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Business Debit Card: More Than a Checkbook and Better Than an ATM Card

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Business Debit Card

 

Opening a small business bank account is a vital part of running a business. I’m sure you’re familiar with online banking and overdraft protection but let’s cover the key advantages of the business debit card also known as the business check card.

While checkbooks will always play a part in your business the faster and more convenient way to make company purchases, track expenses, and manage finances is with a business debit card.

This card works like your business checkbook and each time you use the card to make a purchase the amount of the purchase is deducted right from your account. Basically the limit on your business debit card is the amount of funds you currently have available in your business checking account.

Now keep in mind some banks will provide overdraft protection and may even offer an unsecured business credit card that you can link to your account. This comes especially handy when you may not have enough funds to cover a debit card purchase.

For example, let’s suppose you have a $500 balance in your small business bank account and have an unsecured business credit card linked to that same account with a $1,000 limit.

You go to the store and purchase a computer for $900 using your business debit card. Since you only have $500 in your account the unsecured credit card picks up the difference of $400 by tapping into the $1,000 limit you have available therefore allowing the transaction to go through.

Another advantage that comes with a business check card is convenience. Each bank that offers a business debit card will either carry the Visa or MasterCard logo allowing you to use your card anywhere Visa or MasterCard is accepted which is pretty much everywhere.

This again comes in handy if you travel because you don’t have the hassle of getting out-of-town checks cashed. You also don’t have to deal with providing two pieces of identification or waiting for check approval.

Maintaining good records is another major plus that comes from using a small business debit card. When you use the card each and every transaction appears on your statement so you can easily track your business expenses which make it a lot easier on your bookkeeper too!

Finally, a business debit card also has all the advantages of an ATM card so you can make cash withdrawals at thousands of locations. When you apply for your debit card the bank will issue a personal identification number (PIN) to help protect the account and prevent unauthorized use.

Even though using a business check card does not build your business credit files it does play a key role in your bank credit and banking history. So use your debit card responsibly and avoid mismanaging your account at all costs.

Ready to start building bank credit and business credit? Become a member of my Business Credit Insiders Circle and gain access to a proven step-by-step business credit building system. A system that provides you access to premium vendors, business credit cards, funding sources and lenders that report to all the major business credit bureaus. Submit your name and email below for details and receive a free audio seminar ($597 value) =>

About the author

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. A business credit building program helping business owners establish business credit. He is a business credit blogger for AllBusiness.com, a subsidiary of Dun and Bradstreet and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in American Express Small Business, Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain. 

FACT Act Furnisher Rules Go In Effect on July 1st: Are you ready?

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Fair Credit Act

 

Last year the FTC and federal banking agencies passed the  Fair and Accurate Credit Transactions Act Furnisher Rules which imposes major new responsibilities for lenders, servicers, collectors and other financial institutions that report information to credit bureaus like Transunion, Equifax and Experian.

On July 1st, 2010 these new rules go into effect and needless to say they are long overdue. Here’s a quick overview of what it consists of:

Accuracy and Integrity Rule

This new rule requires that all companies who supply data to consumer credit bureaus must establish written policies regarding the accuracy and integrity of data it furnishes to the credit bureaus.

In particular I am happy to see that finally the issue of ‘integrity’ of information is being addressed. For far too long consumers have had specific information like credit limits absent from their files. When some creditors do not supply this important data it provides misleading information in evaluating the true creditworthiness, credit standing and credit capacity of an individual.

This lack of ‘integrity’ in data has for many years impacted debt-to-credit utilization ratios, credit scores, financing ability and interest rates.

This newly revised “integrity” provision requires that furnishers provide a credit limit to the consumer credit bureaus, if applicable and in its possession, in order for the furnished information to have “integrity.”

However, on the business side many suppliers and servicers supplying data to the business credit bureaus fail to report the credit limits of businesses.

Unfortunately, this provision does not address the data being supplied to business credit bureaus and the ‘integrity’ of information being supplied in this industry needs to be regulated as well.

Direct Dispute Rule

This rule now allows consumers to take their disputes directly to the company that supplied the data rather than having to deal solely through credit bureaus.

In addition, the rule also includes a debt collector that provides information to a credit bureau as well. It only makes sense because many times a company may sell its debt to a third party collection agency and consumers need to have the ability to initiate a direct dispute with them too.

Now if you are a data furnisher, you are ultimately responsible for the ‘accuracy and integrity’ of your data. Non-compliance has legal consequences so you should prepare your company to meet the new compliance requirements that go into effect on July 1st.

You may want to check out The Consumer Data Industry Association which has a repeat broadcast event with Mr. Stephen Van Meter, Assistant Director of the Community and Consumer Law Division at the Office of the Comptroller of the Currency, and Mr. Andrew Smith, Partner at Morrison & Foerster, for a key discussion on the requirements of these NEW rules.

In their discussions they will cover the new policies and procedures that each data furnisher must establish and implement as well as direct disputes and the required content of a direct dispute notice.

Looking to maximize your consumer and business credit? Become a member of my Business Credit Insiders Circle and gain access to a proven step-by-step business credit building system. A system that provides you access to premium vendors, business credit cards, funding sources and lenders that report to all the major business credit bureaus. Submit your name and email below for details and receive a free audio seminar ($597 value) =>

About the author

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. A corporate credit builder system providing business credit services for business owners. He is a business credit blogger for AllBusiness.com, a subsidiary of Dun and Bradstreet and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in American Express Small Business, Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain. 

Build Business Credit and Protect the Corporate Veil

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Build Business Credit

 

Setting up a corporation helps shield your personal assets and personal liability for the debts or actions of your company. It’s treated as a separate legal entity and you must treat it as such which includes avoiding the co mingling of funds, assets and credit files.

One of the reasons to build business credit that gets overlooked the most is protection of the corporate veil.

Unfortunately, corporate veil piercing is the most litigated issue in corporate law today and is more common with small privately held entities. While there are many factors that can cause this let’s focus on the alter ego theory.

Under the alter ego theory a creditor looking to pierce the corporate veil must prove that the owner did not operate his entity as if it were a separate legal entity. This includes some of the formal requirements such as required meetings and recordkeeping.

But did you know this also includes separating your personal financial affairs from your entity’s financial affairs?

By co mingling assets which involves using personal resources like your personal credit cards for business purposes and vice versa you open yourself up to the alter ego theory.

So does this give you incentive enough to build business credit for your company?

You see one of the underlying benefits is the ability to establish a new and separate credit file that is unique from your own personal profile. By doing this you can obtain trade credit, credit cards, leases and loans strictly in the name of your business.

This enables you to separate the financial affairs of your business completely eliminating both your personal credit and personal liability from the equation.

When you decide to build small business credit, the following are the first basic steps:

  1. Incorporate or form a Limited Liability Company
  2. Obtain a Business Federal Tax Identification Number
  3. Complete Corporate Compliance
  4. Open a Small Business Bank Account
  5. Get Listed with the Business Credit Bureaus
  6. Establish Business Credit History
  7. Optimize your Business Credit file and Scores

As long as you respect this separateness, your business entity will have no issues being recognized as a separate entity and will be ultimately responsible for its own debts.

Now there may be instances where a personal guarantee is required to secure a credit line or loan especially if your business has not established enough creditworthiness but make sure the agreements are properly recorded and formally authorized by your entity if in fact your entity’s management structure requires it.

Remember, proper recordkeeping is critical to protecting your limited liability even when you establish business credit in the name of your business.

Don’t leave yourself open to a possible alter ego theory because you don’t want to have unlimited, personal liability for all the debts of your business.

Ready to start building business credit? Become a member of my Business Credit Insiders Circle and gain access to a proven step-by-step business credit building system. A system that provides you access to premium vendors, business credit cards, funding sources and lenders that report to all the major business credit bureaus. Submit your name and email below for details and receive a free audio seminar ($597 value) => 

About the author

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. A business credit building system providing business credit without a personal guarantee. He is a weekly columnist for Dun & Bradstreet Small Business Solutions, a business credit blogger for All Business & American Express Small Business and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain. 

Funding a Business: How Much Risk Do You Present to a Lender?

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Funding a Business

 

Funding a business requires careful planning and in order to maximize your financing potential I encourage you to develop a well prepared business plan. This will not only help guide your company but also provide potential lenders or investors an in-depth review of how you plan to succeed in your new venture.

I have assembled a few of the key factors lenders use to determine the risk level of a borrower that should help prepare you for the road ahead.

Let’s cover these four key factors in greater detail: credit capacity, corporate collateral, company conditions, and creditworthy character.

Credit Capacity

This is an evaluation of your ability to repay a loan. Credit capacity is evaluated by several components including cash flow, payment history, and additional cash sources. Additional factors include a strong business credit file, a solid bank rating (typically a low 5), a well designed business plan and/or prior year(s) financials that show you can produce enough cash to repay the loan.

For information on how to write a business plan be sure to check out the free video course provided by the SBA.

Corporate Collateral

Commercial real estate, heavy machinery, inventory, equipment, stocks and bonds, and other expensive business assets that can be sold if a borrower fails to repay the loan are considered corporate collateral. Without corporate collateral to secure a loan the lender may require that you put up personal collateral and a personal guarantee.

*There are specific banks that do cd secured loans and these types of loans can allow you to grow your access to capital at a much faster rate.

Company Conditions

Be prepared to prove that the condition is right for your business. Make sure the market, industry, positioning, competitiveness, and experience can back up your funding request. This should be clearly outlined in your business plan along with revenue projections and other financial forecasts.

Creditworthy Character

Lenders have to believe that the business owner is a reliable individual who can be depended on to repay the loan. Some areas they look into include your personal credit reports, education, and work experience.

Finally, when funding a business, don’t forget the importance of personal relationships. Apply for a loan at a bank where you already have a positive business relationship.

Also, make an attempt to meet with the person who will be evaluating your application, such as a bank’s lending officer, rather than the teller who handles your day-to-day banking transactions.

You may also want to check out Elements of a Successful Small Business Loan Application for additional help in preparing a funding request.

Ready to maximize your company’s fundability? Become a member of my Business Credit Insiders Circle and gain access to a proven step by step business credit building system? A system that provides you access to funding sources, premium vendors, business credit cards and lenders that report to all the major business credit bureaus. Submit your name and email below for details and receive a free audio seminar ($597 value) =>

About the author

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. A business credit building program for business owners. He is a weekly columnist for Dun & Bradstreet Small Business Solutions, a business credit blogger for All Business & American Express Small Business and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain. 

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