesses declines over just a three-month period. So, plan on monitoring your credit once a quarter so that you are aware of what’s happening and how it might affect relationships with suppliers and lenders. It’s also a good habit to review your credit file to make sure it’s current and accurate. Any changes to your business, such as location, number of employees, outstanding suits/liens and revenue – can impact your credit rating.
Caron Bessley, SBA.gov
by NFS | Feb 16, 2012 | Archives
Problems at the IRS cause Nationwide Tax Refund Delay
Due to new and additional problems at the IRS with their new IRS computer systems, up to 50-60% of the refunds expected to be released by the IRS on 17 Feb 2011will not released. Most of the effected tax refunds were filed between 2/2 and 2/7. Earlier this week, the IRS released a statement noting problems with their computer systems which could delay some refunds. The IRS also notes that Where’s My Refund is incorrectly giving the impression that many of these returns have not been filed when in fact they have been. This problem is a nationwide problem affecting all tax preparers and millions of taxpayers nationwide. Taxpayers who visit the IRS and click Where’s My Refund will see a statement explaining this problem at the top of the page. The IRS says they are working on the problem but at this time they are not forecasting when you can expect your refund. Per IRS they don’t see delaying your tax refund a big deal and don’t seem to be all that concerned about it and they are not taking ownership of this problem.
Historically IRS has deposited most tax refunds on Fridays however the IRS has not told us when they will be fixing this computer problem and making these deposits but we are expecting and hoping they will be deposited next Friday Feb 24th.
by NFS | Feb 14, 2012 | Archives
What’s the best gift to give your loved ones on Valentine’s Day??
It’s called Life Insurance, but it could just as easily be labeled Love Insurance. Buying life insurance is really an expression of love. It lets loved ones know that you care so much that you’ve made plans to provide for their well-being…even after you’re gone.
If someone will suffer financially when you die, chances are you need life insurance. Life insurance provides cash to your family after your death. This cash (known as the death benefit) replaces your income and can help your family meet many important financial needs like funeral costs, daily living expenses and college funding. What’s more, there is no federal income tax on life insurance benefits.
Most Americans need life insurance. To figure out if you need life insurance, you need to think through the worst-case scenario. If you died tomorrow, how would your loved ones fare financially?
Would they have the money to pay for your final expenses (e.g., funeral costs, medical bills, taxes, debts, lawyers’ fees, etc.)? Would they be able to meet ongoing living expenses like the rent or mortgage, food, clothing, transportation costs, healthcare, etc? What about long-range financial goals? Without your contribution to the household, would your surviving spouse be able to save enough money to put the kids through college or retire comfortably?
The truth is, it’s always a struggle when you lose someone you love. But your emotional struggles don’t need to be compounded by financial difficulties. Life insurance helps make sure that the people you care about will be provided for financially, even if you’re not there to care for them yourself.
Call us now to set up your free life insurance review.
by NFS | Feb 13, 2012 | Archives
Q: Does the establishment of ANY Roth IRA start the clock on the 5-year rule? For example, a 40-year-old establishes a Roth IRA in January 2007. In March 2012, he establishes another Roth IRA, which contains funds converted from a Traditional IRA. Could he withdraw those converted funds and not pay a penalty tax?
A: There are two 5-year rules, one for tax-free distributions and one for penalty-free distributions. The 5-year rule for tax-free distributions starts when the first Roth IRA was established in January 2007. That Roth IRA can be used to satisfy any additional Roth IRAs established. Once five years pass and the other qualifications for a qualified distribution are met (age 59 1/2, death, disability, first-time home buyer), all distributions are tax-free. A non-qualified distribution of earnings in the Roth account will be subject to income tax and the 10% early distribution penalty, if applicable. Converted funds in a Roth IRA have their own 5-year rule. If the account owner is under age 59 1/2 and the converted amount has been held for less than five years, then the distribution is subject to the 10% penalty. Each conversion has its own 5-year holding period.
by NFS | Feb 12, 2012 | Archives
Interest rates at favorable levels and a good selection of homes provide an opportunity for buyers. Here are a few things for buyers to keep in mind:
1. Know what you can afford before you fall in love with your dream home.
2. Consider additional expenses that come with owning a home like property tax, insurance, and repairs.
3. Be flexible on the little things. It would be wonderful to find a home with everything you want, but those are hard to come by – distinguish nice-to-haves and must-haves early.
4. Have imagination and look beyond paint colors, wallpaper, or other easy and affordable things you can change.
5. Don’t compromise on the big things, such as enough bedrooms to accommodate additions to the family or space for an office if you work from home.
6. Always inspect even if the surface looks great; it’s important to know if anything major is wrong and what it will cost to fix.
7. Think about the future in regard to the neighborhoods, surroundings, schools, and developments.
If you have any questions feel free to call. If you are interested in one of our First Time Home Buyer Seminars, check the NFS Events page to find out when our next FREE seminar is
