Webinar Replay: How Business Credit Impacts Cash Flow
Posted May 18th, 2022
Your business credit can dramatically impact your company’s cash flow. Specifically, the stronger your business credit is the more options you have to improve and grow your company’s cash flow. Jonathan Fodera, President of Integrated Business Financing, joined us for this special event to discuss the relationship between business credit and cash flow and strategies to build business credit.
SCOTT PEPER 00:59
we’ll let everybody get a minute or two just, I see people coming in now and participants and on the LinkedIn live. So I’m Scott peeper, the CEO and co founder mobilization funding. I got a great guest here with me today, Jonathan Pradera. He’s a good friend. He owns a business called Integrated Financial, he’s going to talk about business credit, and a little bit more about what he does. And of course, I always have my co host here with me autumn Sullivan. And she is in process of making sure this all works perfectly. So while everybody’s still logging in, we are going to just let her do her thing.
AUTUMN SULLIVAN 01:36
We are good. We are live on LinkedIn, we have participants rolling in. So if you guys want to go ahead and get started, I will be monitoring your LinkedIn live. So if there are any questions, I’ll go ahead and pop back up and relay those to you. You can also ask questions. If you’re here on Zoom, you can ask questions in the chat or in the q&a. And I’ll be monitoring both of those. Otherwise, I’m gonna go ahead and turn my camera off and let you guys have a great conversation.
SCOTT PEPER 01:59
Awesome. Thanks. Awesome. Thank you, everyone, join us now integrated business financing. Jonathan Fodera is the founder and CEO. He is with me today as a guest we’re going to talk about business credit, why it’s important what how you can impact it, what it does for you what it can do to hurt you, and all the different things ways you can get this fixed, repaired or maintain it and things you can check out. Jonathan, I know you’re traveling and thank you for joining us. I appreciate it. How you doing?
JONATHAN FODERA 02:28
I’m doing great, trying to get us a nice view in the background as we’re going through this. So guys, thanks. Thanks for bearing with me. And hopefully I don’t come in choppy. I wanted to kind of help and educate everyone a little bit about business credit, right. So everyone understands that you have your personal credit score, right? And that drives almost every thing that you do. Okay, including getting an SBA loan, a line of credit, buying a car buying a house, well, your business also has a credit score, okay, and it works the same way. But it’s different than your personal credit. All right. So when you’re going and maybe applying for larger jobs with a municipality, when you’re trying to get a piece of equipment, or even get a large loan or an SBA loan, your business credit comes into play. So it’s very important that when you’re doing this, you understand that you have you know, you work on your business credit, and you work on your personal credit. All right now, Scott, if if anyone has any questions, because I can’t see their comments, or if you think
SCOTT PEPER 03:39
the question I usually get and I think it’ll be good for you to touch on this would be just what is business credit Exactly? Like how does how do I get like, like I own a business, but how do I how does my business get a credit score and where do I see it or find it? That’s not something I typically hear? That’s the common most common question I get from our clients or other folks out there.
JONATHAN FODERA 03:59
Got it. So the easiest way to say hey, where can you check your business credit? Dun and Bradstreet, Dun and Bradstreet and Experian are probably two of the more reputable business credit bureaus. All right, and we’ll go into how to establish business credit. Next, right so as soon as you start your company, you get your federal tax ID. Once you have that federal tax ID you can go and apply for your DUNS number with Dun and Bradstreet number. Right. And that’s basically the start of you getting an establishing your business credit. Now, the reason why business credit is important besides for financing, it allows you to separate your business and your personal to an extent not completely separate but to an extent. And what that does is now you can go out and get trade lines from vendors which also helps with your cash flow. Right. So if you can get net 15 or net 30 terms from your vendors Okay, instead of putting that on a line of credit or a credit card, that’s going to help smooth out your cash flow and ultimately allow you to grow the business a little bit faster. Right? So, I want to go over five things that people usually get wrong. Okay, when you establish your business credit, and this will really help. Okay, they’re called the Five fungibility factors. One, you need a business phone number that’s an it can’t be a Google Voice number, it has to be listed to the business. The next one is a business email. So many people have, you know, Scott peeper. Mobilization funding at Gmail, right? How many times have you seen that when someone applies? Or at Yahoo. Okay, it needs to be, you know, Jonathan, at integrated business, finances, super easy to set that up. Just go to Google, and you get a business account, it’s G Suite, and it costs you like $9 a month. So if you’re listening, and you haven’t done that, please make sure you have all this stuff done. Okay. Next is a business address. Okay, and the business address cannot be a Pio box. Now, a lot of people say, Well, hey, John, I’m home based. That’s fine. You can put your home address there. Okay. But you have to have a business address. Okay.
SCOTT PEPER 06:22
Because your business address have to be your mailing address, Jonathan,
JONATHAN FODERA 06:25
it does not have to be the mailing address. Okay. Okay. But it absolutely shouldn’t be a Pio box. You know, we both know being in the industry, we’re in Pio boxes usually indicate. Usually, there’s some level that can be some level of fraud. Having a Pio box, nothing’s verifiable, right, you’re literally just sending your mail to one location. So make sure you have a business dress. Now. Here’s where it’s super simple to tie in. All of those three things need to be on a business website. Okay, this website can be one page. It can be a simple one page website. All right, but not having is going to have you fail out of those five fungibility factors. All right, and the next and the most obvious, having a business bank account. Okay, have a business bank account. So if you have all those things, then what I would tell you to do is go to Dun and Bradstreet and make sure all those things are listed anywhere that your business is online, any web presence you have, should have all those things and they should all match. All right, when when something is pulled, and there’s conflicting information, it can actually hurt your business credit and hurt anything that you’re doing in the lending process. Does that make sense?
SCOTT PEPER 07:50
Does. So those are the five main things that like a Dun and Bradstreet or Experian are gonna look at as sort of the like, what I would call the you didn’t say this, but I’m calling them like prerequisites to be able to have business credit. And once you meet those five basic things, you can, you’re now eligible to have a business credit score, or more importantly, you’re gonna get a business credit score, no matter what you want to make sure you have one that’s going to be positive. And if you have one that’s negative, because you don’t even have it set up. That’s going to be a problem. So I guess my next question to you is, then, how does Dun and Bradstreet decide on what my business’s credit score should
JONATHAN FODERA 08:29
be? Well, that’s a great question. So the challenge that most people have with establishing and building business credit, besides what we prereqs we just went over is that business credit, only, only 7% of companies actually report. Okay? So you want to make sure that you’re using companies that are reporting and you’re opening up trade lines, okay, don’t buy trade lines, you’re opening up trade lines that your company is using, so I’ll give you some real easy ones every single business can use staples can use best can use UI, okay, when you go and apply these places you want to apply using your DUNS number. All right, because then it’s going to report to Dun and Bradstreet and just like a credit card when you go there, use the business credit okay, they might start your off super low, you use the business credit and then you pay it off at the end.
Continuously open up trade lines. So if you have a vendor, see if they can give you terms and they can report all right. So if you know you need the same materials Job and Job out, okay, and you always go Don’t use one supply house, try to get terms from them and see if they report when this matters because some municipalities, okay, and some of the larger jobs you can bid on. If you don’t, if you don’t have a certain business credit score, they might not let you get the government work or the municipality work. On the on the other side, if you go and you try to get equipment financing, let’s say you need a backhoe, okay, but you have no business credit. getting that approved is going to be tough, I just had a friend of mine. Try to buy a lot of trucks and a lot of trailers, but she didn’t have anything recent on her business credit. So we it was, it’s been a much harder process than if she had established business credit that she was actively using. And she does have a good credit score. So this stuff matters, especially when you’re trying to grow and scale your business.
SCOTT PEPER 10:56
Please do so I guess one of the questions is, can you get your supplier or your trade partner to actually report like, for example, if you have subcontractors that you’re using labor, that you’re hiring subcontract labor? Or you’re ordering from the supply house? And it maybe they’re not a large class? Or maybe they are due? Can you ask them all the report? Or do they already I guess too much? Do they already report standard? And if not, can you require ask them to is that something that can be done, you don’t want to wait to know if they’re reporting is to actually pull it. So we can pull this credit integrated. Most people are not reporting. That’s just the fact most people are reporting the ones I gave you. You know you on Best Buy staples, they should report. But those are smaller trade lines just to get an establishing going now, what I go
JONATHAN FODERA 12:02
alright, typically, if we build somebody’s credit, right, their business credit, we can build $50,000 and trade lines within six months, that’ll normally take, you know, 12 to 18 months. Alright. But it is important because as you go on, and as you try to scale your business, take on bigger jobs, and you need to buy equipment, or maybe an SBA loan, you really want that established. So you can ask anybody to report. And hopefully they do, I don’t think you can require it. But if you have open business relationships, and you’re working with, you know, like, let’s say you’re working with my team, we can see if we can have that self report, which would add to that trailer,
SCOTT PEPER 12:41
when you said when you said it’s really expensive. Are you talking specifically about the DUNS program that they try to sell? Are you saying it’s just expensive to have business credit in general?
JONATHAN FODERA 12:51
It’s not expensive to have business credit. But DUNS does have a done for you service. Okay, that is expensive. So you
don’t need that necessarily.
You do not need that.
SCOTT PEPER 13:03
Alright, so if I’m a business owner, I want to have established business credit, I see the value in it. I have a business I meet the five fungibility fungibility criteria that I need. I do buy from Staples or Uline. So I have some small credit there, I might even have a credit card that I’m using in the business that isn’t the business name that can be paid for. But I still don’t have a lot of business credit. How do I build that up? What can I do? You want to just open more trade lines, trade lines. So what does Dun and Bradstreet do that as a service? Or do you offer as a service in order to help build those trade lines up to where I can have 50,000 helped my business credit shows I’m worthy of a $50,000 credit limit or 100? Or more or whatever?
JONATHAN FODERA 13:55
Yeah, so what we do is we have a team that specializes in it. So you would, you know, inquire about that first. We don’t we don’t offer that to anybody, unless we’ve actually pulled their business credit first. Because if they already have established business credit that’s really strong. We don’t want to pay for something that we’re really not going to help. So what we would do is we’d have a review, we would do a review with you. And then if we think that we can really help and add value, we would connect you with our team, they would they would literally direct you who to apply how to use it. You know when to go on to that next level, that next vendor, because what happens is a lot of these companies change who reports and who does, right so it’s we our team stays on top of who’s reporting how they’re reporting and what bureaus they’re reporting to. So let’s say somebody only reports to Experian and we need them to report to Dun and Bradstreet, we can actually go in there and self report so that that’s really how the service works now. If you are in construction In one manufacturing or anything like that, the other way, use your business credit, right? So let’s say your business credit is established, and you need to get a $40,000 piece of equipment. Well, you should be financing that equipment, because that will absolutely report, we can help you finance that equipment, it’ll absolutely report to your business credit. And as you build your what you’re doing is you’re putting comparable debt on your business credit. So let’s say this time we got your $40,000 piece of equipment, maybe in six months from now, business is growing, you want to get an $80,000 piece of equipment? Well, you have comparable debt on your business credit profile, which makes it an easier transaction to get done.
SCOTT PEPER 15:45
Does that usually does that usually result in like lower interest rates on equipment or better, better terms?
JONATHAN FODERA 15:53
It can. Absolutely.
SCOTT PEPER 15:58
So all right, so let me change gears on you for a second on that. So let’s say I have a business, it’s been well established. It’s it’s five, six years old, I have some business credit. But then I had a bad project or a bad job. And my credit gets hurt both couldn’t be personally but definitely in the business credit gets hurt or dinged. What can I do to repair that? Or fix it or make it better?
JONATHAN FODERA 16:24
It depends on what was damaged there. Right, like personal credit would work a little bit differently personal credit is your your 30 days behind on a car payment, right? Business credit. It’s going to depend on what trade line it is, how big was that trade line? And you know, How late are you if you pay it and bring it current that’s going to help you. Also if you have a few established other trade lines that are strong and larger, that’s going to help you like credit is oh, wait on one, are you making all your payments on time to how many trade lines are how many? How many people have issued your credit? And three? What is your utilization? Right? So anytime that happens, it’s alright, you want to you got to bring it current, and then use it the right way. Okay, and then ultimately, if you can open up more tradelines and use them and make sure their current that’s always going to show a positive pay history. Gotcha. So,
SCOTT PEPER 17:28
again, going back to construction, or manufacturing, because that’s a lot of our clients and our audience, in the business credit world outside of equipment financing, and maybe an SBA loan. And frankly, a lot of the SBA loans that I’ve seen given to a client, it relies so little on the business credit side to help them get it necessarily as much as it does like the financials and the cash flows and the tax return the general business itself. Where what priority should we be putting our business credit in when it comes to trying to get a loan on the business?
JONATHAN FODERA 18:03
Oh, equipment financing is really where it’s going to come into play. Okay. And then I would say bidding on municipality work or government work comes into play SBA, like you said, sometimes it does make a difference, right. But for the most part, like or a very, very large transaction. Like I know, a couple FinTech companies that if the business credit is not strong, and you’re trying to get more than let’s say 200,000 300,000, that will, that will absolutely factor. Okay. But an SBA loan, like you said, it’s primarily going to be what’s, what’s the financials? how profitable were you? What is your personal credit? What collateral Do you have, you know, to support and backup the money that you’re trying to borrow?
SCOTT PEPER 18:51
Okay. You know, one of the questions, does it help business credit if your financials are done by a CPA versus internally prepared? Or if you get reviewed or audited financials? Will that help business credit?
JONATHAN FODERA 19:06
No, that that really doesn’t come into play. There’s business grade, that’s kind of like, personal credit to right. So it just it’s always reporting is who’s offered you credit? How have you paid them back? And what did you utilization?
SCOTT PEPER 19:22
Okay. So for everyone that’s listening online, a couple things I want to point out first, if you have any questions, go ahead and put them right in the q&a box. And I’ll be able to answer the ask these straight directly. In the meantime, I’ll keep tick fire off the questions that I’ve gotten in advance that people have provided to me. So hopefully, I’m doing a good job and getting those questions out and anything I normally hear. So I’ll switch gears, we’ll go ahead and do that in the q&a box now, if you’d like and I’ll pull those up.
JONATHAN FODERA 19:49
And hey, and anyone that’s listening, if you guys want to know where your business credit is, just reach out. I’ll try to get a link in there to schedule a time to speak, if you guys need help with anything, or you could just reach out and message me, I am traveling, I’ll be back in the office tomorrow. So please bear with me, if I don’t get back to you until tomorrow.
SCOTT PEPER 20:12
For everyone that’s on, we’ll put Jonathan’s contact information, his website, on the LinkedIn post when we recycle this back out, and we’ll make sure that it’s attached and in a spot where you guys can grab all that. Um, so Jonathan, going back to, outside of business credit, let’s talk a little bit about the lending side of it. And as it relates to business credit, so let’s say, you know, my business credit I’ve not paid attention to, I don’t really need to buy equipment, I do want to make sure I have, I don’t want it to hurt me, it leaves maybe can’t help me, but I don’t want to hurt me. What are some other things that I can do to make sure that I get any equipment now? But what about I don’t have business credit, what are some things I can do to make sure I can qualify for the equipment or the vehicles that I want? Or if I am thinking about getting an SBA loan or some other type of business loan, what are things that I can do now that I should be paying attention to, in addition to business credit?
JONATHAN FODERA 21:14
Well, a couple of things is one anytime you take financing or apply financing, you should know where where you stack up, where you stand. So how’s your personal credit? How’s your business credit? You know, very, very rarely, do you see what we call a corporate only business transaction. And that’s just somebody that is solely using their business credit, to get a piece of equipment. And for that, you have to have outstanding business credit. And typically, I believe, either five years in business or seven years in business, and have a lot of comparable debt. Okay? Now, for the average business owner. Okay, what you can do is you can check on Dun and Bradstreet, make sure your business credit is one established and two looks alright. And your personal credit, right, because equipment financing, those are, those are going to be two of the bigger factors that weigh in one if you get approved or not. And two, how much you get approved for. And the other thing they like seeing is on the right is want to see comparable debt. All that means is if you’re a logistics company, you know, you’ve financed trucks and trailers in the past, or if you’re in construction, you know, you finance a couple bobcats, you finance a couple of combat shoes, whatever, whatever it is that heavy equipment that you use it, okay, so having that comparable debt on there is very helpful. And if you don’t have comparable debt, because you’re younger company, my suggestion is make sure that you have strong personal credit, strong business credit, you keep a decent amount of cash in the bank, and then I can help you get, you know, those first couple pieces financed, then they get seasoned or aged and then they’re on your business credit profile. And then it’s easier if you go back and let’s say six months or 12 months to get another piece financed.
SCOTT PEPER 23:08
So one question from on, we just got from Russell, what type of financials? Let me open that up. What type of financials like what kind of revenue position? Business Owner FICO scores yours in business collateral would a subcontract or typically need to establish a line of credit with like a commercial bank or credit union? What do you see as the minimums to establish with a line of credit with a bank? So I guess the question, if I were summarizing here, this credit is given what are some of the minimum expectations that a bank, in your opinion is trying to see if they want to get a traditional line of credit? And I get, let’s just say, for this not articulating here, let’s just say it’s an appropriate size line of credit for whatever you need for the business that says,
JONATHAN FODERA 23:55
Yeah, happy to help, I can only answer to what my programs would look like. Mine are pretty traditional. So for a line of credit, you’re going to want to see two years in business, at least $30,000 a month in revenue, eight, eight plus deposits, okay. So you want more deposits going into the bank, you want steady cash flow, when I say steady cash flow. You don’t want to see any negative days. You want to keep rule of thumb between five and 10% of whatever your top line sales are, as an average daily balance. So let’s say you’re doing $50,000 a month. Ideally, we’d like you to have $5,000 average debt average daily balances on the low end of the credit spectrum 650. Anything above 650 is a plus. So those that’s where I would say your bare minimum or that’s where the credentials would be. So two years in business A 650 credit, at least $30,000 a month in revenue and good cash flow.
SCOTT PEPER 25:08
I can add to that question too. I just attended a conference two weeks ago where some of the larger banks and some of the smaller regional size banks, but six different banks were there. And they talked about their criteria, there was a few things that I took away from that one was they all care about personal credit, for sure. Even though it’s on your business, they absolutely care about that. The minimums ranged exactly from as low as 570. But that was specific to a micro loan product by one credit union only here that happened to be local, and those loans only went up to 15 grand. But the minimum threshold was really that 640 or above, for significant lines of credit, they wanted to see 680 and even over 700. And then that was just personal credit, the business needed to be able to show that it could cashflow, typically one and a half times the debt service to be able to handle a traditional loan like an SBA loan, if it was a line of credit. They didn’t give specific criteria on set, well, they gave a criteria on the credit. But from a business perspective, they want to see that it’s appropriately sized, they are going to have specific uses for that line of credit, they want to see it used and paid down, almost nearly used and paid down on a monthly basis. Even if you were to use it, pay it down and immediately redraw the next day, they want to be able to see that you’re using that line of credit as not alone, but more as a use of free cash to handle differences between payment terms that you may have with a supplier or payroll bridging gap bridging the gap between when you’re paying not and they want to see the financial discipline on being able to do that hard to do when you don’t have a line of credit. And in some of the industries. They were just just completely agnostic to the fact that if you were in construction, for example, some banks just weren’t going to do that at all. So I would say aside from other things you can do in personal credit, do not make the assumption that all banks are the same. Find your smaller community size banks where you can have a relationship with a specific banker and get in now, before you ever need or want a line of credit, you’re going to need to build a long term relationship with them face to face, somebody that can work and advocate on your behalf. That was the biggest takeaway I took from them, they made that point clear. So get in, build a relationship with them. Make sure you have some deposit accounts, let your face be seen. Show them a business plan, show them where you’re going what you’re trying to establish, let them know you don’t need them right now. But you really are going to look forward to them on as you execute, give them that give that banker the information that you can submit to and start building that rapport. Are there any other questions in there? At the moment? Jonathan, I have a question for you. What are some of the tip? What’s a typical question or two that you are typically asked, but no one’s asked, or I haven’t asked you yet today?
JONATHAN FODERA 28:20
about business credit, or just in general?
SCOTT PEPER 28:22
I’d say business credit for sure. But if there’s some other nugget in there, yeah, definitely. But any other questions on business credit or repairing?
JONATHAN FODERA 28:30
Or I think I think the biggest thing is people ask when should I do? Right? That’s not that’s one of the things that everyone wants to know. And the truth of the matter is, it’s like planting a tree. The best time to plant a tree was 30 years ago, the next best time is today. All right. So the thing is, with business credit, it does take time. Okay, it takes time to build. So you want to start today. Okay, anytime you want to apply for financing, think about it. Scott, we see We help business owners all the time get financing to grow their business. However, how many times does somebody wait to wait or wait till they absolutely need the financing to reach out instead of contacting us prior to when they need it? planning it out? And understanding you know, that you want to be in a good position like the best time to apply for financing is when you don’t need it. Why? Because your credits probably strong, your cash flows probably strong. We’re going to be able to get your line of credit. We’re going to be able to get your project project funding, we’re going to be able to help you right you don’t want to wait until there’s been a severe need the cash flows banged up. You started you know leveraging your personal credit cards to float things and now your personal credit is is struggling. So with business credit. The best time to start is when you start your business, okay, but if you’ve never focused on it. It’s something you should look into today. And if you need help reach out, I’m happy to do it. All right, that’s something all type of financing you want to apply when you don’t need it.
SCOTT PEPER 30:14
I would add one thing. It’s funny, you said that that I also took from that conference was you. There’s three folks you need to get on early before you ever need them. And that’s your CPA, your banker and your attorney. And so I think you just hit the nail on the head right there you want you want to put those folks on your team in your corner and be communicating with them way before you ever need them or ever crisis. Those are going to be your best friends and business outside of outside of your current immediate team, of course. Absolutely. Does anyone else have any other questions? You do? Put them in the chat. Jonathan, is there anything you want to we’re coming up on our time here? And I want to make sure I’m appreciative of everyone’s time. But is there anything that you want to add? Talk about that we haven’t touched on? I don’t see any other questions popping up in the chat?
JONATHAN FODERA 31:07
Nope, I appreciate you, brother. Thank you. This was a, we made this happen. I’m super happy we we could get this done. And I appreciate you. And it was we’re both here to help anybody that’s watching. So you know, you’re you’re in good hands.
SCOTT PEPER 31:22
And I will make sure I get on the comments and LinkedIn. Jonathan’s information where you can reach him at I’ll also, it’ll also, of course, be on our website and the replay of this where you can always access on our YouTube channel, on my LinkedIn, you’ll be able to see this, but it’ll be also a link to our website. And we’ll make sure we have all the info there. So between our YouTube or website and the LinkedIn, there’ll be three places you can find that as well as Jonathan’s website directly. Awesome.
AUTUMN SULLIVAN 31:52
Wonderful. All right. Thank you guys. Thanks for great conversation. Thank you, everyone, for joining us. And yes, I will make sure that all the links are in the YouTube description and in the replay email if you registered via zoom. Excellent.
SCOTT PEPER 32:04
Thank you all for joining us. We really appreciate it. Have a great rest of your day and enjoy the rest of your week. Bye bye