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Can you be sued for an overdue balance by a business credit card issuer? The short
answer is yes. At least, your business can be sued. If you have a Corporation or LLC and have kept your business finances properly separated from your personal finances, you should have a certain amount of protection from lawsuits. The creditor can sue your business, but not you personally. If you have a sole proprietorship or partnership, you will have more personal liability for the debts of the business, and your personal financial well being could be put at risk in the event of a lawsuit by a creditor. Other things that could put your personal finances at risk are if you sign a personal guarantee to obtain a business credit card, or if the creditor inserts special language in the terms stating that the person who uses the card has some level of responsibility. Also, if the creditor can prove that there was fraud committed in the credit application process, then they could probably sue the owner or owners instead of the business. The best course of action, of course, is to avoid this scenario altogether. Obviously that isn't always possible. This s precisely why it's wise to build business credit and have a solid separation between your business and personal finances: doing so will protect you to the maximum extent possible in the event that, at some point in the future, your business is unable to pay its debts.
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Mortgage servicers and troubled homeowners may be losing faith that Congress will pass legislation saving borrowers from paying a tax penalty when they do a short sale.
The number of short sales fell to 33,900 in the first quarter from 48,500 in the prior quarter and from 84,860 a year earlier, the latest report by the Hope Now alliance of mortgage servicers shows. The first-quarter decline comes after Congress failed to extend the Mortgage Forgiveness Debt Relief Act, which expired at the end of 2013. Borrowers who complete a short sale this year could be taxed on any forgiven principal unless Congress passes an extension that is retroactive to Jan. 1. "Some properties that may have avoided foreclosure as short sales are instead being foreclosed upon and contributing to the rise in REO stock," says Sam Khater, a senior economist at the analytics firm CoreLogic. While foreclosure starts and home sales have been on the decline along with short sales, a report by CoreLogic shows the number of repossessed properties on the market has risen from 375,000 in August to 430,000 in March. This is due in part to lower investor demand for foreclosed properties but may also reflect Congress' failure to extend the Mortgage Forgiveness Debt Relief Act. Senate Republicans are filibustering a tax-extender bill that contains a two-year extension to the debt relief act. The House is expected to delay any action on a tax extender bill until after the November elections. Short sales generally considered less damaging than foreclosures because the former owner generally walks away with a few thousand dollars in pocket and a better credit score. The home is generally in better shape and commands a better selling price. Short sales peaked at 422,600 in 2012 and fell to 281,078 in 2013, Hope Now data show. What makes up your business credit score? What gives you the best chances of getting a loan? Here are a few factors that
play into your business credit picture, and what you can do to make the most of them: 1. Payment History - Your payment history is an important part of your business credit profile, and is what your D&B Paydex score is based on. Many credit opportunities come with a minimum Paydex requirement. What you can do: always pay vendors EARLY. On time is "okay", but paying early (as in before you receive the invoice) is best. 2. Credit Applications - Believe it or not, multiple applications for credit can be a red flag that will keep you from getting approved for a loan. Too many in a short period of time will make your company look desperate and be a sign to potential lenders that things are going downhill. What you can do: plan your use of credit accordingly, and keep applications to the minimum necessary to accomplish your goals. 3. Blanket UCC Filings - One thing that many people don't realize is that they need to pay attention to the order in which they get certain types of loans, and what UCC filings the lenders will file. Some lenders may file a "blanket" UCC filing, which essentially says they have an interest in ALL of your assets. These blanket UCC filings will then take precedence over any subsequent ones, which drastically reduces your ability to get credit elsewhere. What you can do: plan your credit carefully, and negotiate UCC filings according to what your needs are. For example, if you need particular assets excluded from a UCC filing to use as security for another loan, explain that fact in advance to get those items excluded from any blanket filings, or, alternatively, get the loan or account with the more specific UCC filing first. Some experts recommend opening accounts with competing UCC filings at the same time, and negotiating the details with each party simultaneously. 4. Company Financials - With D&B, it's important to make sure your financials in your credit file are up to date. If they are not, it could negatively reflect on your company when the lender is comparing the available data. What you can do: update your financials on your credit reports so that they reflect your current circumstances, and plan to do so periodically. l Structure - The legal structure of your company (LLC versus INC versus Partnership, etc.) can also affect your business cedit. Lenders are less likely to loan money to Sole Proprietorships and Partnerships than Corporations or Limited Liability Companies. What you can do: if you aren't incorporated, you should be. The advantages span far past just your ability to get credit. There are other factors that affect your ability to get credit, such as the amount of debt you already have, how heavily invested you are in your company, and even your personal credit can play a role in your approval or denial. Here we've covered five of them. In the end, the better the all-around picture you can paint, the better your chances of getting approved for loans will be. Bank credit is the total amount of borrowing capacity a business can obtain from the banking system. Banks have their own internal way of scoring and rating businesses credit worthiness. They do this through a system called bank ratings, which rates the credit worthiness of a business from the bank’s perspective.
A business can secure more business credit quickly as long as it has a minimum of one bank reference and an average daily account balance of at least $10,000 for the past three months. What lenders REALLY want to see is that a business has this $10,000 average balance. When a business has this, it yields a “Bank Rating” of Low-5, meaning the business has an average-daily-balance of $5,000 to $30,000. A business that has a balance of $7,000 to $9,999 will net the business a lower rating such as a High-4, which will make it harder for a business to get approved for bank financing. Here is the actual bank rating scale, so you can see where you business might rank: High 5, account balance of $70,000-99,999 Mid 5, account balance of $40,000-69,999 Low 5, balance of $10,000-39,000 High 4, 7,000-9,999 Mid 4, 4,000-6,999 Low 4, 1,000-3,999 There are other factors outside of average bank account balances that affect this rating. A business will be cored higher if it has the average balance of $10,000 for 3 months, so it’s crucial that the money be in the account, and stay in the account for 3 months to maximize the bank rating. Overdrawing the account and obtaining non-sufficient-funds charges is one big way any business can severely hurt it’s bank rating.For the best rating, a business should insure their bank statements reflect a positive cash flow. Positive free cash flow is the amount of revenue left over after the company has paid all its expenses. When the account shows a positive cash flow it indicates that the business is generating more revenue than is used to run the company, increasing the bank rating. The bank rating is also improved when the business has a consistent amount of regular deposits. Other factors can also affect the rating including age of the bank account, other bank products that the business uses, and how many investment and savings accounts the business has. Having a good bank rating is essential with securing bank financing. To maximize your bank rating insure you keep your bank balance average over 3 months as high as you can, preferably over $10,000 and that your account doesn’t go negative. Take advantage of and use other services your bank offers such as CDs, savings accounts, and other investment accounts and open your bank account when your corporation starts, and leave it open as this longevity will help your bank rating. Make consistent deposits on a regular basis into your business bank account and insure each month you have good cash flow through your account by regularly putting into the account more money than you take out. Taking these steps will insure you have an exceptional bank rating and can get approved for the greatest amount of bank financing. Please contact us, or our coaching team, with questions during your business credit building process. Driven for the most part by income from legal settlements Fannie Mae and Freddie Mac saw combined profits of $10.2 billion last quarter,.
Fannie Mae saw net income of $5.3 billion in the first quarter, according to a Reuters report. That includes $4.1 billion from legal settlements over various banks’ sales of mortgage-backed securities. Freddie Mac, meanwhile, posted $4.0 billion, including $4.9 billion from litigation over mortgage-backed securities. The first quarter was Freddie’s 10th consecutive profitable quarter. All told, Fannie and Freddie will return $10.2 billion in first-quarter dividends to the Treasury. By the end of June, the companies will have returned $213.1 billion to the government. The mortgage finance giants got $187.5 billion in government aid after being placed under conservancy at the height of the financial crisis. Under the terms of the conservancy, Fannie and Freddie must turn their profits over to the Treasury as dividend payments. When building business credit, you will need to pay attention to more than just your payment history. How you use and interact with the credit system on several levels can either be a great benefit to your company, or come back to bite you
if you aren't careful. Here are a few things to watch out for: 1. Don't be damaged by the bad credit of others. Suppliers and customers with bad credit can hurt your business. Not only do you need to be concerned about your own credit profile, but that of your suppliers too. A simple example of the importance of this is what happens with accounts receivable financing. Your rates for accounts receivable financing are based on your customer's credit rather than your own business's credit. The reason is that accounts receivable financing depends on your customer's ability to pay, not yours! So even if you don't use accounts receivable financing, you should still check credit and know who you are doing business with, because a default on the end of a customer or supplier can be as harmful to your business than any internal hiccups that you might more easily anticipate. 2. If you must issue credit, don't issue too much. Businesses need cash to operate. If you're issuing credit, especially with longer terms, and always having to chase down funds, this can drastically reduce the day to day financial health and well being of your business. 3. Don't take credit when you don't need it. While this might seem strange, financing certain operations just because you can isn't always the wisest choice. Save your business credit for when you need it. Use credit to save the available cash and purchase assets for the business. Use credit for creating and multiplying profits. But never use credit "just because". 4. Never use your personal credit for your business. It blurs the line between your personal and business finances (increasing the likelihood that a lawsuit could "pierce the corporate veil"), it puts your personal credit at risk for your business's debts, and it doesn't do anything for you with regards to building your business credit. It's a lose-lose scenario that should be avoided. Please contact us, your coaching team, with questions during your business credit building process. |
Dan GarciaTrevana Properties is a placement company working with a variety of hedge funds, REIT's, commercial banks, specialty boutique lenders, private investors and other funding sources not widely known to the general public. Archives
November 2016
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