Women are really starting to make a name for themselves as entrepreneurs and small business owners. The focus on gender equality is on the rise in the startup and venture capital realm. That combined with the availability of small business loans for women make funding a start up a little easier than years past.
As an aspiring entrepreneur, you need to be aware of the role business credit plays in your ability to secure finances.
What is Business Credit?
Credit, personal or business, reflects your ability to borrow money. Your business credit score is similar to your personal credit score. But, it is separate from your personal finances, or it should be. The main reason you may want to keep your personal and business finances separate is that any problems that befall your business will reflect on your personal credit score if you are not careful.
Lenders determine how much you can borrow based on your current income and your existing debt payments. If your finances are combined, your business could max out your borrowing ability, leaving you unable to take out loans for a house or a car. It is important to establish business credit as soon as possible. Initially, lenders may require that you provide some sort of personal guarantee. This may require putting assets like your home on the line as collateral.
How to Build Business Credit
Just like personal credit, you need to build your business credit. Start out by getting an Employer Identification Number from the IRS. You can use this in place of your Social Security Number. Open all accounts in the name of your business. You may also wish to incorporate your business. Speak with an attorney about the steps necessary. If and when you take out a loan, do it in the name of your business.
Working with suppliers is another great way to establish your credit-worthiness. Try to work with suppliers that are willing to report your actions to business credit bureaus. Whether you take out a traditional loan or establish credit through suppliers, make sure you always pay on time, or you could undermine your efforts.
There are four main agencies that report business scores: FICO SBSS, Dun & Bradstreet, Experian, and Equifax. Each bureau has its own scoring model. The information used by these bureaus may come from drastically different sources. For instance, you provide the information to fill out your profile with Dun and Bradstreet. These unique reporting standards may make understanding your business credit a little more complicated.
In general, you want to practice the same care with your business score as your personal score. This means keeping your utilization of available credit under 30 percent, avoiding delinquency and paying your bills and debts on time. Because initially, your current individual credit score reflects on your ability borrow in a business capacity, you may need to hire a professional credit repair service to help review and potentially clean up your score. Sometimes your report may have misleading or inaccurate items that need to be challenged and removed. Businesses like Lexington Law can provide valuable assistance. With 26 years of experience, they have the tools and expertise to repair credit reports by removing inaccurate, unsubstantiated, and unfair items.
“When talking about business credit, a good rule of thumb is to practice the same careful credit habits you would exercise for your personal score: keep your credit utilization under 30 percent, pay debts on time (or even early), and avoid delinquency” state credit repair experts from Lexington Law.
Types of startup funding
Now you know how to build your business credit. Your next step is finding the funding sources. This step is particularly challenging, considering the availability of the funding to startups. So, what kind of funding should you consider?
Small Business Loans
According to the National Women’s Business Council, in 2007, women owned 7.8 million businesses. Securing a business loan is often pivotal to a startup’s success. The Small Business Administration is a vital resource for many women wishing to start their first business. The SBA prides themselves on helping you gather the resources necessary and then guiding you through the loan application process.
There are designated SBA loan programs specifically for women. To secure a loan, you will most likely need a good business credit score and a solid business plan. These rules are set out by the Office of Women’s Business Owners and apply to most loans or grants.
Any business venture requires that you be well informed of the competition. A variety of organizations make themselves available day and night with the sole purpose of assisting ambitious women. These organizations can help you write a business plan and size up the competition. They can assist you in gathering the information and resources you need to be successful.
Angel Investors and Venture Capital Groups
Another way to secure capital is through angel investors or venture capital groups. There has been a noticeable change in the world a venture capital in an attempt to balance the playing field and make it more gender neutral. Some of this added neutrality comes from successful women choosing to financially back women-owned businesses and offering up their own expertise.
Self-funding means that you raise funds on your own effort. Essentially, your business is funded by you own money , friends and family’s money, or via crowdfunding platforms.
If you’re looking for more funding ideas, read this.
Things to consider before pitching an investor
Here are some tips to consider before pitching your business to an investor.
Ask for more
Your business will likely cost you more than you think. Don’t be afraid of rejection. Remember you are entering into a negotiation. By starting high, you are more likely to get the seed money you need. “[Women] need to ask with real authority and conviction”, says Kirsten Green, founder of Forerunner Ventures. Founder of 37 Angels and associate dean of Columbia Business School, Angela Lee, makes the suggestion to, “Ask for 150 percent of what you think you [will] need”.
It is important to network with the startup and investing community, so you know what investors are looking for. It helps you learn what to expect and you may even develop relationships with investors that make you recognizable and set you apart from the competition. Being a recognizable face is always a good thing. It establishes you in the minds of potential investors. Many Angel Investors actually act as mentors as well.
Prepare for VC-type questions
Sometimes pitch meetings differ between men and women. Typically, male founders will be asked promotion-based questions and women founders will be asked convention-based questions. It is wise to answer convention-based questions with a promotional spin as a way to prove you know how to create value for the investors.
Try not to overthink the situation. Just because you are the only woman in a man-filled room shouldn’t undermine your confidence. Show investors that you believe in your own leadership capabilities.
Opportunities for women in the entrepreneurial world are growing. If you have a winning business idea, get out there and pursue it with confidence.