Your Credit Score
October 30th, 2018

Do you know what your credit score is?  If you don’t you should and moreover, you should keep up with it regularly. If you ever go looking for a loan from a bank your credit score is going to be one of the first things they look at.  Generally, realizing that every deal is a snowflake, if your score is in the 650 range most banks start to get uncomfortable, and it doesn’t take a score much below that to lead to a no on your loan request.  There may be certain mitigating factors which could overcome a lower than normally acceptable credit score, but not very often.

Also, some of the many online non-bank lenders that have come into the marketplace because of banks’ reluctance to make small business loans look at a borrower’s credit score.  Those that do may be more flexible, but a bad credit score is still usually a killer.  Many times in SCORE when either startups or existing small businesses are looking for help finding a loan and they are asked what their credit score is, they don’t know.  That is simply bad management. 

Somewhere out there someone probably has your Social Security number one digit off.   And also in this age of hackers stealing data from credit unions, something might appear on your credit report that had nothing to do with you and you never knew it.  You are entitled to three free credit reports, but they are not in great detail.  Order yourself a full credit report from one of the major reporting agencies.  They cost very little, and given what it could save you, it’s money well-spent.  It could mean the difference between a yes and a no.

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Econ 101
October 26th, 2018

A few of you may have had to take Economics 101 in college.  A few of you might have been able to stay awake for the whole class.  When the good times are rolling it doesn’t seem to be a real big deal to catch a couple of winks.  The good times are still going to be rolling when you wake up.  Supply and demand –  Economics 101 at its most basic.  There is lots of demand because we have money in our pockets, and lots of supply to fill that demand.  Business is good.

The stock market just keeps going up, setting new records.  Until it hits a slight “correction.” Jobs are plentiful, so much in some cases that there aren’t enough people to fill them putting a damper on opportunities to continue to grow.  In terms of unfulfilled demand, just look at the long-haul trucking industry.  I have seen figures as high as 50,000 jobs going begging in that industry alone.  Wages are continuing to be forced up to attract new drivers.  But the shortages still exist.  House prices, the major source of most people’s personal wealth are high.  Consumer sentiment is high.  The Small Business Optimism Index continues to set new records.

“ We have six exits from our aircraft….  In case of a sudden decrease in cabin pressure oxygen masks will drop down from the overhead bin.  Place the mask….”  It may be time to at least pull out the seat card in front of you to familiarize yourself with how to get out of this plane that just keeps flying higher and higher.

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4 + 4 = 2
October 23rd, 2018

Higher math courtesy of the Federal Reserve.  By the end of 2018 it is expected that the Federal Reserve will have raised rates by a full point, and another four rate hikes are expected for 2019.  Recently Boston Federal Reserve President Eric Rosengren hinted that because the economy is still very strong that interest rates might need to become a “little more restrictive.”  Fed speak for don’t assume anything.

What might that mean for your business?  Does it mean anything?  How much do you use your credit card for your business?  By the end of next year the rate on your card is likely to be at least 2% higher than a year ago.  If nothing else, rising interest rates may increase your cost of doing business, putting upward pressure on your prices.  Higher prices, lower sales maybe.  Other things that you buy may become more expensive for any number of reasons.  If you can’t match increasing costs with your prices it could lead to lower profits.

It may have no effect at all, but by any chance are any of your customers or suppliers likely to be affected by the now-you-see-them-now-you-don’t tariffs?  Probably not, and because you know who your target customers are and why they buy from you, you figure that you have got any tariff-related issues under control.  But, something that a supplier might have to buy to make one of the products you buy may be affected by tariffs which could possibly raise your costs.  And because that landscape keeps changing, stay vigilant.  And the tariff noises are just a big macro issue that can affect a lot of things.  But there are a lot of little things happening here and there that indicate some hesitancy in the continued growth of the economy.

And one more thing.  And again, interest rates are going up.  Bank lending is going to tighten.  The economy is booming, but behind the curtain costs are inexorably rising thanks to the Fed.

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Why SBA?
October 19th, 2018

Since small business owners sometimes have difficulties obtaining loans from banks, one of the tools available to banks to help them is the SBA guarantee.  SBA provides a 75% guarantee across its largest program – the 7a, to banks that request it.  What this does for banks is to allow them to take risks that might be somewhat outside of their normal credit policy and use the SBA guarantee to mitigate that risk.  The SBA has its own credit guidelines that are very similar to banks but with a slightly wider latitude, and banks have to underwrite to SBA guidelines which are very similar to banks.  The same credit quality that banks use is what SBA uses.  So although the SBA guarantee allows a bank to stretch their credit guidelines, it doesn’t want bad loans any more than a bank does.  So a loan that might be considered high-risk to a bank is not likely to be approved by SBA either because its’ funding comes from the Federal Government. 

The most significant benefit of SBA loans is that SBA offers to a borrower considerably lower monthly payments on loans because of the longer amortizations offered by SBA.  Real estate receives a term of up to 25 years, equipment up to 10 years, and working capital 7 to 10 years which can considerably lower borrowers’ monthly cash outflows. 

In SBA’s fiscal year 2018  it approved more than 72,000 loans for a volume of over $30 billion spread over all its’ programs.  Of these 72,000 loans to small business owners, how many might not have gained needed financing were it not for the SBA?  In the world we live in today where the government is not exactly held in the highest regard the SBA loan guarantee is an example of where government can make a significant contribution to small business.

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Who????????  Joseph Schumpeter was an Austrian political economist born in 1880.  In 1932 he became a professor at Harvard and remained there until his death.  He is credited with the concept of “creative destruction” – the process by which something new brings about the demise of something before it.  Suppose you own a bookstore; or drive a taxi; or hang telephone lines.  We are all familiar with the concept and could devote several pages to examples of it.  So?

Today’s entrepreneurs are operating in an environment that can change on a dime.  The successful business you may have run for years all of a sudden faces someone who can do it faster, cheaper, prettier – whatever.  R.I.P.  Sears.   For the entrepreneur to stay in business and grow he or she has to be constantly aware of the world and business environment around them.  How many retailers watched Amazon growing and figured that it was a clever idea and not much of a threat.  Borders didn’t.  Barnes & Noble didn’t, just to name a couple of the most obvious.  In today’s world social media rules.  But it doesn’t rule everything.  Local and national news is important – wherever and however you receive it.  But you have to look for it and understand if it has any implications for your business, and sometimes you have to act on it. 

One example is the current tariff fights.  A lot of things sold in retail stores come from China.  Do tariffs affect any of the costs of what you’re buying?  Toys are one example of a product where the costs are going to go up.  There are dozens of other examples out there.  Are any of them going to affect your costs, hence your prices, hence your profits?  You may be cruising along making money hand over fist (especially in this economy) but something may be appearing on the scene that could replace your product or service or do it better.  The railroads owned the passenger business.  Then Henry Ford threw a monkey wrench into the wheels, and the rest is history.  Pay attention to the world around you.  You never know where a wrench might come from.

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Purple Flag Flying
October 11th, 2018

You head down to the beach for a nice relaxing day.  You happen to look toward the lifeguard stand and a purple flag is flying.  Purple???  Everybody knows the familiar flags: green, let the good times roll; yellow, be careful where you roll them; red, don’t roll them at all.  But purple?  The purple flag means marine pests present in the water – things like jelly fish, stingrays, sea snakes, and other pests that can cause minor injuries.

Are there any purple flags flying at your business?  Maybe costs are creeping up but your selling price hasn’t kept up because you are afraid of losing sales because of your prices being higher.  Maybe you’re getting a little lax about making sure all bills are paid on time, especially credit card bills.  Credit cards are used at one time or another by most small businesses.  The upside is that your credit card is the line of credit that you can’t get from your bank, which is of immeasurable value.  Another upside is regular payments on your credit cards (along with everything else of course) is one of the fastest ways to build up your credit score which is one of the most critical requirements for banks and certain other types of financing.  The downside is that it doesn’t take but a few late payments to damage your credit score.  It’s critical that you stay on top of it.  So there are just a couple of pests to watch out for.  There are plenty more.  Out of sight out of mind.

So pay attention to what flag is flying and keep your snorkel handy just in case.  You don’t want to get stung.


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October 9th, 2018

Mentoring is one of the most important and beneficial assets that a small or startup business could have.   There is general consistency in the definitions of mentor – advisor, coach, experienced, supporter, etc.  But one thing is generally consistent throughout – over a period time.  All of the qualities contained in the definitions are out there, but it generally comes with a cost, most often hourly fees.  For a short-duration assignment that may not be much of a problem.  But what of a longer term need, especially for startups?  Paying for long-term mentoring is probably not feasible, especially for startups or very early stage businesses.

There is an answer and unfortunately it not widely known in many places and that is SCORE.  SCORE is a resource partner of SBA and stands for Service Corps of Retired Executives.  SCORE is a national volunteer nonprofit organization founded in 1964 consisting of mostly retired and semi-retired business people with 30 to 40 years of business experience who offer mentoring services to small businesses, both startup and existing, at no cost and with no limit on the length of engagement.  Since SCORE’s founding more than 11 million clients have been served.  There are SCORE mentors who have worked with their clients for three and four years.  All at no cost to the client.  Because SBA provides partial funding for SCORE, its services are free.  There are approximately 13,000 volunteer mentors around the country in over 300 chapters.  SCORE volunteers range from high-level corporate executives to long-time successful small business owners.  The list of skills is almost endless.

The national consulting firm Pricewaterhouse Coopers audits SCORE chapters every year.  In the data for the latest fiscal year SCORE was credited with over 300,000 mentoring sessions around the country.  For the level of expertise of SCORE counselors, imagine what those 300,000 hours of time would have been billed at.

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