Corporate Credit Overview

Hello, and welcome to this module, Corporate Credit Overview. Now that you have the lay of the land and you understand exactly what you’re going to be going forward. Now, you need to start understanding what corporate credit really is. So, in this module here is what we’re going to cover. So, the first thing I want to break down is what is corporate credit? I know it sounds obvious about what it is, but you need to understand specifically what it is and how the banks lending institutions and all the options available to you view corporate credit. Then, I want to get into what is a corporate credit profile so that way it’s clear and then just break down a few vocabulary around corporate credit. So that way you understand what types of accounts that you’re potentially going to qualify for and how they work from a high-level perspective.

Okay. So let’s go ahead and get into it. So what is corporate credit? Well, this is a really good question. Corporate credit is a line of credit established by a corporation or business compared to an individual, meaning this credit is essentially to build and maintain banking relationships with potential creditors, vendors and business partners. So, essentially corporate credit is credit in the corporation or businesses name extended from another corporation to another corporation. And then put another way a corporate credit file just so it’s clear a corporate credit profile functions, just like personal credit, except for their specific corporate credit vendors that are going to be reporting to third party reporting bureaus that we’ll get into later on in this program about information on you about your credit worthiness, the time you’ve been in business, the likelihood of the debts are that you’re being that you’re paying will be paid back on time and in full. And it’s also going to determine the interest rate and repayment terms. So, essentially yes, corporate credit is its own entity and there’s going to be some guidelines that I’ll cover that will justify whether or not you will though will not be approved for that credit.

But unlike personal credit, if you’re starting from scratch, you can follow a system to build up a strong credit file in a period of months, as opposed to a period of years when you’re building up personal credit. Now, what is a corporate credit profile? Well, this is fairly simple. A corporate credit profile is comprised of various information about your business, such as the main one, being your address, which is so important when we get over to credit corporate credit optimization that we get clear on this, the industry that you’re in another big one. So there’s certain industries that banks and lending institutions typically don’t want to lend to the number of employees that you have, how long you’ve been in business, and then obviously the size.

So these are typically this, this is what they’re going to be looking at in your corporate credit profile. Additionally, they’re going to be looking at information with your previous suppliers and people that you’ve done business with, because that’s going to take into account into the scoring algorithm for your credit file. It’s also going to look at the, your company’s credit and payment history with any type of current lines and loans and credits that you have. So, just like personal credit works, corporate credit works very similar. It’s just different vendors and different supplies in different bureaus, so to speak that are reporting data about your business, separate from your person, that’s reporting this to justify and made a decision. So all of these things are going to make up your corporate credit profile. So it’s so important that all of this information is accurate. And it’s so important that when you start establishing relationships, that you make sure you pay your bills on time, like I was saying before.

And then any other information about your cashflow annual revenue and also collateral is typically going to be included with your corporate credit file. So if you’re brand new business, some of this stuff is going to be fairly simple to set up. It’s real big cash flow is like huge, is so huge about cashflow, but later on in this program, we’re going to get into like managing your cash flow and making sure you have proper financial. So again, this program is more so about building up your corporate credit. However, you know, like I’m saying before, like you don’t want to just get this money just to just blow it off. You really want to be able to sustain it. So that being said, all of these things are going to make up your credit profile. So when we keep going and you look at this, and this is the power of this, you know, when you’re building up credit for corporation, typically you’re not required to personally guarantee, especially when you have a well-established credit history.

So this is the goal. And this is why, like later on in this program, I’m going to talk about structure. So, this is why we want to build it up this way. So the credit is going to belong to the corporation, which is wholly independent. Sui Juris, which means independent entity, according to the law. And the liability of repayments lies with the company and not the individual. And this is what makes corporate credit so special. So this is just me getting into the weeds. So that way you can understand now. Just typically when you start off, as a new business or for a new business or a new corporate or creating new corporate credit profiles, creditors are going to require a personal guarantee to start. In which case that individual accepts the responsibility, i.e you, for any potential fees and at that moment, the business credit can affect your personal credit of the individual responsible. So nine times out of 10, when you’re first starting out and you’re building up the corporate credit and what it really, what I’m going to say is the business credit that you’re going to use as cash. Those are the ones that you’re gonna have to personally guarantee on. Corporate credit typically you won’t guarantee them, but business credit, you will.

In the next module, I’ll cover the differences between corporate business and business funding. But just so I’m clear, a personal guarantee typically is going to be required, initially until you build up a strong enough corporate credit profile with credibility to justify that your personal credit no longer is needed. Now, this is why I also say if your personal credit isn’t where it needs to be. Yes, you could put it as from corporate credit. Yes, you can do all of this, but it’s not going to be as effective if you’re literally trying to get like cash money or funding that you can use as cash and not necessarily credit at specific vendors, which I’ll cover later on. Now, when we keep getting into this, the goal of the system is to help you establish a strong credit profile for your company, so in a matter of months, instead of years, even with a brand new business, so that way you can avoid signing with a personal guarantee. And that way you’re not personally liable for the credit, but initially that is the goal that may not be the reality for many of you and that’s totally fine because we’re still going to get this working capital. Because remember, again, I was breaking down in the wealth triangle, the importance of being able to create a cashflow high income skill set or invest in assets.

So we’re not necessarily concerned if we have to personally guarantee because we know how to make money and we know how to pay the money back. So you don’t necessarily have to say, oh, look, I don’t want to build the credit. If I have to personally guaranteed, and I’m going to call you out. If your personal credit is messed up, address it, how you treat one area of your life of your life is how you treat all the other areas of your life. You deserve this to fix your personal credit. You just do. You deserve to get rewards points. You deserve to not have to put unnecessarily down payments down on things. Even if you’re going to be operating your business. It’s a reflection of you. Like I was saying, everything in your life is a reflection of you. So that being said, the goal still is to build up and get as much funding as much as, as fast as possible even if you have to personally guarantee. Now let’s look at a couple of corporate credit vocabularies, and then we’ll wrap up this module because this is just more so information so you understand how this process works and really what to expect. Now, a secure credit, this is fairly simple.

Basically a secured line of credit is guaranteed by an asset called collateral. Just like money, like typically a car or business equipment could be viewed as secured credit or even your cash. So you can even put up your cash and then that will be secured credit because essentially it’s backed by something. So if you don’t pay it back, they have collateral to liquidate that line of credit they extended to you. An unsecured credit is basically an unsecured credit that is not guaranteed by any asset. And typically is kind of have a little bit higher interest rates to offset the risk and if the interest rates not higher, it’s going to have a lot higher requirements, in some scenarios to get it. But typically the unsecured credit is going to have a little bit higher interest rate. If you don’t pay it back within the statement date. Then we have a personally guaranteed and I was already breaking down what that means, but just to define it, it’s an individual’s legal promise to repay credit issued. So if your corporation doesn’t have enough credit, you’re going to have to personally guarantee the credit with your personal credit score. And the banks are going to look at you and determine whether or not they should or should not issue credit again, how you treat one area of your life is typically how you treat the others. So if you don’t have your financial affairs in order personally, why would you have financial affairs in order professionally?

Just because you’re good at making money, it does not mean you’re good at managing money, it does not mean you’re good at keeping money, and it does not mean you’re good at making financial decisions. That being said, when you follow the process and you get your personal credit right and then you take on the same philosophies, it makes the banks feel more comfortable. They get their feelings. It makes them look at you like a lower risk. And then when it comes to giving money, because you’ve already shown and demonstrated based off your track record, that you’ll be responsible with the money. Then we have no PG. And essentially this is an individual is not legally liable to repay debts of another entity, also known as no personal guarantee. So the goal just, just so it’s helpful is to get everybody into a place where their company can have enough credit to where you don’t have to use your personal credit whatsoever.

The business entity is completely separate from the individual and that’s the goal, but starting out, we may not be there, but it’s totally fine. Now, a few other things. So collateral, this is pretty simple, but basically this is just something you’re giving up some type of collateral. So worst case scenario, if they don’t get the money back, they have the collateral, so that way they can pay back the debt, right? Pretty simple, but it’s as good. A lien is a right to keep possession of a property, belonging to another person until the debt owed by that person is discharged. So in some scenarios, there will be liens put on a specific parts of your business or your person, assuming you go down that road with that particular type of credit. Another one is revolving credit. So, very similar to unsecured credit, but revolving credit, just so it’s clear is like on the personal side is any type of credit that can be used repeatedly up to a credit limit, as long as that account is open and the payments are made on time. So the amount of available credit, the balance and a minimum payment can vary monthly depending upon the purchase and the payments to made on the account.

Basically these are just like credit cards and this is what I would refer to as business credit because typically revolving business credit card can be used as cash to purchase things like your Visas, your MasterCards, your American Expresses in some scenario, some Discovers. So that would be really, really good use of revolving credit or what I would defer the finance business credit. A few others, non revolving credit is any type of credit, so non revolving credit can be viewed as like installment loan or installment credit. So this is any type of credit with a predictable payment schedule at a lower interest rate with non revolving credit lines. Once the amount is paid off and close, you can cannot be used again. And it requires submitting another application and go through to approve a process to borrow additional funds, i.e Mortgages, loans, business loans, car loans, infusion of cash. So typically when we look at a non revolving credit, this is what we referred to as business funding and more specifically business funding around getting a large infusion of cash if we’re getting a business loan or a mortgage. Even a car loan for your particular company, and then a credit line or line of credit is amount of credit extended to a borrower. So typically like a credit line or a line of credit can be used as cash.

So I have a line of credit and I’ve had a non-installment credit as well. So generally when you get that line of credit, you can make transfers from that line of credit from your business account to your other business checking account and make payroll and do every anything you need. So a line of credit is really, really powerful. There’s a lot of little things that you would need to have, but a line of credit is a one step past that credit card. The credit card can only be used at particular trends, you know, to use at stores, but you can’t necessarily get cash off of a credit card unless you do a cash advance. But a line of credit, you can get cash, you can use it as cash. There’s going to be a state of interest rate that you get approved for and in a state of repayment rate that you have to pay back.

So that’s the line of credit. And then lastly, a tradeline is any type of credit that is issued to your corporation, whether it’s vendor credit, revolving credit, credit line, non revolving credit, installment credit, it’s just basically a trade line. And a trade credit or vendor financing. So basically this is money lent from a specific vendor or corporation. Vendor credit, so basically if you wanted to get a Home Depot project loan that will be vendor credit that you would use at that particular place of business at the Home Depot, in this example. Very similar is net terms or vendor credit. Net terms are net credit or net term accounts. So typically these are going to be the accounts that we start off with, and it basically means, hey, look, we’re going to give you this credit. And it has to be paid back in full by the end of the month or between 15 and 90 days. So it might be a net 15 account, a net 20 account net 30, net 60, net90. Typically most accounts are going to be net 90 that you have established credit with. Like, I have some net 30 accounts that I use on all the time and some net 60 accounts that I use. So really my net 60 account is at $250,000 line that I showed you guys. I have 60 days to pay that back. It acts as a line, but it has to be paid within that 60 days. And if not, it’s going to look negatively on my credit file. So these are the different types of credit that you’re going to have access to. But then not reporting credit accounts basically means it’s just credit accounts that you have with a specific vendor and they do not report. Just like I was saying that net 60 account it does not unfortunately report to any of the bureaus, but it’s still a line of credit that I use to grow my business all the time. So this is going to wrap up this particular module now that you have an understanding of the differences of corporate credit works. I’ll see you in the next module.