In this post, we’ll cover some key last-minute business tax filing tips to help you avoid chaos and complete your tax filing quickly, without sacrificing accuracy. Read on to discover how to file business taxes efficiently and confidently.

1. Get Organized Early with a Tax Checklist

One of the best ways to avoid last-minute business tax filing stress is by getting organized ahead of time. Create a detailed tax season April 2025 checklist, and include all the documents you’ll need—like profit and loss statements, receipts, payroll records, and 1099s. Having everything prepared and in one place will save you valuable time when it’s time to file.

An organized checklist will also help you ensure that you’re not missing out on important deductions or credits. The earlier you start, the more time you’ll have to gather everything you need without feeling rushed.

2. Consider Hiring a Professional Tax Preparer

If you’re feeling overwhelmed by business taxes, it might be time to hire a tax professional. An experienced accountant or tax preparer can guide you through the complex tax filing process and help you avoid errors. Working with a professional allows you to focus on running your business while they handle the paperwork and filing on your behalf.

If you’re worried about how to file business taxes quickly, a tax expert can streamline the process and ensure you don’t miss any important steps. They can also help you navigate potential tax law changes for tax season April 2025, ensuring that your business is compliant with the latest regulations.

3. Keep Track of Estimated Tax Payments

If you’re a business owner, you’re likely required to make estimated quarterly tax payments throughout the year. Failing to keep track of these payments can lead to surprises when filing your taxes in April. Review your quarterly payments, compare them to your actual tax liability, and make adjustments if needed.

Staying on top of estimated taxes can help prevent last-minute surprises and ensure that you’re not scrambling to make additional payments at the last minute. If you haven’t made payments throughout the year, you may be subject to penalties, so be sure to assess your situation ahead of time.

4. Take Advantage of Tax Deductions and Credits

Business owners can often reduce their taxable income by claiming various deductions and credits. Common business deductions include operational expenses, employee wages, marketing costs, and equipment purchases. Tax season April 2025 might present new opportunities for deductions based on recent tax law changes, so it’s important to stay up-to-date on eligible business expenses.

By planning ahead and consulting with a tax professional, you can maximize your deductions and credits. This will ensure that you minimize your taxable income and avoid paying more taxes than necessary.

5. File Early to Avoid Last-Minute Rush

To avoid the stress of last-minute business tax filing, aim to file your business taxes as early as possible. This gives you ample time to resolve any issues, request extensions if needed, and receive your refund more quickly. Filing early also reduces the risk of tax identity theft, as scammers often target those who wait until the last minute to file.

By tackling your business taxes early, you’ll avoid the last-minute rush, reduce stress, and have more time to focus on other critical aspects of your business.

And with your tax deduction, consider putting it towards CreditStrong for Business, the 0% interest business credit builder that builds business credit with your EIN instead of your SSN.

The post How to Avoid Last-Minute Stress: Tax Filing Tips for Your Business appeared first on Credit Strong.

In short, the NAICS code system helps standardize the classification process of businesses throughout North America. Here’s what you need to know about NAICS codes, including how they’re used, whether they impact your business credit score, how to find your code, and more.

What Is a NAICS Code, and How Is It Used?

NAICS stands for North American Industry Classification System, and it was created in 1997. 

The system was developed to solve some of the problems with the Standard Industrial Classification (SIC), which was developed in the 1930s and focused only on U.S.-based businesses.

Over time, as small businesses expanded beyond the U.S. and new industries were created, the NAICS system expanded on the SIC system to provide more accuracy. 

NAICS codes have up to six digits. The first two signify the company’s economic sector, and the third defines the subsector your business is in. The fourth digit determines the industry group, the fifth is the industry type, and the sixth signifies the industry by nation. 

A company typically only has one for purposes of the Census Bureau, but other government agencies, trade associations, and regulation boards may have their own lists that can vary from what the Census Bureau has on file. Here’s how NAICS codes are used:

• Statistical information: The NAICS system was developed by the Federal Statistical Agencies, primarily to aid in the collection, analysis, and publication of data within the U.S. economy.
  
• Size classification: Depending on your industry and revenue numbers, there can be different standards for what constitutes a small business. But even within industries, it doesn’t make sense to classify certain businesses the same way.
  
  For example, consumer lending businesses and collection agencies are classified with two separate NAICS codes. According to the U.S. Small Business Administration, collections agencies are small if they have $16.5 million or less in annual revenue.
  
  If you’re in the consumer lending niche, though, you’re still considered small up to $41.5 million in revenue.
  
• Government contracts: If you’re trying to obtain a government contract, the size of your business matters. Using the size classification from the SBA, government agencies may use your NAICS to determine your eligibility.
  
• Other federal purposes: NAICS codes may also be used by the Department of Revenue to help create legislation or by the government to provide tax incentives. It can even be used by the IRS for administrative purposes.

How Does It Affect Business Credit?

Small businesses already have a harder time obtaining credit than consumers, especially when the business is still new and the threat of failure remains high.

Your NAICS code is recorded in your business credit reports, along with your credit activity. Unfortunately, this means that your NAICS code could potentially hurt your business credit and make it difficult to get approved for financing when you need it.

This is because some industries tend to be riskier than others. According to the NAICS Association, higher-risk industries include auto dealers, casinos, travel agencies, restaurants, convenience stores, and more.

If you were to try to get financing for your business and you’re in a high-risk field, you may end up paying a higher interest rate or getting denied altogether. The same goes when seeking out vendors and suppliers, which can pull your business credit reports without your permission. 

How Do I Find Out What My NAICS Code Is? 

NAICS is a self-assigned system, which means that the government doesn’t determine your NAICS code. 

Rather, you’ll choose the NAICS code that best describes your business. If your business has more than one unique line of business, you may end up choosing more than one NAICS code.

You can find available codes via the NAICS Association database. Start by entering a keyword to help you narrow down your list of options, then search the list to determine the code that best fits your business.

If you’re not sure about what your NAICS code should be, you can contact the U.S. Census Bureau at NAICS@census.gov or 888-756-2427.

Common NAICS Codes

There are 20 economic sectors listed in the NAICS Association database, and you can get unique codes for each by clicking on the two-digit sector identifier.

Based on the top three sectors, here are some of the most common NAICS codes within those sectors:

Professional, Scientific, and Technical Services

• 541110 offices of lawyers
  
• 541211 offices of certified public accountants
  
• 541213 tax preparation services
  
• 541330 engineering services
  
• 541320 landscape architectural services
  
• 541511 custom computer programming services
  
• 541512 computer systems design services
  
• 541611 administrative management and general management consulting services
  
• 541618 other management consulting services
  
• 541921 photography studios, portrait

Other Services (Except Public Administration)

• 811111 general automotive repair
  
• 811121 automotive body, paint, and interior repair and maintenance
  
• 811192 car washes

• 811412 appliance repair and maintenance
  
• 812112 beauty salons
  
• 812113 nail salons
  
• 812199 other personal care services
  
• 812910 pet care (except veterinary) services
  
• 813110 religious organizations
  
• 813410 civic and social organizations
  
• 813910 business associations

Retail Trade

• 441110 new car dealers
  
• 441120 used car dealers

• 441110 furniture stores
  
• 443142 electronics stores
  
• 444110 home centers

• 445110 supermarkets and other grocery (except convenience) stores
  
• 445120 convenience stores
  
• 445291 baked goods stores
  
• 446110 pharmacies and drugstores
  
• 447190 other gasoline stations
  
• 448120 women’s clothing stores
  
• 448310 jewelry stores

• 451110 sporting goods stores

Can You Change Your NAICS Code?

For the most part, your NAICS code is self-assigned, so if an agency or organization has the wrong code for your business, you can contact them directly to file a request to correct it. 

Unfortunately, there is no official way to change your NAICS code across all organizations and agencies that have one on file for your business. So you’ll need to go through this process with each individual organization that has the inaccurate code.

Your NAICS code may also change over time as the Office of Management and Budget reviews the system every five years to determine if potential revisions are needed. The next scheduled review for the NAICS system will occur in 2022.

The Bottom Line

Your business’ NAICS code is an important way to classify your business, not only for statistical purposes but also to help you obtain credit, get government contracts, and more. 

If you’re asked to provide your NAICS code for any reason, it’s important to make sure that you find the correct code to describe your business.

If you choose the wrong code, your business may be evaluated by lenders, government agencies, and other organizations differently than it should be.

This is especially important when it comes to your business credit history. If your business credit score has dropped because of a wrong NAICS code, it could end up costing you money. 

That said, if you do operate in a high-risk industry, it’s important to be honest about your NAICS code, so you don’t end up in trouble.

Keep an eye out for adjustments to the NAICS system every five years and make changes as needed to ensure that your business is being classified accurately.

The post What Are NAICS Codes and How Do They Work? appeared first on Credit Strong.

Shelf corporations, also sometimes called shelf companies or aged corporations, were designed to help accelerate this process. 

But many experts consider shelf companies to be a gray area, especially if a new business owner uses one to obtain credit that they wouldn’t have qualified for otherwise. Shelf corporations are usually associated with a lot of shady activity. 

We want to make it clear that CreditStrong does not endorse the buying of shelf corporations for business financing purposes. Most lenders consider this fraud – we’ll go more into detail below.

For educational purposes, here is what they are and why you should avoid them.

What Is the Purpose of a Shelf Company?

Shelf corporations allow new business owners to effectively skip the process of establishing a solid track record of business history and business credit. This is often necessary to obtain financing, engage in real estate agreements, and perform other critical business activities. 

This is because creditors are often wary of dealing with brand-new businesses, and for a good reason. 

According to the U.S. Small Business Administration (SBA), only two-thirds of small businesses with employees survive the first couple of years, and half are out of business within five years. 

Many lenders simply aren’t willing to try to mitigate the risks associated with such a high failure rate, even with personal guarantees. 

A shelf corporation is a company that’s established and then effectively “put on a shelf”. The company typically doesn’t engage in any business activities and may not even have any assets. But owners take steps to establish a business credit history for the company. 

Oftentimes, these companies also have an employer identification number (EIN), a record of annual tax returns, business bank account, and more.

Once the shelf corporation is sufficiently established — which can take several months or even years — shelf corporation owners sell their companies to new business owners. 

Depending on how long the company has aged and the quality of its credit history, prices can range from $650 to $10,000. 

Shelf corporations are often formed in states with business-friendly regulations, including tax benefits, low filing fees, a higher level of anonymity, and more. Common states for aged shelf corporations include Delaware, Montana, Nevada, Texas, and Wyoming.

Shelf Companies vs. Shell Companies

If you’ve never heard of a shelf company before, you may be wondering if it’s similar to a shell company. But while they sound similar, they’re used for different purposes.

While a shelf company is used to help new business owners take certain shortcuts, a shell company is designed to hold money for an individual or another company. 

Shell companies typically don’t have any business operations of their own, and they’re often formed as offshore corporations.

There are some legitimate purposes for shell companies. For example, they can be a good way for public figures to keep information about their residence private. They can also be used by corporations to protect trade secrets from their competitors. 

However, shell companies are also sometimes used for tax evasion, money laundering, and various forms of fraud.  

Are Shelf Corporations Legal?

Technically, establishing and maintaining a shelf corporation is legal. But buying a shelf company to take advantage of its benefits is considered a gray area by many business experts, and there are some risks involved for people who use them.

You Could Be Committing Fraud

For most business owners, the primary reason for purchasing a shelf corporation is to use the business credit history to obtain financing that they wouldn’t otherwise be able to access. 

This could be considered credit fraud because you’re misrepresenting your creditworthiness as a business owner.

As a result, using a shelf corporation to get access to a seasoned business credit history may not be in your best interest. 

You Could Be a Victim of Fraud

Some sellers of shelf corporations intentionally engage in fraudulent activity by selling companies that don’t necessarily provide the benefits that the buyer is looking to receive. If this happens to you, you could be out hundreds or even thousands of dollars with no recourse.

You’ll Be Responsible for Liabilities and Lawsuits

When you buy a company, you also buy its liabilities. If the seller has taken the initiative to establish a business credit history, that means they had to take on credit in some form or another. If any of that credit is lingering, you’ll be responsible for making the monthly payments.

Also, if the shelf corporation was the defendant in any lawsuits before the sale, those legal troubles don’t go away when ownership is transferred to you.

The Safer Choice: Establish Your Own Business Credit 

As tempting as it may be to piggyback on a shelf corporation’s business credit history, the potential risks involved with credit fraud are too great to ignore.  Building business credit isn’t easy, lenders would have to take a huge risk on you and your business.  That’s why Credit Strong Business Credit builder loan was created. Because  it helps business owners start building business credit with an actual FDIC bank Building business credit hasn’t been easier

Here are the steps you can take to establish your business credit history the right way and avoid committing or falling victim to fraud.

1. Get an EIN 

You can’t establish a credit history for your business unless you’ve established it as a separate entity, which you can do with an EIN. 

2. Open a Business Bank Account 

Commercial lenders may balk at offering you financing if you don’t have an established business bank account. Not only does such an account add legitimacy to your business, but it also helps ensure that you keep your business and personal expenses separate.

3. Take Advantage of Vendor Credit 

When you’re just starting out, it can be difficult to get a term loan or a line of credit for your business. If you are already working with vendors for certain supplies, inventory, or services, ask if they offer vendor credit. 

This arrangement allows you to pay your invoices in 30, 60, or 90 days instead of at the time of the purchase. Also, make sure that your vendor will report your payments to the commercial credit bureaus. If it won’t, consider switching to one that will.

4. Open a Business Credit Card 

Business credit cards can be a great way to build your business credit score because you technically don’t have to pay interest as long as you pay your bill in full every month. 

Also, be sure to keep your balance relatively low compared to the credit limit, and if your card offers rewards and other perks, learn how to maximize them.

5. Get a Business Credit Builder Loan

Here at Credit Strong, we realize how tough it can be to establish business credit for the first time. That’s why we created a business credit builder loan.

It allows you to build your business’s credit history and savings at the same time. Businesses as young as 3 months old qualify, even if your business has absolutely no credit history. Find out more about how it works here. 

6. Pay On Time, Or Even Early 

Making on-time payments is the most important thing you can do to build your business credit score. With some scores, including the PAYDEX Score, paying 30 days early will help you achieve the highest score possible.

7. Monitor Your Business Credit

It may take several months for your business credit history to get established, but once you have credit accounts in place, be sure to track your business credit score so that you can understand how your actions impact it. 

This habit can also help you spot potential issues and address them before they get out of hand.

The Bottom Line

Shelf corporations are real business entities that are often used for illegitimate purposes. 

While the idea of skipping the years-long process of establishing a business credit history and relationships with banking institutions sounds appealing, it’s important to understand the risks involved with these types of companies. 

It’s better to take the time and establish your business, its credit history, and its other financial relationships the traditional way. 

Though this might seem daunting, especially compared to the ease and convenience that shelf companies provide, you’ll have a better chance of avoiding the more troubling— and potentially illegal— aspects of aged corporations. 

The post What Are Shelf Corporations? And Are They Legitimate? appeared first on Credit Strong.

Here’s what you should know about debt vs. equity financing, including how both business financing approaches work, the differences between them, and when it’s better to use one over the other.

What Is Equity Financing?

Equity financing involves selling shares of your company to generate working capital for your business. There are many different types, and you’ll likely find that some are more suitable for your business needs than others.

Here are some common examples:

• Initial Public Offering (IPO): IPOs are perhaps the most familiar type of equity financing, if not the most common. They involve a private company issuing shares to the public and joining a stock exchange like the NASDAQ or the New York Stock exchange.
• Equity crowdfunding: Crowdfunding is a way to get equity capital for your business, much like an IPO, without having to go public. Someone who buys in still becomes a shareholder with many of the same rights.
• Venture Capital (VC) firms: Not to be confused with private equity firms, VC firms pool investor money to buy shares of companies they believe have high growth potential. They tend to invest in businesses that are somewhat established and attempting to scale.

Equity financing may be the most viable way to get financing for young businesses and startups. Many new companies struggle to qualify for debt due to their lack of credit history. If your cash flow is limited early on, equity funding may be your only option.

Equity financing is also beneficial for new businesses because it often involves selling shares to experienced investors. They then have a literal vested interest in your success and can lend their knowledge and connections to the cause.

Of course, equity financing doesn’t always mean raising capital from strangers, especially for small businesses. Just as you might take a loan out from your family or friends, you can collect rounds of equity financing from personal connections too.

However, you’d likely need many more of them to contribute since they’re unlikely to have access to the same level of capital as a VC firm or angel investor.

You’d also miss out on getting professional advice on your business decisions that usually come with selling shares to an experienced investor.

What Is Debt Financing?

Unless you’re running a large corporation and selling bonds or notes, debt financing generally involves borrowing from a lender using installment debt or revolving credit accounts.

Much like equity financing, the idea behind taking on debt is that you receive the capital you need to fund your business until you can get it off the ground.

However, instead of giving up business shares in return, you enter into a contract to pay back the money you borrow, plus interest according to specific terms.

There are perhaps even more debt finance options than equity finance ones. Some of the most popular include:

• Business loan: These installment loans give your business a lump sum that they can put toward operational expenses or a large purchase. They have fixed repayment terms and monthly payments. Their interest rates vary significantly depending on the lender and your credit.
• Business credit card: Business credit cards are similar in purpose and function to personal credit cards, but they usually have higher credit limits. You can use them for regular business expenses to get some cash back as well as interest-free financing as long as you pay your balances off before the roughly month-long grace period ends. 
• Business line of credit: A business line of credit is a revolving account, like a credit card. It lets you borrow up to a credit limit, pay off the balance, then use the funds again. You can wait to use the funds until your business needs them, such as a period of low revenues. They often have higher credit limits and lower interest rates than business credit cards, but they don’t have a grace period.

Unfortunately, startups and new businesses often find it hard to qualify for debt financing. Many lenders require that you be in business for a minimum period before they’ll lend to you.

The length varies, but it’s usually two years, especially with traditional lender financing options like a credit union or bank loan. Online lenders have lower requirements, but they have higher interest rates.

What Is the Difference Between Equity Financing and Debt Financing?

Equity financing and debt financing are different methods of accomplishing the same goal. In both cases, a third party provides you with the necessary capital to fund your immediate business needs.

In return, you pay them for their investment as your business grows. The primary difference between the two funding methods is in how you repay them.

With equity financing, you give up shares of your company that entitle the investor to a portion of your profits and a say over company decisions.

It doesn’t require agreeing to make fixed monthly payments, so there’s no additional financial burden to your company, but it comes at a cost to you personally.

As a simple example, say your company has 100 shares worth $1,000 each. Your business is worth $100,000 in total. Because you need financing, you decide to sell ten shares.

The equity investment would put $10,000 in cash on your balance sheet that you could use to purchase an asset or cover business expenses.

In return, you give up 10% of your future profits. In addition, when those ten sold shares increase in value, you’d miss out on those gains.

Conversely, debt financing involves borrowing funds in exchange for a promise to pay the debt funds back plus an interest payment, which becomes the lender’s return on investment.

You get to retain ownership of your business at the cost of taking on an additional financial obligation.

For example, say you take out a $50,000 term loan at 5% interest, payable over the next five years, with a $945 monthly payment.

If the $50,000 cash influx doesn’t get your business to a point where it can support that monthly payment on top of your other expenses, you risk losing your business.

Is It Better To Finance With Debt or Equity?

Whether it’s better to finance with debt or equity depends on several factors. For example, you should consider:

• Which is more accessible given your business credit scores and time in business.
• The amount of funding you need and how much you’ve already received.
• How important retaining complete ownership of the company is to you.

Here are the pros and cons of both types of financing to help you determine which one makes more sense for you.

Pros and Cons of Equity Financing

The primary advantage of equity financing is that there’s no obligation to repay any of the funding you receive through the process, at least in the form of fixed principal and interest payments.

That means equity financing is much less burdensome on a company from a financial perspective than debt financing.

It’s easy for a company to take on too much debt and go bankrupt because it can’t keep up with its monthly payments, but it’s much less of an issue with equity funding.

The corresponding downside is that selling some of your company’s equity entitles the new partial owner to a portion of company profits as well as the ability to influence company decisions.

Perhaps counterintuitively, the other significant problem with equity financing is that it tends to be more expensive than debt financing, at least in the long run.

While you don’t have an obligation to make fixed payments with equity financing, you lose a portion of your profits indefinitely unless you buy back those shares.

In addition, payments to equity investors are not tax-deductible, while interest on business debt is.

Pros and Cons of Debt Financing

Debt funding’s primary advantage over equity financing is that it lets you retain complete ownership over your business. While sharing ownership with an experienced investor can be beneficial, many small business owners prefer to maintain their autonomy.

In addition, giving up a share of your business means giving up a portion of the profits, and paying interest on borrowed funds is usually a far cheaper option than giving up part of your earnings.

For example, imagine you need $100,000 in financing, and you have two options to get it. You can either take out a business loan for $100,000 at 5% or sell 25% of your business for the same amount.

Say you make $40,000 in profit the following year before accounting for financing costs. If you were to take the equity option, it would cost you $10,000 in lost profits.

However, if you were to take the debt option, you’d have an interest expense of just $4,590 that year. It would also be tax-deductible.

For these reasons, debt is usually the superior financing option, as long as you can get it. It’s cheaper, usually funds faster, and keeps you in charge of your business.

There’s really only one legitimate drawback to debt financing. Unfortunately, it’s a big one. You can only afford to borrow so much before you overburden your company. If you take on more than you can handle, your business won’t survive.

Conclusion

Ultimately, debt and equity financing both have their place. Which one is best for your situation depends on your preferences as a business owner, the type of business you’re running, and your current growth stage.

Your business will likely go through multiple rounds of funding at different points, and you’ll have to use your judgment to determine whether debt or equity is best for you at each one.

Many business owners aim to maintain a consistent debt-to-equity ratio as they grow to keep their debt levels from getting too high. That said, in practice, the choice between the two often comes down to availability.

For example, if you build business credit and stay in business for a few years, debt financing becomes more accessible. If your business is only six months old, equity might be the only option.

The post Debt vs. Equity Financing appeared first on Credit Strong.

Unfortunately, investing in any new business is risky, and investing in a startup can be even more so since they often take new approaches to big problems and have aggressive scaling goals.

As a result, securing business funding for startups is a significant challenge. Here are some of the financing types you might consider and what you should know before pursuing them.

Business Funding Options for Startups

Thanks to the spread of online lenders and fintech companies, there are countless financing products today. Not all of them are suitable for startups, though, and choosing the wrong financing method can cripple your company’s growth.

Here’s an overview of some of the best business funding options for startups to help you determine which might be right for you.

Business Loan

Business loans come in different variations, but they generally follow a standard installment debt pattern. Upon approval, you receive a lump sum, then begin fixed payments of principal and interest over a finite repayment term.

You can apply for a business loan with your personal credit, but it’s a good idea to build business credit as well. Separating yourself from your business can help you limit your personal liability for business debts.

To qualify for a startup business loan, you’ll need to meet a lender’s eligibility requirements, which may include:

• Minimum time in business
• Specific ownership characteristics
• Minimum personal or business credit scores
• Industry or location limitations
• Minimum annual revenues

The qualification requirements can vary significantly between lenders as can the loan terms. In general, the more rigorous the eligibility requirements, the better the business loan.

Many consider SBA loan programs the best option due to their high principal balances, low-interest rates, and lengthy repayment terms.

Personal Loan

Just because you’re looking to finance a business doesn’t mean you can’t tap into your personal credit to kickstart your operations. Personal loans are among the most versatile forms of financing, and you can use them to fund your startup.

Personal loans tend to work best when you meet the following criteria:

• Need a lump sum: Personal loans are a type of installment debt, so they won’t help if you’re looking for a revolving account.
• Can’t qualify for a business loan: Only consider a personal loan if you can’t get a business loan. They’re more expensive, and you’ll always be personally liable.
• Have good personal credit: Personal loans can become expensive if you have bad credit. Try to avoid them if you can’t qualify for the lowest interest rate options.

Before you take out a personal loan for startup funding, make sure your lender has no objections against it. They’re usually flexible, but some have restrictions on how you spend your proceeds.

Business Credit Card

While they won’t solve any long-term financing needs, business credit cards can be valuable to just about any company, including startups.

For example, they can:

• Separate your personal and business finances
• Help build business credit so you can qualify for other business financing
• Cover expenses during short periods when cash flows are limited
• Provide discounts and bonuses with cashback rewards

Business credit cards tend to have higher credit limits than personal cards, so you can use the credit line for more than you might think.

That said, they’re still not great for financing significant purchases. If you carry a balance past their grace period and accrue interest charges, it’ll be expensive. Their interest rates are higher than a business loan.

You can qualify for a business credit card with your personal credit scores, but it’s best to switch over to your business credit scores as soon as you can. It’ll help separate you from your business, which can mitigate your personal liability for business debts.

Business Lines of Credit

A business line of credit is a lot like a supersized business credit card. It’s another kind of revolving credit, which means you can wait to use it until you need to, pay off any draws you take, then borrow up to the credit limit again.

That said, there are some notable differences between the two types of funding. For one, credit limits tend to be higher for business lines of credit than business credit cards.

In addition to this, their interest rates tend to be lower, though it depends on the lender. Generally, online lenders have higher interest rates, while traditional financial institutions are more affordable.

Qualifying for a line of credit is also usually harder than getting a business credit card, though that too depends on the lender. Online lenders tend to be less restrictive, while banks have higher requirements.

In both cases, you’ll need to at least meet a minimum level of annual revenue and a minimum time in business to qualify.

Finally, there is no grace period for business lines of credit. That means as soon as you borrow against your credit limit, interest will start to accrue.

Angel Investors

Angel investors are another form of equity financing. Unlike venture capital funds, angel investors are usually individuals, though they may have an informal group of peers that they invest alongside.

They usually prefer to invest in a startup or entrepreneur earlier in their growth process than a venture capital fund would, so they’re a better choice for initial rounds of funding.

Like venture capital funds, they’re often willing to take on higher risk in exchange for a higher potential reward. They invest in multiple businesses and hope that at least one pays off big.

Because angel investments usually come from wealthy individual investors, you can’t just apply for their funding online. Many of them find their investments entirely off of referrals.

You’ll need to leverage your personal connections and network extensively to get yourself in front of the right people.

Be aware that angel investors usually like to be highly involved in the projects they invest in, so they’ll make good use of their ownership in your business.

Venture Capital

Unlike most of the other types of business funding on this list, venture capital is a type of equity financing. Instead of borrowing money and promising to pay it back plus interest, you sell shares of your company.

Selling shares allows you to avoid taking on fixed debt payments. However, it forces you to give up a portion of your future business profits and lets the investor have some influence over business decisions.

Venture capital firms pool money from wealthy investors and investment banks to buy shares of companies with high growth potential.

They’re willing to take on significant risks because they invest in multiple projects and count on the extraordinary gains from the few winners to exceed any losses.

If you’re willing to give up significant equity in exchange for hyper-fast growth, venture capital might be the key to scaling your business. As long as you don’t mind giving up part of the ownership and control of your company.

Crowdfunding

In general, crowdfunding includes any form of financing that relies on gathering low amounts of capital from a high number of people rather than indebting yourself or selling shares to a single party.

There are two popular variations today: rewards crowdfunding and equity crowdfunding.

Rewards crowdfunding doesn’t fit neatly into the debt or equity financing models. 

Essentially, it involves requesting a donation to your company in exchange for a future reward, like a discount or free product sample.

Equity crowdfunding is a more familiar model. It’s a lot like an initial public offering (IPO) in which a company issues shares on a public stock exchange, except your company remains private.

Both types of crowdfunding generally require that you persuade a large group of people that your business has something worthwhile to offer.

SBA Microloan

The SBA offers many types of financing, not just traditional business loans. They also have a microloan program, which sponsors loans to small businesses up to $50,000. The average microloan is around $13,000.

Because they’re so much smaller than a traditional small business loan, you may find them easier to qualify for than other forms of debt.

Note that the SBA doesn’t lend the money to a startup or small business owner directly. Instead, they provide the funds to intermediary lenders, which are nonprofit community-based organizations with prior lending experience.

These intermediaries have their own underwriting process. They generally require some collateral and a personal guarantee.

Invoice Financing

As you might expect, invoice financing involves borrowing against your outstanding invoices. Lenders may follow slightly different models, but it usually looks something like the following.

You invoice your customer for a product or service on a net-30 or net-60 basis. You’ve completed your work and incurred expenses to do so, but you won’t get your payment for another month or two, at least.

In the meantime, you approach a lender and borrow a percentage of the outstanding invoice to bridge the gap. Once your customer pays the invoice, you pay off the amount you borrowed plus whatever fees and interest the lender requires.

Invoice financing is far from the cheapest form of business funding for startups, but it’s easy to qualify for compared to other credit accounts.

As long as you have invoices to borrow against, it’s a viable way to generate working capital and smooth out your cash flow.

Equipment Financing

Equipment financing is a type of term loan that helps you purchase whatever equipment your business needs to operate. However, it won’t do much else.

Generally, the price of the equipment you need to buy becomes the principal balance of the loan. That means you won’t get any more money than you need for the purchase.

In addition, whatever equipment you use the loan to buy with becomes your collateral for the account. If you default, your lender can seize it to recoup their losses.

It’s usually a good idea to match the loan’s repayment term to the equipment’s useful life. You don’t want to be making payments on something that’s no longer contributing to your business.

Both traditional banks and online lenders offer equipment financing. As usual, a bank loan will have better terms but be harder to get, while online lenders are happy to work with less qualified borrowers for a higher interest rate.

Friends and Family Loans

Borrowing from friends and family presents a unique kind of risk. However, it’s often much easier than getting a startup loan from a bank or attracting the attention of an angel investor.

Your personal connections are naturally more inclined to care about your success than anyone else. As a result, not only are they more likely to give you money in the first place, but it’ll probably be a better deal for you too.

In other words, they may give you an interest rate of 3% when a bank would demand 7% or ask for 5% of your business’s shares instead of 20%. Some might even be willing to give you money outright.

Before you go to your friends and family for startup financing, though, make sure the relationship can withstand a failed business transaction. They may be more willing to offer you loan forgiveness than a bank, but they probably still won’t be happy about it.

Personal Savings

Using up all of your personal savings usually isn’t the ideal way to generate startup capital. It can leave you penniless if your business isn’t as successful as you hope.

It’s also unsustainable since many people don’t have enough savings to comfortably fund the growth of a business and their personal needs.

That said, it has the advantage of being quick, easy, and completely permissionless. If you have excess cash or assets you can liquidate, it’s much easier to contribute them to your business than to get someone else to do it.

In addition, contributing your own money as seed funding is a sign of confidence to other potential investors. Many business owners add something of their own capital to their companies. Just make sure you don’t put in more than you can afford.

Grants

Last but not least, a grant is a sum of money that the government gifts to a business or organization to help them accomplish something. You don’t have to pay them back or give up any shares of your company in exchange.

For obvious reasons, if you can secure a startup grant, it’s probably the best form of financing possible. It’s as close to free money as you can get.

Unfortunately, getting a small business grant requires jumping through quite a few hoops. They have specific eligibility requirements and you’ll have to prove that you meet them to qualify.

For example, the Targeted Economic Injury Disaster Loan (EIDL) Advance is a $10,000 grant for businesses that:

• Applied for an EIDL loan
• Are in a low-income community
• Have 300 or fewer employees
• Can demonstrate more than a 30% reduction in revenue due to COVID-19

As far as grant requirements go, those are relatively minor, but they should give you an idea of how the process works. Generally, the best place to start looking for grants is Grants.gov.

Choosing the Right Funding Option for You 

There’s a lot to consider before you decide on a financing option for your business. There are plenty to choose from, after all, and they have unique advantages and disadvantages.

Before you commit to one, ask yourself questions like the following:

• What kind of financing have I already acquired?
• How important is retaining ownership of my company?
• How much money do I need, and how fast do I need it?
• What will I use the money to accomplish?
• What types of financing are realistically available to me?

Your answers to these types of questions will help you determine which types of financing make the most sense in your situation.

For example, if you already have too much debt financing, you may want to give equity crowdfunding a try. Conversely, if retaining complete ownership of your business is your highest priority, you might try to apply for a grant.

Ultimately, there is no single perfect option for every startup or even the same startup at every stage of its development.

As long as your business survives, you’ll likely go through many rounds of funding over the years. Keep an open mind and be ready to adapt to the demands of changing circumstances.

The post Business Funding for Startups appeared first on Credit Strong.

Aspiring entrepreneurs have to consider what it takes to bring their business idea to life:

• How much time to put in. 
• How much money to invest to make it work. 
• Not to mention, the planning and revenue forecasting you’ll do to make your company viable. 

In the planning phases of your startup, utilizing business credit to fund major expenses isn’t an option yet. So you need to know where the money will come from. 

Any business owner will tell you it’s not easy, but it’s an exciting time for sure. That excitement might be overshadowed by reasonable worries that most small business owners have. 

Is the business going to be profitable? Can you afford the expenses of running a startup? How much savings is enough before making the leap? We’ll go over these questions plus some of the common startup costs for small business owners. 

How Much Does it Cost To Start a Small Business?

Major determining factors in the cost of starting a business are size and which industry you’re in. Microbusinesses and home-based businesses have the lowest startup costs with an average of $2000 to $5000.

Since e-commerce sales are expected to hit $4.8 trillion this year, it makes complete sense to start an online business. The potential for high profit and low overhead make it more appealing than traditional business models. 

You can nix the spending on office furniture, equipment, and office supplies. Instead opting to spend minimal cash on a business license, incorporation, internet service, and a website. 

In dropshipping businesses, owning the business doesn’t even require you to carry your inventory. Thus making it a popular choice for new business owners. 

Is a physical storefront more your speed? 92% of retail sales still happen in person. If you’re starting a restaurant, coffee shop, boutique, or consulting firm, you still need to invest in the basics. 

Larger operations requiring heavy equipment or office space need more funding to get started. There’s no average amount to budget for these business models since the expenses depend entirely on your industry and the individual needs of your company. 

A construction company purchasing heavy machinery and building materials is going to have much higher business startup costs. Meanwhile, a coffee shop purchasing espresso machines and refrigerators will likely have much lower initial costs. 

It’s important to research and develop a budget to understand how much financing your new business will need. 

How to Calculate the Cost of Starting a Business

When calculating how much you need to start, there are a few different types of expenses you’ll have to consider. The first types are fixed and variable costs. Fixed costs don’t change from month to month. They include expenses like: 

• Rent for a storefront or office space
• Business insurance
• Business loan payments

Variable costs will change each month depending on how much you use. These are bills such as: 

• Utilities
• Inventory
• Payroll

When budgeting for these types of operating expenses, it’s best to round up your estimated variable costs to avoid coming up short. It can also be helpful to round down your revenue projections for the first year in case you run into some hiccups. 

You should also take your one-time expenses and recurring expenses into account. Your one-time costs are usually a major upfront purchase like buying furniture or putting a security deposit down. 

Ongoing costs are paid on a regularly recurring schedule. Basically, anything you pay for more than once. Most times these line up with some of the fixed and variable costs mentioned earlier. 

To help you budget the cost of starting your business, the Small Business Administration (SBA) put together a Startup Cost Worksheet where you can edit and customize a basic budget for your business startup costs. 

Business Startup Costs Examples

These are just a few general examples of startup expenses. It’s not a full list and there might be costs specifically for your industry that aren’t mentioned here. You’ll have to do some additional research to make sure you’re not leaving anything out. 

Business Registration Fees

Entrepreneurs have to meet the requirements for running a business by state and federal standards. If you’re not operating under your legal name, you’ll have to register as a sole proprietorship, LLC, general partnership, or corporation. 

Registering your business gives you added liability protection and advantages when you file business taxes. You can use the SBA’s guide on registering your business for more information. 

In most cases, the initial fee to incorporate your business is about $300. Depending on which state you’re registered in, that filing fee can be more or less expensive. The good news is it’s not something you have to worry about paying monthly. It’s typically a one-time or annual fee. 

Even if you’re not in an industry where you need a registered business name, you’ll probably have licenses you’ll need to get and keep current. This is the case for many service industries like hairstylists or therapists. 

Purchasing Business Insurance

You’ve spent a lot of time developing your business idea and building things from the ground up. The last thing you need is a natural disaster, but they’re unpredictable. That’s where insurance comes into play. 

Whether you’re thinking of the company vehicle or protection against theft and fire, business insurance comes in handy.

Having insurance protects your business from damages and losses related to disasters, making it easier to rebuild when you’re ready with an insurance payout. 

Catastrophes can be the least of your worries. There are other more common risks with running a business than having insurance coverage. 

Business insurance helps protect you from:

• Legal issues with customers and excessive legal fees
• Workplace injuries
• Commercial real estate risks
• General liability
• Employee errors 

Business insurance costs depend on the size of your company and the types of risks you face in your industry. On average, you’re looking at about $1,200 annually for business insurance. 

It’s less if you’re a sole proprietor running an online business compared to a small business with 50 employees.

Renting an Office

Renting space to work from is an essential, yet expensive, part of your startup budget. Buying real estate outright is too big of a financing commitment in the beginning compared to renting. The total cost of renting office space will depend on a few factors:

• Location
• Number of employees
• Type of space needed (restaurant, office, or retail)

On average, an office space can cost anywhere from $100 to $1000 per employee each month. So if you need an office space for ten people in a prime location you’ll be budgeting up to $10,000 a month in rent. 

Many successful businesses have minimized these real estate costs by using coworking spaces like WeWork to hold meetings with clients or provide employees with office space. It saves on the huge upfront cost of buying furniture and covering utilities without compromising on location. 

Service businesses have the added benefit of choosing between being home-based or even traveling to their clients. That eliminates the office expenditure until your business is bringing in more revenue. 

Website

Even if you’re selling products and services in person, you still need a website to promote your business. Before customers set foot in your store, they’ll often visit the website ahead of their trip and it becomes the first introduction they have to your business. Make it count! 

If you’re experienced in web design, you might get away with doing a free WordPress, Wix, or Weebly website. Shared hosting sites like these and Squarespace are great tools for building websites to act as a digital space to buy products, make reservations, or get more information. 

A sleek website design with top-tier features can run you anywhere from $200 to $2000 depending on your needs. The previously mentioned service providers also offer monthly plans ranging from $5 to $40 if the annual payment is too big of a commitment. 

If you’re not tech-savvy, it’s best to pay someone to help you design your website. You’ll also want to pitch in for website maintenance to keep everything running smoothly. 

Consider it money well spent. The majority of consumers opt to find products and services online first – even if they plan to do their shopping in person. 

A website isn’t the only marketing tool you have at your disposal. You can also use social media to your advantage for free. No need to increase your marketing costs. With a well-thought-out marketing strategy, you can get your startup in front of the right customers. 

Hiring Employees

Hiring skilled labor is one of your biggest expenses as a business owner. This expense makes up 25% to 50% of your total budget. Small business owners often try to tackle everything on their own to save a buck, but there aren’t enough hours in the day for that. 

The fact is, it’s more efficient to hire someone who specializes in the tasks you don’t want to do or don’t have time to do. The sooner you realize you can’t do everything yourself, the better. 

It’s smart to outsource your bookkeeping, taxes, and legal matters to consultants. From there, you can hire regular employees for the daily stuff. Be sure not to neglect the employee-related expenses in your budget planning. Include projected amounts for:

• Overtime
• Medicare
• Vacation time
• Bonuses
• Commission
• Other employee benefits

Even if you’re not bringing in tons of revenue yet, you still have to pay your employees. Independent contractors can be a temporary solution if your revenues aren’t consistent yet.

Equipment and Supplies

Businesses based online don’t need much of an inventory to start. Typically there’s no need for heavy equipment, and supply costs will be at a minimum.

Planning to open a restaurant? Prepare to put together financing for large ovens, stoves, or other specialty cookware. Depending on what’s needed for your business, you might need $10,000 to $125,000 worth of equipment. 

Even if you can’t afford to purchase the equipment outright, looking into equipment financing options can help you get the doors open.  

How Much Money Should You Have Saved Before Starting a Business?

Until you develop solid business credit scores to secure loans, you’ll need to lean on your savings or other means to get started. The budget you develop for your business is going to determine how much you need to have saved up before making the leap. 

You also need to evaluate your personal budget to ensure you’ll at least have the necessities while getting things running. It’s suggested to have at least three to six months of your personal and business expenses saved up. 

Three to six months is the minimum, but it would be far more helpful to have a year’s worth. The more you have saved up, the less pressure you’ll be under. 

To close out, starting a business can be an expensive undertaking. It’s best to prepare with a budget that leaves room for flexibility. When you’re just getting started, some of your initial necessities, like inventory and supplies, can be bought with a good business credit card.

Invest the time it takes to build a business credit score and support your business with a savings account until you can utilize other options. Loans and equity financing can cover larger purchases once you’re ready to expand. 

The post How Much Does it Cost to Start a Small Business? appeared first on Credit Strong.

As a small business owner, there’s a good chance you’ll need to secure funding at some point to reach your goals. The need for capital can arise right from the startup phase and continue throughout the life of your business.

According to the U.S. Small Business Administration, one out of four businesses cites lack of funding as an obstacle to growth. Meanwhile, 46% of small businesses rely on personal credit cards for business expenses.

Building a business that qualifies for financing is critical to avoid these potential challenges. Understanding what makes a business eligible for funding and how it works is the first step toward achieving this goal.

What Is Business Financing Eligibility and How Does It Work?

At its core, financing eligibility refers to a business’s ability to access the capital it needs to launch, grow, or thrive. A business that qualifies for funding will have an easier time securing financing and attracting investors—both of which can be critical to a company’s long-term success.

So, what is it that makes a business eligible for funding? There are several components involved in the eligibility equation. The key is ensuring that others (banks, lenders, private investment sources, and more) see your business as credible and a worthwhile investment.

Financing eligibility comes down to risk and reward. If there’s a good probability that an investor or lender will make a return on their investment, your chances of securing capital increase.

The opposite is also true. If a lender or investor sees the risk of losing money as too high, you may face challenges in securing capital for your business.

How to Build a Business That Qualifies for Funding

Building a business that is eligible for financing requires you to view your business from the perspective of a lender or potential investor. What steps can you take to make your business more credible so that others might feel comfortable working with you?

Here are six actions to consider if you want to establish a solid foundation for obtaining funding.

1. Establish a Business Identity

Many parts of your business are intertwined with your personal life as a small business owner. Despite this connection, it’s essential to give your business its own identity.

Start by setting up separate contact information for your business, including:

• Business Name 
• Phone Number
• Address

It’s important to note that you can accomplish the goals above while still working from home if that’s your plan. A virtual office, for example, allows you to set up a separate business address for your company that isn’t a PO Box.

Along with establishing separate contact information, you’ll also want to secure any required business licenses and permits. Having a professional website and a business email address that matches your company URL is also important.

2. Choose Your Business Entity

Another essential step in building a business that qualifies for financing is selecting the right business structure. If you want a company that can attract investors and qualify for financing, your best options are typically one of the following:

• C Corporation (C-corp)
• S Corporation (S-corp)
• Limited Liability Company (LLC)

Any of these business types should work well for securing funding, but your choice will also have tax and liability implications. You may want to consult with an attorney and a tax professional before choosing the business structure that’s right for your situation.

3. Select Your NAICS Code with Care

NAICS (North American Industry Classification System) is a system that helps organizations classify businesses based on their activities and the products or services they offer.

When registering a new business, your state may require you to select a NAICS code. Even if it’s not required at registration, it’s wise to determine the appropriate code, as you’ll likely need it later.

Choosing the right NAICS code is important because it can affect:

• Eligibility for Financing: The NAICS code you choose could impact your ability to secure capital. If your code indicates that you’re operating in a high-risk industry, it could be a deal-breaker.
• Tax Benefits: Certain NAICS codes may qualify your business for tax benefits.
• Contracts and Grants: Government contracts and grants often depend on your NAICS code.

4. Set Up an EIN Number

Another critical step is applying for an Employer Identification Number (EIN). An EIN is like a Social Security number for your business.

Having an EIN is necessary for several purposes, including:

• Filing Taxes
• Opening Business Bank Accounts
• Applying for Business Financing  

Applying for an EIN with the IRS is simple and free. You can complete the application online, by mail, or over the phone. Be sure to set up your business entity with your state first and use your business’s exact name when completing the EIN application.

5. Register for a D-U-N-S Number

After establishing your business entity, you can begin building your company’s credit by registering for a D-U-N-S Number from Dun & Bradstreet.

This nine-digit number is often required when working with vendors, suppliers, lenders, and government agencies.

You can register for a D-U-N-S number for free. There’s also an expedited service that can help you get your D-U-N-S Number and credit file in five business days or less.

6. Open a Business Bank Account

Opening a business bank account is crucial for keeping your personal and business finances separate. It’s also important for showing credibility to lenders and investors.

When applying for a small business loan, lenders will often ask to see several months of your business bank statements. If you can’t provide these documents or must use personal bank statements, the lender may deny your application. However, having a separate business account can improve your chances of approval.

Other Factors That Affect Financing Eligibility

In addition to establishing a strong foundation, several other factors affect your eligibility for funding, particularly related to credit.

Business Financial Details

Having up-to-date financial records is essential when applying for business financing. Investors and lenders will review documents like business tax returns, bank statements, and financial projections to assess the viability of your business.

Business Credit

When you set up your business properly, it can begin building a credit profile. Good business credit is an important factor in qualifying for capital.

Personal Credit

Since lenders often view small business owners and their companies as one entity, your personal credit score can impact your business’s eligibility for financing. A high personal credit score can be beneficial, but a low score may limit your options.

Personal Finances

Along with your credit score, your personal finances may come into play when you apply for financing. Business lenders may request personal financial documents to evaluate your ability to repay loans.

Time in Business

Many lenders prefer to work with businesses that have been operational for at least two years. If you haven’t yet reached this milestone, it could affect your eligibility for funding.

Availability of Collateral

Offering collateral can improve your chances of securing financing by reducing the lender’s risk.

Eligibility Criteria

Different lenders and investors have their own criteria for evaluating whether your business is a good investment. These criteria may include your business credit score, personal credit score, time in business, and industry, among others.

Bottom Line

There are many details small business owners need to manage, but business financing eligibility should be a priority. Even if you’re not currently seeking funding, understanding how to make your business eligible for future financing is essential to its growth.

The post What Is Business Financing Eligibility and How Does It Work? appeared first on Credit Strong.

When a new business idea hits you, the impulse to jump headfirst into the world of entrepreneurship is exciting. But before you start selling products and services, it’s best to find out if your business idea is viable first with a little research. 

Once you research the market, develop a business plan to set yourself up for success. There’s also a small mountain of paperwork to complete for the legal requirements of running a business and protecting your intellectual property. 

Keep reading to find out what else should be on your business startup checklist.

Conduct Market Research

When most new business owners are asked who their target audience is, the answer is usually “everyone”. You’d love it if everyone in the world chose to buy from you, but it’s not realistic. 

Instead, you want to have a specific audience for your product to target your marketing. Find out who your potential customers are by asking yourself these key questions: 

• What age range are you targeting? 
• What’s their average income?
• Where do they hang out? (online and in-person)
• Where else are they shopping?

These are just a few questions to get you started with building out your ideal customer. Some people go as far as building out a full customer avatar to narrow down their marketing strategy. You won’t have to worry about that part until later though.

Once you know who your ideal customer is, it’s time to scope out the competition. 

It’s important to get a full picture of your advantages and disadvantages before leaping into entrepreneurship. This includes points like: 

• How many other businesses in the area are like yours? 
• What are their price points? 
• Who are their customers? 
• What are the potential obstacles to success? 
• How are you different from your competitors?

If you conduct market research and find a long list of businesses just like yours, don’t get discouraged. Focus on what makes your company and brand unique.

Write Out A Business Plan

If you fail to plan, you plan to fail. 

You’ve thought about your business plan. It’s all locked in your brain. You know the ins and outs and what needs to happen to bring in profit. So it’s fine, right?

What about your employees? What about your bookkeeper? What about potential lenders? They need to know what the plan is too. Put your pen to paper and write out a business plan with all the specifics. 

Your business plan is your roadmap to success. It lays out several major factors in making your business profitable: 

• The goals you want to reach
• Profit margins
• Your expenses
• Your mission statement
• Plans for funding
• Marketing plan
• Operations layout 

The idea of writing a multiple-page document filled with research, tables, and projections isn’t exactly exciting when you have so many other tasks to complete for your business. 

It doesn’t have to be complicated. A simple one-page business plan can help you identify critical gaps and lay the groundwork for a more in-depth report. You’ll want to make this a living document. As your business continues to grow and change, so should your business plan. 

Choose A Name For Your Business

Choosing a business name is one of the easier parts. As a best practice, you’ll want to have a list of business names available in case the name you choose is already being used. A quick Google search will show you if anyone is already using the name you want.

In many cases, you can also check your secretary of state website for any businesses registered under your preferred business name. Don’t just check with your state though. Check at the federal level too.

Apply For An EIN

Getting your EIN or employer identification number is important for a few different reasons. You’ll need this to open your business bank account, hire employees, apply for financing, business insurance, and other important benchmarks as a small business owner. 

It officially classifies your company as a business entity. Unlike other pricey steps in the process, this one is completely free. The Internal Revenue Service (IRS) delivers your EIN almost immediately after filling out their short application. 

From personal experience, you could be done in less than ten minutes depending on your business structure. Be sure to keep your EIN document safely filed away to use later. 

Set Up Your Business Structure

Your business structure will depend on several factors. It’s smart to consult an accountant or tax professional to consider the tax advantages of each business structure. It’s common for most small business owners to make this decision on their own though.

Here are some questions you can ask yourself to point you in the right direction:  

• Are you going at it alone or will you have a business partner? 
• Do you plan to hire employees? 
• Do you need to minimize liability?
• Are you planning to incorporate your business?

Based on your answers and business needs, you’ll be able to choose a business structure that works for you. You have a few options to choose from: 

• Sole proprietorship
• LLC
• General Partnership
• Corporation or S Corporation
• Nonprofit
• Cooperative

If the business is just you, a sole proprietorship is one of your first options. This is a great choice for smaller side hustles and low-risk businesses. Sole proprietorships keep it simple with uncomplicated paperwork and fast filing. 

The downside? Sole proprietors have unlimited liability for lawsuits filed against the business. Potential lawsuits can even target personal assets. LLCs provide limited liability in legal matters. 

General partnerships are similar to the unlimited liability structure of a sole proprietorship, but with the business being owned by two or more people. 

Corporations are more complex than the previous options. They’re also more expensive, but they offer tax breaks and liability protection. 

Your business needs will change over time. If you need to reconfigure, you can switch legal structures down the road to better serve your needs. 

Register Web Domains, Licenses, and Trademarks

The next step on your business checklist is to take care of the legal requirements to operate in your state and federally. Depending on the type of business you’re running, you might need to register for these licenses and permits:

• Sales tax permit
• Business license
• Logo or business name trademarks
• Website domain names
• Zoning permits

If you’re not sure about what you need, it helps to visit the secretary of state website for your state. The SBA provides free help for small business owners through small business development centers and other community organizations that promote economic development.

Find help in your area through the SBA’s website. It’s also smart to consult a lawyer for legal advice regarding the licenses and permits you’ll need as well as designing standard business contracts. 

Secure Financing (If Necessary)

Unless you’ve put away a large chunk of money before starting your business, you’ll likely have to secure financing. Those funds help you improve cash flow, expand your business, and keep things running. 

Financing comes in the form of business loans, credit cards, net-30 accounts, or small business grants. Most financing options require you to build business credit first. You could get a business grant, but there’s usually stiff competition and it takes at least a month to get a decision back. 

Before you apply for loans and credit cards, analyze your finances. Put together a budget of purchases you need to open the doors; equipment, payroll, supplies, rent, and anything else you need. 

Know how you’re going to use the funding and have a clear plan on how to repay it. 

The first step in finding out if you qualify for financing is knowing what your business credit scores are. Business credit bureaus are different from the consumer credit bureaus you’re used to. 

Dun & Bradstreet, Experian, Equifax, Paynet, and the SBFE are the main business credit bureaus. They each have their own business credit scoring system. 

If you’re interested in learning how to build your business credit scores, check out Credit Strong’s Business credit builder loan here. 

Pick a Location for Your Business and Check Zoning Regulations

Choosing a location for your business plays a big part in your success. When picking your store location, be mindful of a few key aspects: 

• Demographics
• Foot traffic
• Competition 
• Cost
• History
• Zoning regulations

These can determine who your clientele is, how much of a profit margin you’ll have, and whether or not you can sell certain products. For example, if the zoning regulations for the space you’re interested in don’t allow for alcohol sales, there’s no point in trying to open a bar. 

According to a 2020 survey from the national small business association, 38% of small businesses that transitioned to remote work during the pandemic plan to continue. Which makes opening a business purely online a great option for many new business owners. 

Opening a business online can expand your customer base and has a much lower overhead than a physical store. 

Get Federal and State Tax IDs

Don’t neglect to get tax IDs for your business. Register for both state and federal tax IDs through the IRS and your state’s website. Earlier we mentioned registering for an EIN. That’s part of it. You might also need a Tax Identification Number (TIN). 

These things allow you to meet your tax obligations whether it’s payroll taxes, state taxes, or income taxes. It’s important to be in compliance with taxes because it can get out of hand quickly.

Set Up A Business Bank Account

Setting up a business bank account keeps your business finances away from personal transactions. Sometimes it even acts as a way for lenders to qualify you for financing options.

Oftentimes, small business owners make the mistake of operating out of their personal bank account. This leads to mixed-up transactions and a mess to untangle when filing business taxes. If you run an LLC, it’s required for you to have a separate business bank account. 

Even if you’re doing business as a sole proprietor, your accountant will thank you for keeping your accounts orderly. 

Set Up A Bookkeeping System

It’s essential to track the expenses and income of your business. Bookkeeping doesn’t have to be a hassle though. If you have the funds, you can hire an accountant to keep things in line. 

There’s also accounting software that aims to make the process easy and informative. With software like Quickbooks or Freshbooks, you can take the DIY approach instead of hiring an accountant. These options can even take care of payroll and payroll taxes. 

Get Business Insurance 

You never expect bad things to happen when you first open your business. You have to be prepared either way. That’s what business insurance is for. In the event of a natural disaster, fire, flood, litigation, or even a workman’s comp case, insurance can help you cover costs. 

The amount of insurance you need will depend on your industry, the number of employees, the size of your business, and your assets and liabilities. It’s best to consult an insurance agent to get the business insurance that’s right for you. 

Market Your Business (Get a Logo, Social Media, Etc.)

Once you’ve done the hard work, you have one more step ahead of you – letting people know your business exists. In order to attract customers and make sales, they have to know what you’re selling. That’s where marketing comes into play. 

Depending on your ideal market, you could send out emails, hand out business cards, mail flyers, post signs, or even pay for an ad campaign. These days, most businesses do their marketing online through websites or on social media platforms. 

You’ll want to present a cohesive image for your company, so marketing includes putting together branding and a logo. Be sure to trademark your logo or get it registered as rights reserved. 

All in all, starting a business is a huge undertaking. To be successful, you have to do your research, make a plan, and get familiar with the finances. 

There’s a load of paperwork that comes with all of it. To make things easy on yourself, consult or hire people who specialize in the difficult stuff.

The post Starting A Business Checklist: 13 Key Steps To Do Before You Start appeared first on Credit Strong.

One of the most often-repeated bits of business wisdom is that it takes money to make money. While that’s not a hard and fast rule, it’s safe to say that having some extra cash available improves your chances of starting and running a successful business.

Fortunately, your startup capital doesn’t have to come from your own bank account. You can get funding from countless external sources. If you could use a little financial help getting your business off the ground, here’s how to start a business with no money.

How to Start a Business With No Money

1. Ask Your Friends and Family To Fund Your Business
2. Apply for a Small Business Loan
3. Look for Business Grants
4. Seek Out Potential Investors/Angel Investors
5. Consider Crowdfunding
6. Start Part-Time

1. Ask Your Friends and Family To Fund Your Business

Convincing a lender to give you money for your new business idea can be a daunting prospect. Lenders know that you might fail, and they won’t take a risk on you lightly.

It’s often much easier to get funding from someone who knows you personally and cares about your success as a business owner.

They’ll also usually give you a lower interest rate, which can significantly reduce your finance charges and lessen the burden of your loan payments.

You may even be able to find friends or family that are willing to give you a little money outright, though that can trigger gift tax issues if they give you more than $15,000 in a year.

However, while convincing your personal network to believe in you might be easier than convincing a stranger, you shouldn’t expect anyone to hand you money for nothing.

It’s a good idea to ask for financing from your friends and family with the same level of professionalism you would have with a lender.

Sell them on your business plan with market research and evidence of your potential buyers. Document everything, and follow through on your commitments. 

Finally, be aware that borrowing from people you know personally means taking on additional risks. If you can’t pay them back, you could harm them financially as much as yourself, which could also damage or destroy your relationship.

2. Apply for a Small Business Loan

If you can’t or won’t go to your friends or family for financing, there’s nothing wrong with turning to a lender. Small business loans are a great way to get a large lump sum of money to invest in your new operation.

Generally, your first choice should be a traditional financial institution like a bank or a credit union. Their loans have the best terms, including the lowest interest rates, highest principal amounts, and most favorable repayment lengths.

Naturally, they can be tough to qualify for, especially in the earliest days of your company. Traditional institutions often have strict eligibility requirements, which may include:

• Minimum time in business
• Industry or location restrictions
• Minimum personal or business credit scores
• Minimum annual revenue

For example, you must be in business for at least two years and bring in $100,000 in annual revenue to apply for Bank of America’s unsecured business loan.

However, if you do qualify, you can get up to $100,000 and pay as little as 4.75% interest over a loan term of up to five years.

Those who can’t qualify for a small business loan from a bank or credit union may have to resort to an online lender. They have looser qualification requirements, but they also offer much less favorable terms.

For example, to qualify for a business loan from OnDeck, an online lender, you only need to have been in business for a year, though they still want you to have at least $100,000 in annual revenue.

You pay a steep price for getting that funding a year early, though. Their loans start at 35.9% APR and have a maximum repayment term of only two years.

If you want to improve your score to get a more affordable business loan, Credit Strong’s business credit builder loan can help.

Because we don’t need to check your personal credit, you can apply with your Employer Identification Number instead of your Social Security Number.

Once you’re approved, we place your funds in a savings account to secure the loan, then help you build business credit by reporting up to 120 months of payments to the business credit bureaus.

There are no fees if you want to cancel ahead of time, so you can keep improving your score for as little or as long as you want. Give it a try today!

3. Look for Business Grants

You may think of debt and equity financing as the only two ways to get working capital as a business founder, but grants are another viable solution. In fact, they’re probably the most beneficial choice, if you can manage to secure one.

A business grant is as close to free financing as you’re going to get. It’s essentially a gift to your business intended to support a cause. Small business grants can come from large companies, non-profit organizations, and government agencies alike.

As a result, grants usually have specific eligibility requirements that ensure they go to their intended recipients. For example, the Targeted Economic Injury Disaster Loan (EIDL) Advance is a $10,000 grant for businesses impacted by COVID-19.

To qualify for the grant, you’d need to prove that your business meets the following criteria:

• Operates in a low-income community
• Previously applied for a COVID-19 EIDL loan
• Has 300 employees or less
• Suffered a 30% revenue reduction due to the COVID-19

Proving that you meet these kinds of eligibility requirements can be a lot of hard work, but it’s well worth it if you qualify. Just make sure you target grants that fit your business’s profile and needs. 

Fortunately, many different organizations offer business grants. Some great places to start looking include the federal government in general, the Small Business Administration, and local agencies.

4. Seek Out Potential Investors/Angel Investors

One of the best ways to bring your small business ideas to fruition quickly and effectively is to partner with a knowledgeable and wealthy investor, commonly known as an angel investor.

Unlike venture capital (VC) firms, angel investors usually prefer to invest in startups or entrepreneurs in their earliest growth stages. That makes them one of the best options for your initial funding rounds.

In addition to providing financing for your company, angel investors often bring relevant expertise to the table. They tend to invest in industries they know well and get involved in the business to make sure their investment pays off.

Note that angel investors are a form of equity financing, which means you’ll have to be willing to give up some ownership in your company to get it. That usually makes it more expensive than debt in the long run, even though you don’t take on monthly payments.

If you’re willing to give up a portion of your company in return for financing and expert help, angel investors might be a good fit. Unfortunately, they can be harder to get than a business line of credit or a loan.

In all likelihood, you’re going to need to network extensively to get in front of the right people. Many angel investors find their investments only through referrals.

5. Consider Crowdfunding

Last but not least, you can also consider using crowdfunding to finance your new business. Crowdfunding generally refers to any form of financing that entails gathering small amounts of capital from a large number of people.

Because each investor gives a relatively small amount of money, it can be an easier sell. The idea is that people may be more willing to gamble on your business with $100 than $10,000.

Here are a few types of crowdfunding to consider:

• Equity crowdfunding: If you don’t mind giving up a portion of the ownership of your company, equity crowdfunding can be a great way to raise money. It’s very similar to an initial public offering (IPO) in that you issue shares of your company in exchange for cash, but your business stays private.
• Debt crowdfunding: If you’d prefer not to give up any of your company’s equity, you can stick to debt crowdfunding, which involves borrowing money from many different people and promising to pay them all back later. 
• Rewards crowdfunding: Those who don’t want to give up ownership of their company or take on the financial responsibility of debt may want to consider rewards crowdfunding. Instead of shares or debt payments, you can reward investors with a free or discounted product.

Unfortunately, crowdfunding typically means going through a third party, and they’ll likely take a fee or a percentage of your funding in exchange for connecting you with your investors.

For example, Indiegogo is a crowdfunding platform where an entrepreneur can take a great idea all the way from concept to production.

Each contribution you receive is subject to a transaction fee equal to 2.9% plus $0.30. They also take 5% of your total funds raised.

6. Start Part-Time

As a would-be small business owner, it can be tempting to quit your job and dive into a great business idea head first, but that’s not always the best approach. If you’re trying to start a business with no money, it’s often better to wade in slowly and start part-time.

There are several reasons this can be the better approach when you’re low on funds. First and foremost, you still have the cash flow from your day job coming in while you’re getting your business off the ground.

Not only can you use a portion of those earnings to fund your business if necessary, but it takes some of the pressure off of your new endeavor to be profitable as soon as possible.

Most businesses need time to start bringing in money, whether they spend it figuring out how to find their first potential client or building a product. It’s hard to operate at peak efficiency during that period if you’re feeling stressed about paying your bills.

Second, you get to experience the business model and determine whether it’s a good fit for you before committing all your time and money to it. If it turns out to be a mistake, you can change your mind, create a new plan, and pivot.

However, there’s an obvious catch. Namely, you have to maintain your day job while simultaneously opening your business.

Not only will you have less time and energy to devote to your new company, but you can quickly burn yourself out by trying to do both at once.

What Kind of Business Can I Start With $1,000?

Contrary to popular belief, many great business models require little upfront capital investment. Even if you have money to spare, it may be a good idea to start businesses with low startup costs because they present so much less risk.

Generally, the easiest businesses to start with $1,000 or less are service businesses. There’s less need for expensive equipment, materials, or employees. For example, consider the following options:

• Coaching: One of the best ways to turn a valuable skill set into a small business is to share it with others. All you’d need is a computer, website, and wifi, but even those might be optional if you already have potential customers and meet with them in person instead of operating as an online business.
• Consulting: It’s possible to convert many full-time jobs into businesses by switching from employee to consultant. For example, if you’re an accountant at a public firm, you could start your own business providing those same services to clients directly as an independent contractor.

In contrast, consider opening a coffee shop. Starting one would require paying for real estate, furnishing and decorations, equipment to make the drinks, and supplies like coffee beans and milk.

Of course, there are drawbacks to service businesses. The most significant is that they can be hard to scale and turn into a passive source of income. They might not take much money to get started, but they still require time and energy.

For example, imagine starting a business coaching college students interested in law school through the bar exam. You probably wouldn’t need any significant capital investment, but the company couldn’t function without you.

Your earnings would be limited to the amount of time you’re willing and able to work, and the only way to scale past that would be to hire and train additional help, which would again, cost money. Whatever you choose, there’s always a price to pay.

The post How to Start a Business With No Money appeared first on Credit Strong.

The North American Industry Classification System (NAICS) organizes businesses into groups based on their offerings and activities by assigning them six-digit codes.

Lenders often use these NAICS codes to gauge businesses’ risk factors. As a result, they can have a significant impact on your chances of qualifying for funding. 

Here’s what you should know about these codes, including which ones lenders consider high-risk NAICS codes, how they affect your ability to get financing, and what you can do to avoid them.

A List of High-Risk NAICS Code Industries

The following is a list of high-risk codes that the NAICS compiled by cooperating with various banking professionals. While it’s not comprehensive or officially sanctioned, it’s handy when you’re trying to avoid ending up in a high-risk category.

High Risk NAICS Codes

The Occupational Safety and Health Administration (OSHA) also issues a list of NAICS codes representing risky industries that must submit injury and illness reports. Cross-reference the two lists to get more insight into which NAICS codes to avoid.

How NAICS Codes Affect Your Ability To Get Financing

The United States government initially used Standard Industrial Classification (SIC) codes to identify industries. However, SIC classifications were inconsistent and less specific than the NAICS system. You still have a SIC code, but it’s less relevant today.

Nowadays, the U.S. Census Bureau uses NAICS codes to facilitate the collection, analysis, and distribution of statistical data regarding businesses and the economy in the United States.

However, the NAICS isn’t the only organization to use these codes as a frame of reference. Many industries consider them a way to gain insight into businesses at a glance.

For example, an insurance company may use them to find their clients appropriate coverage and set their insurance premiums. If you provide the wrong code, they could deem you too risky to insure or charge you higher premiums.

Creditors use NAICS codes to do something similar, which is why they can affect your ability to get a business credit card or loan. Lenders may have lists of NAICS codes that they consider too risky and automatically reject applications from those businesses.

Alternatively, they may subject them to more rigorous underwriting standards. If businesses manage to qualify despite that, they’ll often end up with less favorable terms, such as higher interest rates.

How To Avoid High-Risk NAICS Codes

For better or worse, there’s no central government agency responsible for assigning NAICS codes. Instead, business owners generally get to select their own. As a result, you may be able to choose one that lenders see as low risk.

To find your NAICS code, visit the NAICS online search tool. You can use it to narrow down available options by entering keywords or exploring a list of industries.

Once you’ve selected one, there’s no need to file anything to make it official. Just provide it when third parties ask you for it. For example, the Internal Revenue Service (IRS) requires that you report your NAICS code on your tax return.

Of course, while you may have some flexibility in your code choices, you can’t just select the lowest risk NAICS code you can find. You must still be honest and choose one that accurately reflects your business activities.

There may be consequences if someone discovers you’ve used an inappropriate code to avoid being labeled a high-risk business. For example, if your tax deductions are too different from other businesses with your NAICS code, the IRS may audit you.

Occasionally, agencies may choose one for your business for their own purposes without your input. For example, the Census Bureau may assign one using your application info if you request an Employer Identification Number (EIN) from the IRS.

While it’s not guaranteed, you may be able to determine whether someone has assigned you a NAICS code by checking your business credit reports. The commercial credit bureaus document your NAICS code in your file if they find one.

Can You Have More Than One Primary NAICS Code?

Businesses often have more than one revenue-generating activity. For example, a car dealership might sell new cars, used vehicles, and auto parts. There’s a NAICS code for each of these, which raises the question of which to choose.

Generally, businesses with multiple activities should select a primary NAICS code that represents their most significant income stream. It’ll be the one that third parties prioritize when determining if you’re in a high-risk industry.

For example, say that 60% of a car dealership’s revenue comes from new cars, 20% from used, and 20% from auto parts. Typically, they should use the code for new car dealers.

Because your primary NAICS code represents your most significant business activity, you can’t have more than one. However, businesses can sometimes use secondary NAICS codes to represent their additional lines of business.

Not all organizations accept multiple NAICS codes from one establishment, but it does happen. For example, the System for Award Management (SAM), where businesses register as contractors with the federal government, accepts up to 10 codes per business.

Can You Change Your NAICS Code?

Because there’s no official way for a business owner to select a NAICS code in the first place, you don’t need to do anything special to change it. If you’d like to use a new code, start providing it when third parties ask for one in the future.

It’s a bit more complicated to change a code you disagree with if some external organization is already using it to refer to your business. In these cases, the NAICS recommends that you contact the agency directly to request the change.

Some places where you may wish to update your NAICS code after choosing a new one include the commercial credit bureaus. While they don’t have dedicated systems for changing your code, they do have tools for updating your company information:

• Experian: Request Updates to Experian Business Credit Report
• Equifax: General Equifax Business Customer Support 
• Dun & Bradstreet: View & Update Your Company Information

To be safe, be ready to demonstrate why the code they selected for you is inaccurate and how your suggested replacement makes more sense.

Financing Options for High-Risk Industries

If you select or get assigned a high-risk NAICS code, it may limit your ability to qualify for business loans. Traditional lenders may automatically deny your requests for credit or subject your applications to more rigorous underwriting requirements.

If you can’t solve the issue by changing your NAICS code, here are some ways you can improve your chances of getting financing for business development purposes.

Find Niche Industry Financing Companies

Traditional financial institutions like banks and credit unions have the strictest underwriting criteria. As a result, they’re the most likely to deny applications from businesses with high-risk NAICS codes.

One way to get around this is to look for financing companies that specialize in providing funding to businesses in your particular industry.

For example, National Funding offers small business loans to retail companies specifically, even though other lenders consider retail a high-risk niche.

Look for Financing Backed by Collateral

Collateral is another powerful tool for reducing lenders’ perceived risk and improving your chances of obtaining financing. Secured loans let lenders seize certain assets to cover losses, making them much easier to qualify for in most situations.

High-risk businesses can use that to their advantage. For example, instead of pursuing unsecured installment loans or lines of credit, you might consider using equipment loans or invoice factoring.

If you participate in real estate investing, another great option is to leverage any equity you have in existing properties.

Build Your Business Credit

A high-risk NAICS code reduces your chances of qualifying for funding, but you can mitigate the effect with a great business credit score. It’ll help you overcome the increased underwriting requirements that some lenders will require of you.

One of the best ways to improve your business credit is with a Credit Strong business credit builder loan. They’re similar to traditional installment loans but are strictly for business credit-building purposes.

We keep your proceeds in a savings account as collateral during the loan term. As a result, we can offer accounts without worrying about business credit scores. Except for sole proprietors, any business can qualify with three months in business and an EIN.

Once you sign up, we’ll report the tradeline and your payments to the commercial credit bureaus, improving your credit score.

If you reach your credit improvement goals before the end of the repayment, you can cancel early with no penalty, and we’ll refund you the principal balance you’ve paid off to date. You have nothing to lose, so give it a try today!

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