By Wayne Moseley
The first most important aspect of credit for any business is time in business (tenure). Formal business tenure is established through a filing with the Secretary of State/Department of Regulations, etc. Often the business is licensed and listed with the city or county as required, but registered under the legal or dba (doing business as) name. A company’s business tenure can be verified with the above agencies or through Dun & Bradstreet, a national business credit reporting agency. Be very careful when giving information to Dun & Bradstreet, as certain information may be derogatory to creditors, even if normal for the industry or size of the business (more later).
Business checking accounts are also valuable in establishing tenure and go even further by establishing the average cash flow or health of a business. A landlord reference or governmental receipt with a dated stamp, etc. is also acceptable to some lenders, but at their discretion only.
Some Initial Public Offering companies purchase tenured holding companies just for this reason, to enhance tenure. Suffice to say, if you were planning on starting a business, even months or years from now, it would be wise to incorporate as soon as possible. Unsure of the business name you want, use a generic name and change it later. Open that checking account now. Yes, you can change the name on the account later as well. The opening date will also validate the tenure. It will also help if you’re able to keep $1,000.00 in the account, so when the business fully starts up and the deposits are flowing, the average balance will be acceptable for most small ticket lease/loan type requests.
Okay, you’ve done everything above or fit the criteria well, except you must decide who is going to be the primary officer or general partner of this corporation/company. Because you have the experience, you and/or your stockholder/partner decide you are to be the president, but you have poor personal credit. Not a good idea, it will haunt you until either your credit gets better or the officer(s) are changed.
You can still own stock, even a majority, and not report such details to the Secretary of State, in most cases. So do what’s important for the growth of “your company” and do not be fooled into thinking you must be listed as an officer. Wouldn’t you rather have a thriving business and be able to get credit, than be a “listed” officer with poor personal credit who’s unable to take their company anywhere or grow it as fast as needed. FYI, the officers listed must have good personal credit and be willing to guarantee bank loans and/or equipment leases.
Here’s a real deal killer. For example, a 47-year-old business sells only its receivables, equity and/or other assets. The seller, stockholder(s) or owner(s) lets the corporation expire because either their attorney or accountant said to. If you have plans to do any type of business later on (maybe after that no compete expires), keep the corporation intact, even if your attorney said “it’s best to avoid any past liabilities, someone could come back and sue the corporation.” Might be true, but you know the business, so evaluate the risk and decide for yourself. Or your accountant said “why pay money to keep a corporation intact, with today’s annual fees, it’s cheaper to incorporate later.” Right, but an untenured business needs to grow, so factor in the extra cost of the loan, due to the assumed risk, not to mention the aggravation of answering at least a dozen more questions and most likely put up additional collateral at the bank. Either way, you’re losing “time and money”.
So plan ahead and think hard about the primary officer listed with the Secretary of State or other reporting agencies. If you have personal credit issues, get started by ordering your reports. There are things that can be taken care of right away with time. So the time is now, not tomorrow. And if you wind up not going into business right now, the worst that could happen is you have improved your personal credit score and will save money the next time you buy that car or house. See next issue for all the important details you need to know about personal credit.
Planning on starting a business, but do not have a company checking account, open the account now under a dba, change the name or “update” it later. Ask your banker and don’t take no for an answer, they can do it. Don’t have a good banker? Stay tuned for our third issue on another important aspect of business, Business Relationship Banking. Wayne Moseley has been with General Equipment Leasing as president since 1987 and his many years of credit experience. His unique understanding of financing has enabled General Equipment Leasing to become the largest financer of Telephone Answering Service in the United States. If you have other questions or would like a free consultation, regular mail, email or call us. All information will be treated with the utmost confidence.
Wayne Moseley was the president of General Equipment Leasing and has many years of credit experience. For more information, contact Taylor Moseley, General Financial, at 813-505-6810 or visit gefinances.com.