As you probably know, last Thursday and Friday the Dow Jones Industrial Average slid almost 600 points to finish off the 5th worst week in market history by some measurements. There were 3 proximate causes for this disastrous rout, one of which is of particular concern for credit millionaires and those who are trying to be.
Thursday morning was supposed to see announced the leveraged buy-outs of Daimler Chrysler and Boots, the largest drug store chain in the United Kingdom. Instead, it was announced that both deals had been scrapped because the respective investor groups were unable to raise the credit needed to close the deals.
The amount of money needed was well over 500 billion for the two deals. Now that sounds like a lot, right? It is, but neither is it an unheard of amount. And it’s not a guy off the street trying to raise it, either. These deals were being shepherded by two of the largest venture capital groups in the world, partnering with two of the largest banking conglomerates in the world, and they were UNABLE to find the credit needed. It just wasn’t there.
Now deals fall through all the time for a lot of reasons, but these two are significant. I see these as the first signs of serious belt-tightening in the mergers and acquisitions credit market, which does not want to find itself in the same situation as the sub-prime mortgage credit market we have all heard about this year. This drying up of credit will absolutely ripple out and down into all sectors of the economy, hitting even the consumer credit markets by the end of the year.
2008 will be a rough year for the unprepared. Interest rates will rise. Those with adjustable rate mortgages are going to take it in the teeth. Annual percentage rates will go up across the board. In short, all forms of credit are going to get more expensive. We have a 4 month window to get our credit houses in order before it will become harder to do so.
Join the credit millionaire team and position yourself to take advantage of the tightening credit market. Remember, a difference of a few-score points on your credit report can make a difference of many thousands of dollars on your next big-ticket loan. Be ready, so you can continue with your…
Bountiful Borrowing,
Donna Fox, Credit Millionaire
Here are some of the popular sources for fast corporate credit
-vehicle leasing
-equipment leasing
-small business loan through the SBA
-trade lines from suppliers
-business credit cards
and one to avoid…
Beware and company calling and offering you a business credit line out of the blue. Often these are companies that print a catalogue, and you can only use the credit line to purchase items from the catalogue… at federal government-like prices… I mean who needs a $47 stapler?
It gets worse. These companies usually also charge an annual fee and high interest, and don’t report to the credit bureaus. Borrower beware!
Here’s the biggest credit myth around:
“You can establish corporate credit with bad personal credit”
Anyone who tells you that is lying to you.
Ok, you can build corporate credit without using your personal credit, but it’s a slow, painfull processes. To do so, you must keep in mind that you need a few things in place.
First, you need a proper business structure. This means a seperate legal entity with a seperate EIN credit file, like I mentioned in the last post. It’s a good idea for asset protection anyway… get a corporation or LLC filed with the state, and an tax identification number from the IRS and you’re on your way.
The fastest was to grow business credit is with a personal guarantee. Even if you’ve had your business open for years, you may have personally guaranteed the debt. This isn’t so bad, as long as the lender is also reporting on your business credit as well. After a few years in business you may be able to get them to drop the personal guarantee.
So back to that myth… you can build business credit with poor personal credit. You can even get hundreds of thousands of dollars worth of it. But you won’t be able to buy a property, pay yourself, or hire an employee with that money. Most business credit that doesn’t involve personal credit is trade lines. A business trade line or trade credit is a line of credit that can only be used at the store that issued the credit. A classic example of this is an office supply store. You might get a $10,000 line of credit, but who needs $10,000 worth of staples?
Banks.. who give you real credit lines of real money you can use for anything, will want to see your presonal guarantee for the credit. It’s how real business owners operate.
Don’t have good personal credit? Become a credit millionaire today and get on the path to great business credit as well.
