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Credit 101 for Business Owners

Small business owners can get caught up in banking and accounting errors that can hurt them in the long run. If you’re wondering how to avoid these common mistakes as a business owner, Connie Basco, Assistant Vice President and Senior Credit Analyst for Citizens Bank, shares her insight on what she wishes business owners knew about their credit and how it could impact their financial health.

Common Financial Issues Small Businesses Encounter

As the Senior Credit Analyst, Connie Basco works closely with both the Commercial Lenders and the bank’s business customers, to help them find the loans they need; whether that's to acquire a building, purchase new equipment, or obtain an operating line of credit for their business. From Connie’s experience, there are many financial issues that can lead to potential problems for small business owners.

“One common thing we see with small businesses is owners intermingling business and personal accounts,” Basco says. “This may create challenges when calculating the business’ cash flow.” Therefore, it is important to use separate accounts, one business checking account and one personal checking account, to keep things clear, concise, and understandable.

Another common issue that occurs is the excessive write-off of expenses when it comes to tax time. Often a business owner’s goal is to file tax returns with as many deductions as possible so they pay very little in taxes, but that can really hurt a business’ ability to borrow money. “When a business wants to borrow money, the bank looks at the amount of cash that is left after taxes and expenses. Often there is very little cash remaining, so the customer does not qualify for the loan. A business that doesn’t show enough income can be at a disadvantage when it comes to borrowing money,” Basco says.

How To Avoid Other Common Business Banking Issues

According to Basco, “one thing we recommend to our business banking customers is to work with a knowledgeable CPA who understands your needs as a business owner and can help you maximize your eligible deductions while continuing to show a profit.” It’s also important that you communicate with your banker as openly as possible. Give them a detailed financial story of your business, including your current and past financial situation and your long-term goals. Discussing your financial needs with one of our knowledgeable bankers can be sure to help you reach your long-term goals.

Another helpful financial tool that may be overlooked by business owners, is using a revolving line of credit instead of a credit card. “This is something a lot of small businesses do not capitalize on because they do not realize that this is an option for them,” says Basco. The revolving line of credit provides flexibility to keep your business moving at all times, even when your cash flow is thin. A line of credit works like a credit card--you use the line up to you approved limit, pay the interest each month, and then you can pay down the line when cash is more plentiful. The interest rate on a line of credit is typically much lower than the rate on a credit card and can be a deductible expense.

Ask for Help From Your Banker

“I think of my job as putting together a puzzle; I take different pieces and figure out how to put them together to find the best solutions,” Basco says. Making yourself an attractive borrower, even if you don't need a loan right now, can be a life-saver when things get tough. Openly communicating with your banker allows them to be your ally who can keep you on track with goals, keep cash flowing, and help you avoid costly mistakes!

Don’t hesitate to contact us today, or reach out to any of our Commercial Experts if you would like to talk further about growing your business. We would love to help!

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