shoebox_credit.htm

Shoebox Credit—A Different Sort

by Yank Elliott, MBA & IAHBE Staff Writer

Much has been written about the absolute requirement of a business plan for any new business. I’ve heard no one disagree with this basic concept. What does cause discussion, however, is the depth and amount of time and research that must be put into such a plan. An Amazon search for books on “how to write a business plan” shows 767 books on the subject. Google shows 331,000 references; some of these are duplicates, but this is still a lot of writing about business plans. Many writers on the subject feel a lot of prospective entrepreneurs spend so much time on analysis, trying to get everything exactly correct that the business opportunity passes never to return.

The Harvard Business Review On Entrepreneurship, from 1999, referred several times to spending too much time on business plans. Several professors said entrepreneurs must move quickly on their ideas or opportunities may no longer exist. These people normally lack the time to do a quick and thorough study of a deal. By the time an opportunity is investigated fully, it may no longer exist. Not only can over-analyzing delay a project until too late, it may also kill the deal by identifying a great many “what if” type problems.

The Harvard professors interviewed the founders of 100 companies on the 1989 Inc. 500 list of fastest growing companies in the U.S. and found some amazing answers:
41% had no business plan at all.
26% had just a rudimentary, back-of-the-envelope type of plan.
5% worked up financial projections for investors.
28% wrote up a full-blown plan.

So, you see, 67% of successful entrepreneurs spent little time on their plans.

However, everyone starting a new business has to have some kind of plan in their head or, preferably, written for continuing reference. As in the Harvard book, a plan could be on the back of an envelope! These are the basic things you must know before starting an opportunity:

1. What products or services will you offer?
2. Where will you get them and what will they cost?
3. At what price will you sell them?
4. What equipment do you need?
5. Do you need a special office?
6. What kind of marketing are you planning?
7. How much money will you need and when will you need it?

Some of these things you can learn as you go along, but one thing you will have to know about from the beginning is how much money you must have available. To get your financing you have to know answers to these questions:

1. How much do I need?
2. How much of my own money can I use?
3. What can I get from others?
4. What can I do to convince someone to give me capital

Two places to find more information about financing your home-based business are Capital Sources For Your Business and
Financing Your Home-Based Business. These Websites discuss a number of financing options. Among them are:

Commercial banks offer the advantage of seldom requiring any ownership interest or management options. If you need $100,000 or less you can probably get a personal loan if your credit is good enough.

The U.S. Small Business Administration (SBA) is a possible source if no other lender will help; they don’t lend directly but guarantee a major portion of loans from lending institutions.

Home equity, using your own home as collateral, is a possibility. This must be used carefully, because you could lose your house if things don’t go well.

Credit cards are a source of funds, but this is expensive financing. It is also subject to abuse unless you are very well disciplined.

Equipment leasing is a form of installment financing. It can be used to buy computers, fax machines, and other office equipment. I got my first laptop this way—the computer was rather expensive at the time. Most online dealers offer this somewhere on their sales page. If you don’t see it, call customer service and ask about leasing.

This article on small business financing options includes a discussion of several unique options such as:

Angel investors who are willing to risk less than $1,000,000 for up to 5 years with no control required if the deal is good enough.

Venture capital investors who will go much higher with the amount of money, $5,000,000 or more. They must be able to see a way to cash out in three to five years and usually require some control over your business.

This article on "Starting A New Business With Bootstrap Funding" may be useful for many new entrepreneurs. Recent data reveal many small companies began with $5,000 or less. Half of recent Inc. 500 businesses started as home-based with average start-up cost for the Inc. companies of $25,000. So keep your day job while seeing how your new business will do and give yourself the opportunity of experimenting to get things right without having to worry about personal expenses. A last resort for a bootstrap start is family and friends. Be careful with this. These people are awfully close to you and you could lose loved ones forever with a sour deal.

Another possible source of funds is supplier credit. Most of the people from whom you purchase things on a continuing basis will want to help you buy from them. They will try you a few times to see if you pay on time. Every credit advisor with whom I’ve ever discussed credit says to be sure and pay everything on time, but don’t pay early. If you ever start paying early, your suppliers will expect it in the future and any failure to do so later could cut off your credit. They will think you are in trouble.

Your personal life insurance could be a source of funds. Be careful with this, because it takes away any benefits you may need for your family.

Ask your own customers for an advance; this is like many contractors do when they ask for money up front so they can buy materials. For small amounts like a lot of your products will be, this is nothing more than asking for payment in advance. Every online retailer does this.

In a pinch, try commercial finance companies—they finance higher credit risks with higher rates. They are also quite aggressive at collecting late payments.

If you live in a rural area, check the Rural Economic and Community Development Agency (RECD)—this agency guarantees 90% of a loan but makes no direct loans. For more about this program, see U.S.D.A. Rural Development.

Perhaps the greatest Internet money-maker is E-bay. This is an easy way to get rid of a lot of unneeded things and generate some cash. You can get all the details here.

Most marketing people I have read think writing articles and getting them published is one of the very best ways to increase your success. Even if you are paid nothing, think of the advertising value you will receive. Articles can build trust in you and brand your idea for practically nothing. Try it.

FICO, from Fair Isaac Corporation, leaves out thin credit or unscoreables which are estimated to be 50 million Americans. These people have little or no credit history; they may be young workers, new graduates, and those who for some reason always pay by cash or check. Included are large groups of Hispanics with good pay records who are left out, as well as home-based business operators. Many of these people, however, make good incomes and pay bills on time.

The major credit agencies are using expanded FICO which attempts to extend traditional scoring to a larger market, but it leaves out rental payments while including the way applicants watch TV. What does TV have to do with credit worthiness? Who knows, but it seems to make some difference.

First American Corporation developed the Anthem Score which takes into account rent, utilities, child care, and some insurance payments; it is used by the Massachusetts housing and lending agency but few other lenders.

Now, here comes an interesting new credit company called PRBC, an Annapolis based company, which began as Pay Rent, Build Credit. They use any recurring on-time bill payments, including mortgage, lease, auto, rent, utility, cable, phone, daycare, natural gas, and cell phone payments. It is completely voluntary; users may opt in or out at will. It is not a fix for people with poor credit history or charge-offs, but it may help people who have avoided the credit market; many have been encouraged to have no credit cards and no debt.

Another way to cash in on the Internet is to sell advertising space on your site or in your e-zine. Traffic and circulation play a large role in how much you can charge.

Even if you can’t make a direct profit from ads to start, try swapping with other Websites or e-zines, their ad for yours. You’ll get free traffic, which is the same as making money.

Here are some things I know people have done when they needed a little cash in a hurry. I’ve tried some of these myself when I first started on the Internet. Try these:
Every night put your left over change into a little jar. It’s surprising how quickly a few coins add up. My own “piggy bank” literally fed me several months. You can feed your business this way as well.

In most places, especially around year end, pecans become a demand item. There are lots of abandoned home-sites with large pecan trees around. Ask permission and you’ll be surprised what you can make. There are usually roadside vegetable dealers nearby who will buy your nuts. Offer to split your profits in some manner with the owner. Most will be glad to get pecans without having to pick them up. This idea could work with other local products in demand. Several I’ve seen others do are walnuts, blackberries, or crab apples. And. if you are near a farming area, after a crop like sweet potatoes is harvested, there are a lot of good potatoes lying around, which you can gather and sell; just be sure to get permission. One last thought is pear trees. Usually these trees bear a lot more than the owner will use; fallen pears even become a nuisance at times. You can sell them raw or can them for a little money.

Next, look around your house. You may have books nobody reads or unwanted collectible items. Your local bookstore may buy your books, or you can probably sell everything on Ebay.com. If you have a lot of clothes or old furniture, a yard sale will generate found money. There are also many resale or consignment shops where you can sell just about anything.

A long shot is unclaimed property, but I got some money. A place to start free is here. There are many sources of information, some free, some for a fee. Your local state government Website may be the best place to start. That’s where my money was.

Now here is the main point of this article: There are beginning to be new forms of credit scoring which help many people with some kind of credit problem, usually no credit record at all. Some of these ideas are discussed here.

PRBC sign-up is simple and only takes about five minutes. They do ask for a Social Security Number, but the site URL is secure. After sign-up you enter information about your on-time payments; the more you can list the better. Then request verification; when complete you just call PRBC and they will furnish a selected lender who should be able to help you.

PRBC is the only credit bureau that allows people to enroll themselves. It's also the only bureau that lets individuals demonstrate their fiscal responsibility with information that is not reported to the "big three," such as on-time rental payments and non-debt bill payments. PRBC produces a PRBC Report and Bill Payment Scores (BPS) that can be used to supplement your "big three" credit bureau reports and scores (if you have one of them). A PRBC Report and BPS can show that you have paid your bills on time for up to the past three years. PRBC maintains your bill payment history in your file for seven years but does not share your file without your permission.

PRBC is free to register and enter your account information. When you report your own payments on rental, utility, or other payment accounts, PRBC will need to verify these before they can be included in your Credit File. PRBC charges fees for these verifications. The cost for rental verification is $20, all other types of accounts are $15 each and it usually takes two or three business days for verification.

Fannie Mae accepts PRBC, as does Citizens Home Loan, Inc., along with some others depending on circumstances. What you can do is work with PRBC and give it a try. PRBC reports are in the form of Merged, Tri-Merged, or Multi-Merged Reports (MMCRs) containing information from the major credit bureaus, Experian, Equifax, and TransUnion. You can see how this can be significant information for a loan application

PRBC may be just what you need to unlock a credit source and build your business into a powerhouse. If you are having trouble finding the money you need, give this new idea a try. The most you can lose is maybe $100 for verification fees. If this gets you the $5,000 or $25,000 you need, wouldn’t you say it’s worth a try?

Yank is a home-based entrepreneur and freelance business writer living in Hurricane Alley, North Carolina, USA. His Website is http://www.alternate-choice.com and you may contact Yank at .newideas@alternate-choice.com