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Much of my reader mail comes from people seeking answers they believe exist. However, they don’t know where to find the information. This morning, I responded to a question I’ve been asked dozens of times — one of several that obviously cause frustration for readers because you want to make decisions to maximize the potential of your business.
Four of these questions stand out as especially important to ask:
Which business credit cards and vendors report to all three credit reporting agencies?
By “all three,” I presume the writer means D&B (Dun & Bradstreet) plus the business credit divisions of Equifax, and Experian. The answer: You must ask every credit card provider and vendor which agencies they report your credit history to. Some small enterprises don’t report at all because the credit reporting agencies charge businesses fees to report your information. If you’re building your business credit foundation, you’d like your history reported monthly; knowing how often they report can be helpful. If you’re a more mature business, frequency is usually less important.
Which banks are the best for small businesses?
Every enterprise has its own unique requirements. If you make hundreds of small deposits each month, you want the lowest per item processing charges available. If your business is cyclical with your balances dropping very low at times and then shooting up dramatically at other times, you want to be certain you are never penalized for an extended period of low balances or reduced activity. It is essential for you to interview the banks and credit unions in your area to determine the best fit for your business. See my column, Four Tips to Select Your Business Bank, for additional information.
How do we know if our bank is solvent? Our small business accounts exceed the FDIC insured $250,000. We have money in our accounts, from our customers, which we use to pay for services that we contract for them. At times, the pass-through amount can be a few million dollars. We use a regional bank and we’re happy with their service. A local bank failed recently; some small businesses were bankrupted. We’re concerned.
This is a complex situation. With 123 failed banks during this calendar year and more closing every weekend, you’re wise to be concerned. The only way I could assess solvency was to go to the financial records that each bank files with the FDIC (Federal Deposit Insurance Corporation). I poured over filings to develop a relatively simple, albeit slightly tedious, process to evaluate bank health in this era of excessive loan defaults. Because loans-gone-bad are the primary cause for the surge in bank closings, this analysis works for this time. See my column, Is Your Bank in Trouble, for details. Printing the column is the easiest way to follow the bank evaluation instructions. In addition, Bauer Financial has been analyzing banks and credit unions for 26 years. While they sell in-depth reports, their instant star-rating searches offer insight.
Why did the interest rate on our small business credit card jump from 9 percent to 24 percent, when there’s never been a late payment and we never charge more than about a third of our credit limit?
Many small companies, which rely on credit cards to fund their monthly expenses in the same way that major corporations use lines of credit, have been brutally wounded by the onslaught of credit card rate increases. Combine this with reduced revenues, resulting from the broader economic downturn, and it feels as if you’re on the receiving end of a financial drop-kick. First, call your credit card provider and ask why it happened. If you get an answer that doesn’t make sense or sounds like a script that has nothing to do with your account, ask to speak to a supervisor/manager to determine the reason. It could be bank policy that has nothing to do with your account performance. Ask the person to reduce the interest back to your old rate. If they will not budge and your credit is mediocre, you probably have no options except to endure it until you can improve your credit and qualify for an account with lower interest. However, if you are an exemplary customer with excellent business credit, keep that account open and search for a low interest rate new account. Charge one small purchase on the old account and pay it off each month. This will keep your original account active, while you enjoy the benefits and build credit history with your new one.
You may feel frustrated when you think there has to be a list, a formula, or some source of knowledge that’s eluding you. I write this as a person who has searched, numerous times, for holy grail answers to issues that had none. In many business situations, the answers lie in asking questions. Your greatest strength: Knowing what you don’t know so you can learn. In every new venture, learning is embedded in success.