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8 ways the new FICO scoring system benefits small business owners

(Business Finance) With new FICO scoring, it isn’t just people trying to buy cars and houses that are impacted – small business owners have new doors opened as well.

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FICO Score 9 now available

By now, you’ve probably heard about the new FICO scoring system, called FICO Score 9 which changes how lenders look at your score and how they make lending decisions.

Brian Manson, Credit Manager at Balboa Capital notes that “FICO scores can affect small business owners’ ability to secure business loans, lines of credit and equipment leasing programs.” For this critical reason, small business owners must be aware of how the new FICO scoring system impacts their bottom line.

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Manson asserts, “Small business owners don’t have the luxury of a large corporation backing them financially, so they are the ones financing their operations.”

“Banks and financing companies will examine a business owner’s personal credit score and credit history when evaluating their his/her loan application,” Manson continues. “This is done to determine the business owner’s level of credit risk. A good FICO score presents business owners with a better chance at getting their loan or line of credit approved. Unfortunately, outstanding medical bills have hurt the credit scores of many small business owners nationwide.”

FICO’s updated scoring system now places less emphasis on unpaid medical bills, beginning this fall, which Manson shares in his own words below, the eight ways the new scoring benefits small business owners:

  1. Entrepreneurs and business owners who have outstanding medical debt will not have their credit scores penalized like they have been in years’ past.
  2. Debt collections can last on a business owner’s credit report for up to seven years, but FICO will not include credit-score penalties if a medical bill has been paid or settled with collection agencies.
  3. FICO estimates the average credit score of people with outstanding medical bills will improve 25 points, which could put business owners at or above the threshold required by their lender.
  4. Business owners will also be able to secure loans and financing with lower interest rates because their scores will improve.
  5. Business owners with medical debt will no longer be seen as a credit risk.
  6. Debt collections can last on a business owner’s credit report for up to seven years.
  7. FICO’s new scoring system will prepare a business owner for success when it comes time to apply for a loan, line of credit, or equipment lease.
  8. Lenders will loan more money and business owners will secure more funding, and this will help the economy grow because money will be invested in small businesses.

Marti Trewe reports on business and technology news, chasing his passion for helping entrepreneurs and small businesses to stay well informed in the fast paced 140-character world. Marti rarely sleeps and thrives on reader news tips, especially about startups and big moves in leadership.

Business Finance

Small metros may have cheaper homes, but they might not have the jobs

(BUSINESS NEWS) Study by Indeed finds that small to mid-sized metros offer higher adjusted salaries, but don’t pack your bags just yet because your job may not be there

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When I told my parents how much my partner and I would be paying for rent at our new apartment, they quickly pointed out that I could purchase a home for that kind of money in my hometown.

Indeed recently published a study where they determined which cities have the highest salaries after accounting for the cost of living, an adjusted salary. Every city on the list is a small or mid-sized metro area which is why they dubbed their findings, “the small-city advantage.” No surprise to me, my hometown made the list.

My parents are right, I could literally buy a home for the amount of money I pay in rent every month to live in a large metro area. But the equation that determines where I, and many other workers should live, is more complex than salary minus housing.

Indeed’s study also shows that bigger metros have faster job growth and lower unemployment compared to these small to mid-sized metros. This is why the number one city on their list, Brownsville-Harlingen, TX, also has a higher unemployment rate than the national average. Some of the other cities on the list are Fort Smith, AR-OK, Toledo, OH, Laredo, TX, and Rockford, IL.

These areas are cheaper to live in, in part, because they may not offer the kind of job opportunities, and therefore social mobility, you see in larger metro areas. Sure, I could make my money go further in my hometown, but the chances of me finding a job in my industry there are smaller.

Your field of work does matter when considering whether or not the “small-city advantage” could work for you. If you work in tech or finance, two traditionally high-paying fields, then this advantage doesn’t apply.

“Before adjusting for living costs, typical technology salaries are 27% higher in two-million-plus metros than metros with fewer than 250,000 people. Even after adjusting for those costs, tech salaries are still 5% higher in the largest metros than in the smallest ones,” finds Indeed.

If a huge tech company offering thousands of high-paying jobs moved into a city like Brownsville-Harlingen, TX, over time it would get more expensive to live there. This is why people were freaking out so much when Amazon was trying to decide where to locate HQ2. It’s the hamster wheel that is currently driving income inequality in some of America’s largest major metro areas.

Finding the right place to call home is never going to be a single factor decision. Yes, salary is a huge factor, as is the cost of living, but there are also lifestyle factors to consider. What kind of opportunities would you have in this city? How much will it cost to move there? How will this effect the other members of your household?

It’s nice to play the ‘ditch the corporate world and buy a country house’ fantasy after a long day at work, but the reality is far more complex.

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Business Finance

Catch is a must-have finance management app for freelancers

(BUSINESS FINANCE) Catch is a new app that allows freelancers and people without benefits to determine their best options, with great automatic features.

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Working as a freelancer is something that just meshes well with my personality. I love having the ability to take on a variety of different projects and work in different facets of the communication industry.

Unfortunately, my one semester of high school economics did not fully prepare me for the financial aspect of freelancing. Figuring out what to deduct, how to do 1099 taxes, and properly save in general was something I’ve had to learn as I go.

However, as I always say, in this day and age, there is someone out there who has a solution to your problem.

Such is the case with Catch, which is a tool that is perfect for freelancers as it helps with automated tax withholding, health insurance, and the other head-scratchers in between.

After signing up, you build a plan by using custom recommendations to get the benefits that will help you the most. Catch will tell you about the coverage you need, whether you work for yourself, a boss, or multiple bosses.

All of your benefits will be put into one place and will be ready when you are. You’ll be able to see your savings grow the more you work and use Catch. As time goes on, Catch will offer suggestions to help you prepare for the future.

From there, you can set aside money automatically. After getting paid, Catch confirms your benefits plan and will automatically put money away for taxes, time off, and retirement.

All of this helps to rid yourself of freelance financial blind spots, and Catch’s official Guide allows you to see a personal screenshot of the full benefits landscape. In addition to seeing all of your coverage at a glance, you’re also able to learn what coverage you need and why, sign up for new benefits in minutes, and easily report existing benefits.

Additionally, you’re able to see a people-centric view of your plan on the platform by adding in spouses, dependents, beneficiaries, and trusted contacts. With this information in place, you’re able to choose the plan that works best for you; allowing you to edit as needed, check savings instantly, and view full paycheck and contribution history.

And as your life evolves, Catch is there to help with the transition. The platform offers recommendations for how benefits and coverage can change with things like: job relocation, getting married, starting a family, or starting a new job.

As Catch says, it’s “peace of mind at the palm of your hand.” This is definitely something for freelancers to consider as part of their financial strategy.

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Business Finance

6 questions to ask when considering a startup accelerator

(BUSINESS FINANCE) Accelerators can help change startups from unknowns to leaders in the industry, but does your startup need one and if so which one?

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When I’m advising startups, I often hear the question: “which accelerator is the best fit for me?” (Besides the obvious YC or Techstars.)

First off, I’ll ask if your company would benefit from an accelerator, or if you need to pursue something for early early stage companies before you achieve more market validation, like an incubator. (Side note: If you’re curious about incubators, here is a comparison of the two.)

If you’re new to these terms, here’s a brief recap on startup accelerators:

Startup accelerators are for companies with established co-founders and market validation – companies can be anywhere from pre-revenue/self-funded, or even have raised at least $1M.

Most programs can last anywhere from 10 weeks to 3-4 months. With many top accelerators like YC and Techstars, you’ll be expected to move to the city where it’s hosted and spend 40+ hours a week minimum in their dedicated coworking space, and several accelerators will often offer housing stipends to make the move easier. These programs typically conclude with a demo day to pitch your product to a variety of community leaders, angel, and institutional investors.

If your product has achieved market validation and is in a place where you’re ready to scale, congrats!

Before you commit to an accelerator, ask yourself and the program these six questions:

1. What kind of mentorship is available?

By and large, one of the most valuable portions of an accelerator is the networking with peers and mentors. Ask what kind of mentors are available to you as a part of a program, and ask their specific involvement and the opportunities to connect. These mentors will be crucial in guiding your company’s growth. Even if they aren’t in the same industry or have solved a similar problem that your company is trying to achieve, their advice and connections could prove to be invaluable.

2. What are the perks?

You’re giving up a lot of equity to be in a program, but it doesn’t come without its perks. Many programs offer not only a cash investment or stipend for housing or other growth costs, but programs like Techstars offer free services such as web hosting costs (an upwards of ~250k), legal and accounting services, and other credits and perks that can be worth 6-7 figures. Make sure you know what you’re getting before you say yes to a program.

3. Do I want an industry-specific or industry-agnostic program?

This one is important and is directly related to #2. If your company sells CPG products, web hosting credits may not be valuable to your business, but a CPG-specific accelerator like SKU or The Brandery with direct connections to Sephora, Target, and Whole Foods may make more sense.

4. How much equity am I willing to give up?

Try not to make this a guessing game and make as many data-driven decisions on this as you can. Create a revenue and valuation model and see how much your company would benefit from the networking, fundraising opportunities, and perks offered, and see what the ROI would potentially be.

5. What are the funding and exit numbers?

This is an objective way to view the success of an accelerator: # of funding raised and exits. Of course, younger accelerators will have smaller numbers, but it’s worth looking to see if a company has raised $ after. Seed-DB is a great resource to view these numbers for hundreds of accelerators globally.

6. What do alumni think?

All accelerators are going to tout the transformative experience that is their program, and program mentors will likely have a similar narrative.

The best resource to learn the real experience of an accelerator: ask its alumni, and they’ll give you the truth. Make sure to survey both recent and more experienced alumni, as they’ll be able to speak to both the short term and long term benefits.

Personal experience: the night before I was set to hear from an accelerator on my application status, two alumni stressed to me that the time and equity investment wasn’t worth it. I consider this providence!

Finally, two items to note:

Choosing an accelerator is all about finding the right fit between you and the organization. Sadly, not all accelerators are created equal, and try to view a potential relationship with an accelerator as an investor relationship, or better yet, dating. There’s a reason the phrase “no money is better than bad money” is prevalent in the startup community.

Make sure to do your due diligence and ask the right questions to make sure a specific program is worth the investment of time, energy, and equity.

And sometimes? That may not mean an accelerator is a right fit right now or at any point, and that’s okay.

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