What Is a Personal Guarantee for a Business Loan?

When applying for a business loan, you may have to make a personal guarantee. They aren’t required for personal loans. Business loans, though, often require a personal guarantee. Whether you’re trying to obtain a business loan from a bank or alternative lender, you may be required to make a personal guarantee.

Personal Guarantees Explained

A personal guarantee is a binding pledge or commitment that guarantees a business loan with the borrower’s personal finances. Business loans, of course, are intended for businesses. If you own a business, you can obtain a business loan to finance it. You can then use these borrowed funds to expand into new territories, invest in marketing, develop new products or otherwise grow your business. But the lender may require you to make a personal guarantee.

By making a personal guarantee, you are placing your personal finances on the line. As long as you pay back the business loan according to the lender’s terms, nothing will happen to your personal finances. If you default on the business loan, however, the lender may claim ownership of your personal assets.

Is a Personal Guarantee Necessary?

Many lenders require a personal guarantee for their business loans. Lenders must evaluate a borrower’s risk of default. If a borrower has bad credit, the lender may require him or her to make a personal guarantee. It’s the equivalent of collateral. A personal guarantee will provide the lender with recourse if the borrower defaults on the business loan. The lender can claim ownership of the borrower’s personal assets to make up for the lost money.

Of course, there are instances in which you may not be required to make a personal guarantee. If your business has good credit, for instance, lenders may not require a personal guarantee. Good business credit is a sign of trustworthiness. It indicates that lenders can trust your business to repay its debts, including its loans.

Even if it’s not required, a personal guarantee offers advantages. It can help you achieve a lower interest rate. Lenders may offer lower interest rates on business loans if you make a personal guarantee. A personal guarantee can also speed up the approval process. Lenders may approve your application more quickly, resulting in fast cash for your business.

In Conclusion

A personal guarantee is a commitment to repay a business loan using your personal finances. Many lenders require it, especially for businesses with bad credit.

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The Importance of PCI Compliance

If your business accepts credit and debit card payments, you’ll need to comply with the Payment Card Industry (PCI) standard. In the past, it wasn’t uncommon for businesses to exclusively accept cash payments. But this is no longer the case with modern businesses. Research shows that roughly two-thirds of all transactions involve a credit or debit card. You can’t ignore PCI compliance, however, when accepting credit or debit card payments.

What Is PCI Compliance?

PCI compliance involves the implementation of safeguards that are designed to protect the privacy and information of cardholders. Cardholders are customers. If your business accepts credit and debit card payments, you’ll have to access to sensitive information. Among other things, you’ll know cardholders’ names, addresses, card numbers and more. PCI compliance is all about protecting this information by following a set of rules.

It’s Required

PCI compliance isn’t optional. Assuming your business accepts credit and debit card payments, you’ll have to comply with the PCI standard. Otherwise, you could lose your ability to accept and process card payments. All of the major card companies require businesses to comply with the PCI standard. Failure to comply with the PCI standard could result in your business losing the ability to accept and process card payments.

Protects Against Data Breaches

Another reason PCI compliance is important is that it protects against data breaches. Data breaches can strike businesses of all sizes. While some people assume that only large businesses suffer data breaches, small businesses often have higher rates of data breaches. This is because small businesses have weaker security, so they are viewed as low-hanging fruit by attackers. Regardless of your business’s size, you should comply with the PCI standard. PCI compliance will protect your business from data breaches by improving its overall security.

Preserves Reputation

To preserve your business’s reputation, you need to comply with the PCI standard. PCI compliance will protect customers’ information. Customers will be able to make credit and debit card payments without fear of having their information stolen and used for nefarious purposes. As a result, your business will maintain a positive reputation. Neglecting to comply with the PCI standard, on the other hand, could result in data breaches. Customers’ information could be exposed, in which case they may have a poorer and more negative perception of your business.

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5 Tips on Pitching Your Business to Investors

When seeking financing for your business, you may have to step in front of investors. There are different forms of financing, including debt and equity. Debt financing is the act of borrowing money from a lender. Equity financing is the act of selling an ownership stake in your business to an investor. If you’re going to use the latter financing method, you’ll have to pitch your business to investors.

#1) Convey a Unique Value Proposition

Conveying a unique value proposition will help you secure equity financing from investors. There are nearly 32 million small businesses in the United States, according to the U.S. Small Business Administration (SBA). As a result, you must show investors that your business has a unique competitive edge over its counterparts. This is where a unique value proposition comes into play. A unique value proposition is something that distinguishes your business from the rest.

#2) Highlight Case Studies

In addition to a unique value proposition, you should highlight case studies when pitching your business to investors. Investors want to see data backing up your idea for a successful business. Assuming your business is new and still in the early stages of being rolled out, you may not have any data on hand. However, you can always use existing case studies that you find online. Look for case studies that reveal similar businesses and their respective level of success.

#3) Keep It Short

You should keep your pitches short and concise. Investors are busy people. They have to research prospective businesses to determine which ones to invest in, and they have to provide advice and recommendations to the businesses in which they invest. If you’re going to pitch your business to an investor, keep your pitch short and concise.

#4) Speak With Confidence

The way in which you speak when pitching your business to investors will influence your chance of securing financing. Speaking with confidence will increase your chances of success. Investors want to know that you believe in your business. With a confident tone, they’ll feel more comfortable buying an ownership stake in your business.

#5) Offer Realistic Projections

You should offer realistic projections when pitching your business to investors. Financial projections are an important part of a pitch. They provide insight into how much revenue your business is expected to generate in the future. Offering realistic projections shows investors that you are honest.

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5 Common Myths About Business Credit You Shouldn’t Believe

As a business owner, you should closely monitor your business’s credit score. Business credit scores can fluctuate. With a high business credit score, you’ll have an easier time securing loans and other forms of debt financing. A low business credit score, on the other hand, can pose financing challenges. And without financing, you may struggle to grow or even run your business. Nonetheless, there are several business credit myths that you shouldn’t believe.

#1) Same as Personal Credit

Business credit is not the same as personal credit. Business credit refers to the credit worthiness of a business entity. Personal credit refers to the credit worthiness of an individual person. They are both measured in numerical scores. Business credit is simply associated with a business, whereas personal credit is associated with an individual person.

#2) Buying Things on Credit Will Improve Your Score

In a perfect world, all goods and services that your business purchases on credit will improve your business’s credit score. Unfortunately, this isn’t always the case. Only some vendors may report your purchases to a credit bureau. These reported purchases should improve your business’s credit score. Credit-based purchases that go unreported, though, won’t impact your business’s credit score.

#3) Only Late Payments Will Harm Your Score

Like with personal credit, failing to pay your business’s bills by their due date may harm your business’s credit score. With that said, late payments aren’t the only thing that can harm your business’s credit score. Hard inquiries can have a negative impact on business credit scores. If your business has an excessive number of hard inquiries in a short period, your business’s credit score may drop.

#4) Business Credit Isn’t Necessary

While some businesses may not need it, most businesses will, in fact, need a good credit score to succeed. As previously mentioned, it affects financing. Lenders will check your business’s credit score, and they’ll use this information to approve or reject your application for a loan. Interest rates are also affected by business credit. A high business credit score will help you secure a low interest rate, meaning you’ll pay less over the term of a loan.

#5) Not Available for Sole Proprietorships

Some business owners believe that business credit isn’t available for sole proprietorships. The truth is that all businesses are eligible for business credit. Whether your business is an S-corp, LLC or sole proprietorship, you can build credit for it.

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In-House vs Outsourced Payroll: Which Is Best?

How many employees does your business have? While some small businesses are structured as sole proprietorships, most are structured as either a limited liability company (LLC) or an S-Corp. And research shows that small businesses in the United States have an average of 10 employees. Whether your business has more or fewer employees, you’ll have to pay them. The process of paying employees, of course, is known as payroll. You can perform payroll in-house, or you can outsource your business’s payroll to a third party.

Benefits of In-House Payroll

You’ll inevitably save money by choosing in-house payroll. In-house means that you perform it internally within your business With in-house payroll, you’ll be responsible for tracking employees’ hours and, ultimately, paying them for their work.

By choosing in-house payroll, you’ll gain a better understanding of your business’s operations. You’ll be able to see firsthand how many hours your business’s employees worked as well as how much money those employees earned. With outsourced payroll, a third party will handle this data.

In-house payroll is easier than you may realize. There’s dedicated payroll software available that you can use to pay your business’s employees. Alternatively, you can use QuickBooks. QuickBooks offers an in-house payroll service at

Benefits of Outsourced Payroll

There are reasons to consider outsourced payroll as well. If your business only has a few employees, in-house payroll may suffice. For a larger business with more employees, though, you may want to choose outsourced payroll. Outsourced payroll will allow you to focus on running and growing your business rather than payroll-related tasks.

You won’t have to worry about filing fax forms with outsourced payroll. Taxes, of course, are a component of payroll. When you pay employees, you’ll have to withhold some of their earnings, and you’ll have to submit this information to the Internal Revenue Service (IRS) at the end of the respective period. Outsourced payroll eliminates this burden. By outsourcing your business’s payroll, a third party will take care of these tax forms.

Mistakes are less likely to occur with outsourced payroll. Providers of this service specialize in payroll. They know how to track employees’ hours, pay employees and file all of the necessary tax forms. This doesn’t mean that mistakes never happen. When compared to in-house payroll, though, mistakes are less likely to occur with outsourced payroll.

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What Is Liquidity Ratio in Accounting?

When seeking financing for your business, there are certain metrics you’ll need to know. Liquidity ratio, for instance, is an important metric. Many lenders will consider your business’s liquidity ratio. With a good liquidity ratio, you’ll have an easier time getting approved for financing. What is liquidity ratio in accounting exactly, and how do you calculate it?

The Basics of Liquidity Ratio

Liquidity ratio is a measurement of your business’s assets relative to its liabilities. Assets are items of monetary value. There are tangible assets, and there are intangible assets. Regardless, they are all items of monetary value that your business owns.

Liabilities, on the other hand, are financial obligations. Any debt that your business owes to a lender, organization or individual is a liability. Liabilities are essentially the opposite of assets. Assets represent value, whereas liabilities represent debt. With liquidity ratio, you can compare your business’s assets to its debt.

Calculating Your Business’s Liquidity Ratio

As long as you know your business’s assets and liabilities, you can calculate its liquidity ratio. There are several different formulas available for liquidity ratio. The simplest formula involves taking your business’s assets and dividing it by your business’s liabilities.

There are other formulas you can use to calculate liquidity ratio, but they all require knowing your business’s assets and liabilities. Assets and liabilities are the foundation of liquidity ratio. With this information, you can determine the correct liquidity ratio for your business.

What Liquidity Ratio Reveals About Your Business

Liquidity ratio lives up to its namesake by revealing your business’s liquidity. In other words, it’s a measurement of how easily your business can pay its debts.

Nearly all businesses have debt. Research shows that most small businesses have about $10,000 of debt. Larger businesses often have over $100,000 of debt. As your business takes on debt, though, you’ll need to ensure that you’re able to repay it.

You can use liquidity ratio to determine the ease at which your business can satisfy its financial obligations and, thus, repay its debt. A high liquidity ratio will give you peace of mind knowing that your business can repay its debt. It means your business has a lot of assets relative to its debt. And you can probably use some of its assets to pay down the debt.

Lenders may also look at your business’s liquidity ratio. Since it’s a measurement of how easily your business can repay its debt, many lenders will take into account liquidity ratio when determining whether to approve your business for financing.

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Why You Shouldn’t Mix Business and Personal Finances

One of the most common accounting mistakes small business owners make is mixing their business and personal finances. Rather than using two separate accounts — an account for their business finances and another account for their personal finances — they use a single account. They’ll use this single account to receive money from their business’s customers, and they’ll also use this account to pay for both business- and personal-related expenses. While mixing business and personal finances may sound harmless, it can lead to several problems.

Missed Tax Deductions

Mixing personal and business finances can result in missed tax deductions. As you may know, most business-related purchases can be deducted from your taxes. Whether it’s cleaning supplies, shipping services, insurance, inventory, etc., you can typically deduct them from your taxes. You’ll need to identify them, however. And with mixed personal and business finances, you may overlook some of these tax deductions. The end result is a higher tax liability that cuts into your business’s annual profits.

Increased Risk of Tax Audit

Speaking of taxes, mixing personal and business finances can increase the risk of a tax audit. The Internal Revenue Service (IRS) doesn’t explicitly prohibit business owners from mixing their business and personal finances. It does, however, require them to maintain complete accounting records. Mixing business and personal finances can make it difficult to create complete accounting records. All of your business-related transactions will be tied to the same account as your personal transactions. The end result is messy and incomplete accounting records that place you at a greater risk of a tax audit.

Unprofessional Brand Image

Another reason to avoid mixing personal and business finances is that it creates an unprofessional brand image. You may need to write checks on behalf of your business. Maybe you’re purchasing inventory from a supplier, or perhaps you’re refunding a client or customer. Regardless, if you mix your personal and business finances, you’ll have to write checks from your personal account, which will also be used for your business-related transactions. The supplier, client or customer will see your personal name on the check rather than the name of your business.

The bottom line is that you should use separate accounts for your business and personal finances. Mixing these finances together under a single account can lead to missed tax deductions, an increased risk of a tax audit and an unprofessional brand image.

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What Are Harmonised System (HS) Product Codes?

Does your business sell or plan to sell its products internationally? When shipping products to another country, you may want to use Harmonised System (HS) codes. Doing so will allow you to classify your business’s products using a universal system. What are HS codes exactly, and how do you create them?

Overview of HS Codes

Developed by the World Customers Organization (WCO), HS codes consist of multi-digit numerical codes that are used to classify internationally shipped products. Custom authorities, of course, will often inspect imported products to determine how much duties and taxes should be applied to them. Rather than using their own classification system, most custom authorities use the HS system. The HS system is a universal classification system that’s designed to classify products so that customs authorities can identify more easily.

How to Enable HS Codes in Quickbooks

You can enable HS codes in Quickbooks. When enabled, HS codes will automatically show on all eligible documents. To enable HS codes in Quickbooks, click the “Settings” menu and choose “Brands and Documents.” You can then choose a theme to edit, followed by “Document Settings” for that theme. Next, choose the document that you want to display the HS code. You should notice a box labeled “HS Code” on the document. Clicking this bark will place a checkmark it, thus enabling it. To complete the process, click “Save and close.”

You can also add HS codes to product variants. A product variant, of course, is a variation of a product. You may want to create a different product variant for each country to which you intend to ship a given product. Quickbooks supports HS codes for product variants such as this.

Start by creating the product variant. Clicking the “Inventory” menu, followed by “Products” and then “Add a variant” will allow you to create a product variant. Once the product variant has been created, pull it up in Quickbooks. It should feature several fields, including a field for the HS code. You can enter the HS code for the product variant in this field.

In Conclusion

HS codes are used to classify products that are shipped internationally. When products are shipped internationally, they must be inspected by customs. Fortunately, most custom authorities use the same system. Known as the HS system, it consists of codes that designate the type of product.

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Business vs Company: What’s the Difference?

The terms “business” and “company” are often used interchangeably when discussing commercial entities that make money by selling products or services to customers. In reality, though, businesses and companies are different. While they both seek to generate profits through sales, they use a different structure. As a result, their nuances between the way in which they operate as well as how they are taxed. To learn more about the differences between businesses and companies, keep reading.

What Is a Business?

A business is a commercial entity or organization that makes money by selling products or services to customers. Businesses come in all shapes and sizes. Some of them are operated by a single person, whereas others are operated by hundreds of people. Some businesses produce the goods they sell, whereas others simply act as the middleman by purchasing and reselling goods from a vendor. Regardless, all businesses are commercial entities that make money by selling products or services.

What Is a Company?

A company, on the other hand, is a commercial entity or organization that’s legally separated from its owner or owners. Like businesses, companies make money by selling products or services. They can also vary in size, with some of them being operated by a single person and others being operated by multiple people. The difference is that companies are considered a separate legal entity from their respective owners.

Breaking Down the Differences Between Businesses and Companies

A company is essentially a type of business. There are several specific types of companies recognized by the Internal Revenue Service (IRS), some of which include a limited liability company (LLC), an S corporation and a C corporation. All companies are considered separate legal entities from their respective owners, meaning they don’t share liabilities or debts.

The term “business” can refer to a company as well. It’s a broad term that encompasses all types of commercial entities. With that said, businesses cover basic entities that, unlike companies, aren’t considered separate legal entities. A sole proprietorship, for example, isn’t a separate legal entity. If a sole proprietorship incurs debt, the owner or owners will be personally responsible for paying it. This in stark contrast to companies, which offer protection to their owners from company-related liabilities and debts.

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Gross Profit vs Gross Margin: What’s the Difference?

The terms “gross profit” and “gross margin” are often used interchangeably to describe how much a business generates from its activities. Regardless of their size or market, businesses must purchase products and services to conduct their own money-money activities. A retail store, for instance, must purchase inventory from a vendor so that it can resell the products to its customers. While gross profit and gross margin offer insight into a business’s profits, they aren’t necessarily the same. So, what’s the difference between gross profit and gross margin in accounting?

Gross Profit Explained

Gross profit is an accounting metric that shows how much profit a business generates from its activities. It’s calculated by taking the business’s net sales and subtracting that number by its Cost of Goods Sold (COGS). If a business generated $200,000 during a given month and its COGS was $60,000, its gross profit would be $140,000 for that month. Gross profit uses a simple formula to reveal how much profit a business generated during a particular period.

Gross Margin Explained

Also known as gross profit margin, gross margin is another accounting metric that, like gross profit, shows much much profit a business generates from its activities. With that said, it uses a different formula than gross profit. Gross margin is calculated by taking the business’s gross profits and dividing that number by its net sales. Therefore, it uses a slightly different formula that ignores certain expenses.

Differences Between Gross Profit and Gross Margin

The main difference between gross profit and gross margin is that the former takes into account all of the business’s expenses, whereas the latter does not. With gross profit, all expenses associated with a business’s money-money activities are factored into the equation. With gross margin, indirect expenses — advertising, administrative fees, interest, tax, etc. — are ignored. These expenses are ignored when calculating gross margin, so a business’s gross margin is typically smaller than its gross profit for that same period.

You can use gross profit or gross margin to track your business’s financial health and well-being. Gross margin, however, ignores the aforementioned expenses, so it offers a more cloudy and altered representation of your business’s finances. That’s why, in fact, it’s referred to as “gross margin” rather than simply “gross profit.” Hopefully, this gives you a better understanding of how gross profit and gross margin differ.

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