Small business startup costs

Credit cards as small business funding sources

Do you need financing to help your business get through a shortfall of cash, or purchase inventory or fixed assets? Debt financing is one option.

Debt financing is money loaned to you or your business, usually by a commercial bank or credit union, for which the lender has a right to earn interest.

Here’s one example of debt financing: using a corporate credit card as a financing solution in your small business.

Pros and cons of corporate credit cards as small business financing

One pro of using a corporate credit card as small business financing is that they offer the convenience of a line of credit. The credit is there when you need it, and it allows you to keep personal and business purchases separate from each other.

However, there’s a downside too. Business credit cards have higher interest rates. And if your business fails, you’ll most likely be the one responsible for full repayment of any outstanding credit card balance. So make sure you read and understand the terms fully before you commit.

A note about credit limits

How do credit limits factor into small business financing? Here’s an example. You have a personal credit card with an unused credit limit of $20,000, and you want to get a business loan from the bank. However, you might discover that this unused credit will be considered debt that you’ve already incurred. This will increase your debt to equity ratio, which banks use to figure out the current proportion of debt you have compared to your equity. Their logic here is that you haven’t used that $20,000 of available credit, but there’s the potential that you could.

The importance of credit rating

As with anything credit card-related, it’s important to be aware and stay on top of things, particularly your credit rating. Make sure to cancel credit cards you don’t need anymore, to reduce the revolving credit debt that the banks see when they review your credit history. A better credit rating means better interest rates and better loan terms. Win-win!

Check out Equifax Canada or TransUnion Canada to find out your personal credit score. Review this report with a fine-toothed comb, keeping an eye out for credit cards you may have cancelled but which still show up on your credit report (these affect your debt to equity ratio). Errors may exist too, including loans you don’t have, employers you no longer work for, information that isn’t yours, and more.

Check your credit report annually, and well in advance of applying for a loan, corporate credit card, or mortgage. Notify the credit company of any mistakes so enough time will elapse for the correction to be made. This way, your credit score will be as good as it can be when you meet with the bank.

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Small business blog posts we liked this week

We hope you enjoy these small business articles that we enjoyed lately!

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7 tips for pitching to investors

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Pitching to potential investor or customers can be nerve-wracking, and we recommend getting as prepared as you can. Start with these 7 essential tips for making a small business pitch.

Tips for making a small business pitch

  1. Know your business. You should be able to describe your business model, explain what unique need your small business fills, who your competition is and your marketing and sales plan – to name a few.
  2. Know your numbers. Have a basic understanding of financial elements like yearly sales (volume and dollar amount), cash flow projection and net worth.
  3. Research your potential investor or customer. Get to know who you’re pitching to as much as possible, so you can speak accurately to what they’re looking for – and so you know what issues may arise.
  4. Be concise. You might have five minutes to make a pitch, or you might have 30 seconds. Prepare a few pitches of varying lengths that get the point across and still sound compelling.
  5. Put yourself in their shoes. If you were being pitched to, what questions would you ask? Make a list of these questions to help you become better prepared.
  6. Practice! Go through your pitch in front of your business partners, trusted friends or family – or even in front of your mirror. Don’t worry about memorizing your “speech,” but focus on pinpointing strengths or missing pieces. Some cities even have networking groups where entrepreneurs just like you can practice their pitches.
  7. Act natural! Making pitches is a lot like public speaking, but it doesn’t have to be terrifying. Just be professional, friendly and try to relax!

Want more tips for pitching to investors? Check out the 6 common questions investors ask in a pitch.

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6 challenges faced by young entrepreneurs

Some of the world’s most famous companies weren’t created in a boardroom by a committee of seasoned professionals. Here are a few businesses that you probably know which were started by entrepreneurs under the age of 35:

  • IKEA
  • Facebook
  • Apple Computer
  • Google
  • Mrs. Fields
  • Motown Records

What great things can young entrepreneurs do?

Young people possess optimism, endless energy, and fresh ideas. Because they’re not as set in their ways as older people can be, they’re often more willing to try new things, and can bounce back quickly from mistakes they may make. These qualities, coupled with their ability to quickly adapt to new technologies, make them natural leaders in the ever-developing small business climate.

What challenges can young entrepreneurs face?

Many young entrepreneurs don’t consider their youth a hindrance – they’re eagerly working on building their business and taking steps towards their dreams. We commend that passion, but the fact is that younger entrepreneurs do face some unique challenges in the world of small business, including:

  • Conflicts with high school, college, or university education
  • Lack of support from family
  • Reduced start-up capital
  • Lack of specific business skills
  • Less experience in leadership and management
  • Clients or suppliers who see the entrepreneur as a “kid,” and who may take advantage of youth or perceived inexperience

How can younger entrepreneurs overcome challenges?

At GoForth Institute, we believe strongly in the importance of small business education and supporting entrepreneurs of all ages. Knowledge is power! We advise younger entrepreneurs to seek out a trusted mentor, whether it’s in the field you want to enter, or just an experienced person who you trust to point you in the right direction.

We also strongly advise younger entrepreneurs to even the odds by knowing your business inside and out. Create a business model and vision statement, and be able to show clear leadership, organization and ownership of your business. To take it a step further, why not try answering the 6 common questions investors ask in a pitch? Even if you’re not seeking investment, they’re valuable, foundational things to know.

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brand trust

How to communicate brand trust through your marketing material

There are many things that are hard to communicate in ads because they can’t really be measured – the reason why your customers should trust you is one of those things.

Being able to communicate brand trust through your marketing material is very important. After all, you often get one shot to make an impression on your prospective customer or client, and you shouldn’t depend on getting a second chance to prove your trustworthiness.

Put it this way: according to a recent survey, 56% of consumers feel more loyal to brands that “get them” – so it’s important!

How do you communicate something as intangible as trust in your brand’s marketing materials?

One of our GoForth Experts, Rob Campbell, has some answers. Check out his advice for communicating trust in your marketing material here, and feel free to ask our experts any other business-related question you have – other entrepreneurs might love to hear the answer too!

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