Accounting News and Notes

Why Your Credit Score Is More Important During the Continuing Credit Crunch

I t is always a good idea to be vigilant about your credit score, but even if borrowing loosens up a bit in 2009, you still need to do everything necessary to keep your credit score high. Fair Isaac, the company that created the FICO score, has been working on a new version of its credit scoring method that might have serious consequences for you if you.re planning on borrowing for a home or opening any new credit line in 2009.

The new version of FICO is going to be particularly focused on your balances, not only on your on-time payment records. Your top priority under this new system: Get balances down. Reports say that the new FICO revision will actually allow a bit of lenience on late payment – something that might affect more than a few consumers with the downturn in the economy. Obviously, this won’t mean that someone can chronically pay late, but once or twice won’t make the same impact as in earlier FICO versions.

Yet credit utilization – essentially the amount of credit you.re actually using relative to your credit limit – is a much bigger deal simply because high balances are so prevalent right now. From the lender’s perspective, high balances mixed with a tough economy means a higher risk of default among customers. So what’s a good target utilization rate for all your revolving credit accounts? No more than 50 percent of your credit limit, and if you can get it lower than that over time, that’s a good plan. So, the lower your credit utilization, the better your score.

What does that mean for ordinary Americans who don’t meet that under-50 percent goal? It means you shouldn’t be applying for new credit or refinancing for awhile. But because most lending institutions may continue their strict lending requirements, you might as well defer borrowing goals in favor of reforming your credit behavior.

So instead of bemoaning your tougher chances of getting a loan for a home or  a car, why not use the current environment to launch a credit makeover that will position you for a better shot six months to a year from now? Some ideas: You’ll need at least a 740 score for the best rates: You’ll often hear that credit scores of 700 and up will get you best customer status with lenders. You should aim higher. For the lowest rates and best terms, you need to get your credit score above 740 (the top credit score, by the way, is 850), so keep that target in mind. Budget: If you.ve never reviewed your spending and picked out areas where you can cut, you.ve never done a budget. Start tracking your spending either on paper or with financial planning software and start pinpointing what spending you can shift over to paying off debt.   

One more time — get those balances down: Get all your nondeductible debt under 50 percent of your credit line in each account. Go after your balances with the highest interest rates first, and once you hit 50 percent…keep trying and get those balances down further.

Get some advice: It might not be a bad time to sit down with a tax professional or a financial adviser, to talk about the way you’re going to manage your debt going forward. Keep an eye on your credit reports: Remember that you have the right to get all three of your credit reports from Experian, TransUnion and Equifax once a year for free. You can do so by ordering them at annualcreditreport.com. Don’t order all three of them at the same time, though. By staggering receipt of each of your credit reports, you’ll get a continuous picture of how your credit picture looks because the three bureaus feed each other the latest information. You’ll also be able to clean up errors as you find them and you’ll also keep an eye out for identity theft. Keep in mind that not all .free. credit report sites are free . If they ask you for a credit card number, remember they.re doing that because they want to charge you. Just go to the site above and you’ll be fine.

Get on time and pay more than the minimum: Yes, we indicated above that you might get a bit of a break on late payments with the new FICO system, but that’s a break you should consider only in a dire emergency. Electronic bill payment will allow you to save on postage while guaranteeing on-time postage, and the budgeting advice mentioned above will allow you to put a few more bucks toward getting that loan or credit card bill paid off.

Once you.re paid off, don’t close the account: In the world of credit scoring, closing accounts (even those that have not had balances for years) is a lousy idea. Lenders want to see a long record of credit management, and longtime accounts that you haven’t touched in years may actually help your score because it shows you have some restraint.

This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Tim Madison, CFP, ChFC, CASL with MONEY CONCEPTS INTERNATIONAL, INC.  who can be reached at Phone: (770) 777-8979

Atlanta CPA on Addressing Financing Needs for Atlanta Business Owners & Entrepreneurs for Decades

Helping Clients in a Down Economic Market…Procuring $100,000 line of credit for Atlanta Based Business

Despite the news of the times and the severity of the downturn in the economic market, there remains financially sound quality lenders who are seeking to extend credit to qualified business owners. As you would expect, however, banks are getting back to the basics of lending practices that ruled the decades of lending practices before the recent downturn in the economy. Rather than the “free wheeling” lending business practices of the past, banks and other traditional lenders are seeking to lend monies to well-run companies who have an idea to expand both the revenue and profit of the business.

Lenders are now more than ever looking to the Five C’s of lending:

-Credit

-Cash Flow

-Character

-Collateral

-Conditions

If you have a sound business model, a good business plan, good payment history, adequate collateral and the respect of your peers, lending sources are available and credit to extend credit to your business. However, as has been true for decades often having the attention and relationship with a good smaller bank is the best bet for entrepreneurs and business owners who have definitive financing needs. Smaller banks and lenders are often much more flexible and willing to extend credit when larger regional and national banks will not. Working with your CPA who has these contacts and is aware of economic conditions and trends in your area is essential to procuring and especially funding credit needs in tough economic times.

We have recently helped a business owner here in Atlanta area obtain and procure a $100,000 needed credit line for their business. The credit line could not have come at a better time as the economy was shrinking and it allowed the company sufficient cash flow to cash flow their business needs and allowed them sufficient time for them to package their business and to sell the business outright. It is probable that without the credit line in place that the business would have folded before the owner could “cash in” by the selling of their business to a competitor for hundreds of thousands of dollars.

John Dillard is a Christian Speaker/Author and Certified Public Accountant (All Rights Reserved). To See how he takes Christ along with him to work visit http://www.hiscpa.com/ (An Atlanta CPA firm) and for his latest book Overcoming Life’s 9/11’s: Job’s Journey and to learn about his ministry visit http://www.john-dillard.com/ To contact John Dillard CPA (Atlanta Christian Author/Speaker) today call 770. 814.9304 proudly serving Duluth, GA, Gwinnett County and Beyond.

“Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!” What, then, shall we say in response to this? If God is for us, who can be against us? Romans 8:31 Why are these verses here? Learn how His CPA became a Christian Accounting firm visit http://www.hiscpa.com/christian-CPA.html

Building Your Business Credit…Getting Financing For Your Atlanta Business

There is no magic pill to take that will make you business “bankable.” As you would expect, banks make loans with the goal of being repaid, thus some of their primary concerns will center on your most recent past history, experience and the basics of your business itself. Frequently however business owners instead will look at a bank in the hope that they will do Venture Capital (VC) funding. VC funding is commonly used when you have a new business idea or a start up venture that is more speculative in nature. This could be for either an established business or a very new one, but the central theme in VC funding is that there is more uncertainty and much more risk that one would find in traditional bank funding.

Building Your Credit in the only true way that matters evolves over time as you build your business over time and develop a documentable track record. For example, when I initially started my CPA practice over twenty years ago, it is difficult to gain a loan in the tens of thousands. Now however, banks are more than willing to grant and extend credit in the hundreds of thousands. There is nothing about me that has changed. I am still a CPA and have remained in my chosen field of profession. However that is where the similarity stops as over time my business has developed a following, a predictable cash flow and a track record. I cannot recall all the times I have watched in my career as a  CPA in Atlanta where business owners have failed to prepare; which is in essence, preparing to fail.

Banks want to see that you have been a good steward and that all that you have managed to date that you have done so with care. Often this means that you will need to make financial decisions that by worldly criteria are unpopular, choosing to manage money, while answering to a higher standard and by conservative standards. This means that frequently you will pass on business opportunities, turn down credit and have a mental attitude of being debt averse. In fact, the best way to ensure that you have money down the line, is not to spend it. Doing so will require you to pass on business deals that sound too good to be true and that you will work to stay out of debt and then to liquidate it, when you acquire it. Though this is not the way the world sees money, it is the best way to ensure that when you seek to obtain credit for a valid business proposal and expansion of your business that banks and traditional lending sources will be on our side with their checkbook ready.

John Dillard is a Christian Speaker/Author and Certified Public Accountant (All Rights Reserved). To See how he takes Christ along with him to work visit http://www.hiscpa.com/ (An Atlanta CPA firm) and for his latest book Overcoming Life’s 9/11’s: Job’s Journey and to learn about his ministry visit http://www.john-dillard.com/ To contact John Dillard CPA (Atlanta Christian Author/Speaker) today call 770. 814.9304 proudly serving Duluth, GA, Gwinnett County and Beyond.

“Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!” What, then, shall we say in response to this? If God is for us, who can be against us? Romans 8:31 Why are these verses here? Learn how His CPA became a Christian Accounting firm visit http://www.hiscpa.com/christian-CPA.html

Top Five Criteria Banks Use to Extend Financing/Credit Lines…Getting Financing For Your Atlanta Business

“Knowing the Ropes” is essential to positioning your company to be able to be in a position to be bankable and to get a line of credit or more permanent financing when it is most needed by your business. Just as you cannot obtain fire insurance the day after a fire and to have it cover a past loss. Similarly is it true, that you cannot one day decide to “get a loan” and acquire needed financing as easy as picking up the phone and ordering it, as if off a menu. Though restaurants respond well to that sort of relationship and, in fact, they cater to it, banks and lending institutions often have Lending Boards, Boards of Directors, Review Committees, Shareholders, Officers and many regulatory authorities they all answer to. As such being aware of what they are looking for is essential to any search for financing. Getting “your financial ducks in a row” is the first part of the process. Failure to satisfactorily address all of these variable components will do much to impair your firms ability to procure monies for operating and capital financing needs.

The Five C’s of Lending

Cash Flow. A lender will look at your internal books and records to ensure that there will be adequate cash flow available to pay for all of the business normal operating expenses, including all salaries, including the owner. In addition to the past operating results of the business a bank will review to make sure that substantive cash flow is available to safely ensure that all required loan payments, including principal and interest, will be made on a timely basis. One old adage to be constantly aware of is “that cash is king” for without it, many business opportunities will be lost, due to poor planning and under capitalization.

Credit. Your credit score is the banks source to independently determine and verify you past track record of paying and keeping your financial obligations current. Though there are many things one can do over time to improve your credit, the best change in your credit score will be dictated over time by you obtaining reasonable credit limits and sources and then the timely payoff of any and all existing obligations. When cash flow permits paying your bills in advance will do much to help ensure that you are a favored creditor. If you have had a bankruptcy or default in your past, often it will take many months or several years for those events to “season” and for you to improve past blights on your record with sound financial management and prompt bill payment.

Collateral. Part of the recent demise in our economy is that banks and lenders failed to stay committed to tried and true lending criteria that had worked previously for decades. Collateral is essentially the amount of the commitment that a borrower makes themselves in a financing consideration. This can take the form of existing cash, retained earnings, stock, real estate, property and any other substantive item of value that you and the bank agree. Though banks never make a loan in an effort to “get at” the collateral, having it available as a backup, in the event of a default, does much to help mitigate a banks given exposure on any particular loan.

Character. Who you are, what you do, what strengths you have, how you work, your past successes, your present working habits are all essential parts of your character that a bank will review when evaluating whether or not to extend your company a credit line, mortgage or bridge financing. Banks do people frequently because of the people who run a business rather than the business itself. This is especially true if you are a business that is relatively new and growing and therefore the business is still interlocked and identified with who the owner is, rather than what the business does.

Conditions. Just as we have all so dramatically learned over the last several months what is going on in our world around us will do much to determine what will happen in the future. By our own personal and business analysis of economic and demographic trends in the areas where we live and work will tell us much about the prospects for the future. Though analyzing them will not guarantee either success or failure, they do much to provide leading indicators of potential success. A bank/traditional lender will stay abreast of this information, which is often available through your local Chamber of Commerce. For example, in Gwinnett County where I live they even have a separate operating department that keeps tracks and analyzes key economic operating criteria.

Focusing on these Five C’s of Lending will not guarantee you a loan but they will dramatically heighten your awareness and understanding of what banks and lending sources are looking for. This will give you a leg up and an opportunity to put your best foot forward to ensuring adequate funding and souring of business lines of credit of financing.  These items when taken as a whole will give the banker specific and general information alike when determining on whether to extend credit to you and your business. I have watched many CPA clients in Atlanta fail in their financing attempts solely as a result of failing to know what to look for. Staying abreast of your business community and trends will do much to ensure financial success.

John Dillard is a Christian Speaker/Author and Certified Public Accountant (All Rights Reserved). To See how he takes Christ along with him to work visit http://www.hiscpa.com/ (An Atlanta CPA firm) and for his latest book Overcoming Life’s 9/11’s: Job’s Journey and to learn about his ministry visit http://www.john-dillard.com/ To contact John Dillard CPA (Atlanta Christian Author/Speaker) today call 770. 814.9304 proudly serving Duluth, GA, Gwinnett County and Beyond.

“Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!” What, then, shall we say in response to this? If God is for us, who can be against us? Romans 8:31 Why are these verses here? Learn how His CPA became a Christian Accounting firm visit http://www.hiscpa.com/christian-CPA.html

Our Newest Series Starts Today…Getting Financing For Your Atlanta Business

Techniques for Financing Your Business, Procuring Credit & Mortgages

Learning what you can do to get your business and personal affairs in order to address financing needs and issues is essential. As a forbearer to a new series called Getting Financing For Your Business will be coming soon. This series will focus on what you can do to get ready for this series and to ensure that you have much of the requisite “course material” out of the way. Having a basic familiarity with Financing Vehicles, Terms, and Options will ensure that as the Series begins you will be ready to learn and apply the concepts.

Stay tuned to this site as we unfold the Financial Series… Getting Financing For Your Business

Funding Your Business – Loans, Leases, and Lines of Credit
There are many financing methods that are available as your business grows. This guide will help you select which one is best for you.  http://www.hiscpa.com/business-funding.html

Alternative Funding Methods for a Growing Business
A guide on what to do when you banker says no leading you to discover new funding vehicles to help your business achieve its goal. http://www.hiscpa.com/alternative-funding.html

Working with a Banker and Obtaining Credit for your Business
Finding a good banker and maintaining a close rapport keeping them well apprised of your business’s trends and operations results will help him be able to say yes when you need them the most. http://www.hiscpa.com/banking-relationships.html

Examine Your Options Before Taking Out a Mortgage
A changing marketplace and a tightening economy are impacting financing decisions as well as the whole of the economy impacting this critical financial decision. http://www.hiscpa.com/mortgages.html

There is no magic pill to take that will make you business “bankable.” As you would expect banks make loans with the goal of being repaid, thus some of their primary concerns will center on your credit, cash flow, character, past operations and business plan. These items when taken as a whole will give the banker specific and general information alike when determining on whether to extend credit to you and your business.

Having served as a Public Speaker and CPA in the Atlanta Area for over twenty years, I have learned that business owners and entrepreneurs are still seeking guidance on similar issues of decades ago. This reference material will have you seeking after more.

John Dillard is a Christian Speaker/Author and Certified Public Accountant (All Rights Reserved). To See how he takes Christ along with him to work visit http://www.hiscpa.com/ (An Atlanta CPA firm) and for his latest book Overcoming Life’s 9/11’s: Job’s Journey and to learn about his ministry visit http://www.john-dillard.com/ To contact John Dillard CPA (Atlanta Christian Author/Speaker) today call 770. 814.9304 proudly serving Duluth, GA, Gwinnett County and Beyond.

“Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!” What, then, shall we say in response to this? If God is for us, who can be against us? Romans 8:31 Why are these verses here? Learn how His CPA became a Christian Accounting firm visit http://www.hiscpa.com/christian-CPA.html