A Personal Guarantee is a promise by you and your business partners that you will repay the loan. If your business goes under or you can’t send in your payment, this has no bearing on the repayment of the loan to the bank. You and your business personally guaranteed the loan would be prepaid. If you have to sell off your business and your personal assets due to a judgment then so be it. You personally guaranteed it. If this means non business items such as family heirlooms are sold at 10% of their value are sold to pay the bank, they don’t care. They want their money and they’ll do whatever they legally need to do to get it.

As bad as it sounds, it can get even worse in some cases. If the loan was personally guaranteed by all business partners, you could be liable for the entire loan. That means that even if you’re just a 10% owner in the business, you could be liable for 100% of the loan. What if you’re a minor partner in several businesses? Do you want to have to personally guarantee a loan that defaults due to someone else’s mistake?

How can we avoid this? Here’s couple of solutions.

First, you need to build up your business credit. Good enough business credit will give you a bit of leverage over the bank. There are companies that will guide you to getting better business credit. Once you have good credit, if the bank insists on the need to personally guarantee a loan just state that your credit score is high enough and should be sufficient to cover the loan. Even if you can’t void this requirement a good negotiator (or company acting on your behalf) can reduce the personal requirement to just 25% of the loan. Hey it’s better than having to repay the entire amount especially if you’re just a 10% percent partner.

But the best solution is to avoid having to personally guarantee all together. Ask yourself if you really need the entire loan amount. Can you borrow 75% of the original amount? That may be just what you need to avoid the guarantee. Will the bank agree to a shorter payment plan? What if you’re able to repay the bank back within three years as opposed to four? Will they avoid the requirement this way? They just might!

Just remember that banks are in the business of lending money. They need to lend money if they’re to be profitable. If the terms aren’t acceptable to you, just politely walk away. Don’t burn your bridges but very politely state that the terms won’t work for you and leave the meeting. You may find a message for you in a few days asking you to discuss the loan again. You never know, it’s happened before!

Remember, with every problem there’s a solution if you look hard enough. If what’s presented to you isn’t working, then dig until you find something that works! Sometimes the solution is just another effort away.

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Scott Letourneau is the CEO of NCP, Inc. and is offering free business credit training to interested business owners across the country. For a webinar 90 minute class where Scott corners a national bank offical and asks the “Hard Questions” visit our free business credit training page.

When you look into getting items and services for your business, the goal is to minimize your personal guarantee and avoid touching your personal credit. A personal guarantee makes you and your partners liable if the loan ever defaults. In bad cases, your personal assets could be sold off to pay for a loan. You don’t want to do that.

Let’s look into Trade Credit and Business Financing as options for your business.

Business credit is usually credit between two businesses. If you case it would be between your business and another entity such as Dell computers. If you wanted to get computers from Dell, they would issue business credit in your business name and you would get your computers for your business. This is also known as trade credit. Usually you’re limited to what you can purchase since it’s with a single business. In the Dell example, you’re not going to be able to use Dell’s line of credit to purchase an automobile.

Usually with this form or credit there’s no need for a personal guarantee. Some vendors may still ask for a personal guarantee but it’s fairly uncommon. The higher your business credit score the less likely it will be that they will ask for a personal guarantee.

The other form of financing is business financing. Business financing are lines of credit for your business usually done though a bank. Banks will always want something secured. If they can’t do it via an asset then they’ll want a personal guarantee. This puts your personal items such as your own car, home, and family heirlooms at risk. If you default on the loan, a judge can order your assets to be sold to repay the loan.

The advantage is that you get more options in relation to items or services. It just depends on how you got the loan or financing. If you went into the bank and asked for financing for a truck then the money should only be used for a truck. However if the financing was for a loan, then you have more leeway. With the monies it’s up to you to decide what you should ethically get. You’ll probably get what was in your business plan but if there’s money left over then there’s more options.

Here are some tips to help you with your credit.

1. Try to get your debt to not show up on your credit report.
a. Sometimes businesses won’t report the debt if everything is ok. If this doesn’t happen then your debt to income ratio looks better. This gives you options for another loan if an opportunity comes your way.

2. Check your personal credit reports.
a. A good online service such as annualcreditreport.com or myfico.com allows you to check and monitor your credit reports. This will help you track mistakes and fix them quickly.

3. Separate your credit reports.
a. Make sure to get credit in your business name. Your personal credit is an important asset and you don’t want a business mistake to keep you from being able to get a house, automobile or anything else that’s important to you in the future.

Following those tips should help to protect you and your business. Please, don’t get into the habit of damaging your personal credit. It’s your number one asset. You could always start another business but you can’t legally start another you.

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About the Author

Scott Letourneau is the CEO of NCP, Inc. and an authority in helping people form entities, grow their business, and protecting the assets of that business. For additional information: 702-367-7373 or visit Nevada Corporate Planners to Build Your Business and Trade Credit.

When it comes to protecting your hard earned assets you want every advantage possible. When incorporating in Nevada it is often promised that there is a level of privacy for the owners of a corporation or LLC that will help them in case of a lawsuit. Some individuals looking to form a Nevada corporation or LLC are hoping that if they get sued no one will find out who the owner of the corporation or LLC may be. Thus, preventing them from being a the target of frivolous lawsuits. In the context of litigation, the best scenario is presenting properly structured business model and having the court rule in your favor resulting in your assets being protected. That would be ideal!

Now, if it takes longer for someone to get to first base in your situation to figure out who the owners are, wonderful, that just means the plaintiff will have to spend more money! After all, aren’t most lawsuits a simple gain of economics? And if you can make it very expensive for the plaintiff to find your assets the better!

So what is the challenge…

The challenge is the creation of rock solid asset protection plan that does not rely solely on the illusory promise of privacy through the use of Bearer shares (which doesn’t work) and nominees (which works to a certain degree). If the whole plan is designed to prevent the discovery of your assets to fend off a lawsuit and the corporation or LLC lacks substance; there are no employees anywhere; and no business license, the plan is doomed to fail. The only way you would be protected would be to hide under a rock, because you had to be so private!

Again, if you structure a rock solid asset protection plan and have privacy along with it that is the icing on the cake!

The common places most people have to give up their identity as being linked to a corporation are in the following areas:

1. Issuing stock
2. Obtaining a Nevada Business License
3. Opening a Nevada bank account
4. Being an employee or independent contractor to the corporation
5. Entering into other contracts or agreements
6. Loan applications from banks

It is important to realize that you may be private on the surface corporation, such as the state records, but eventually, your name will appear in one of these six (6) areas. You cannot be so private that your name won’t appear in one of these six (6) areas, unless you choose to have no role in your corporation or LLC.

Nevada is pro-business and has a strong history of protecting the corporate veil. Creating a sound business model and understanding all of the strategies available to you will complement your plan of asset protection.

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Scott Letourneau is the founder and CEO of Nevada Corporate Planners, Inc. Over the past 10 years NCP has assisted more than 4,500 business owners form LLCs and corporations to get their business off to a fast start! Visit for insight and essentials in proper entity formation.

The Easter Bunny has received horrible news just days before he is scheduled to make his egg-hiding rounds this year. The IRS is cracking down on Sole Proprietors, such as The Easter Bunny, The Tooth Fairy, and possibly even Santa Claus regarding excessive tax write offs, especially in the mileage claimed for business use.

These characters apparently never set up the right corporate structures to protect themselves and decided to operate as the most simple business form, the sole proprietorship.

Unfortunately, the sole proprietorship has the most liability, least tax benefits and the most possibility of negatively affecting ones revolving debt and future ability to develop business lines of credit. Even the Easter Bunny can not afford to ruin his personal credit by using personal credit cards to finance his Easter Egg Business!

Why is a sole proprietor most likely to be audited?

The IRS believes there is a $300 BILLION tax gap — $300 BILLION in uncollected taxes — each year! The biggest culprit? Not large corporations, but small business owners. In fact, sole proprietorships are 300% more likely to get audited than someone who does not file a schedule C!

It is important that any business owner also document their records properly.  In fact, the Easter Bunny may have excessive claims of business mileage especially since he has never owned a car.

Solution: Run your business like a business.  Document all your business expenses, use QuickBooks® or some other accounting software to operate your business, and DON’T operate as a sole proprietorship! Incorporating is a much better approach.

 

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Scott Letourneau of Nevada Corporate Planners  has been called by the Famous 3 to see how they can correct their situation for the future. Mr. Letourneau says, “The Easter Bunny has concerns also over protecting his Egg-sets (Assets) and his business that just can not be done in his current Sole Proprietor Status.

Update: A drunken Leprechaun faced an IRS audit this week for similar reasons and did not fair well after St Patrick’s Day!

You’re a new business owner and decide you need items and services for your business. You take out a loan and your business is off to a great start. A few months pass by, so you take out another loan or open more lines of credit for necessities. You repeat this process a few times during the year. You’re trying to be a good business owner by growing your business but you’re making a critical mistake. You’re using your personal credit for your business. This is bad. It’s very bad and you’re courting disaster. Let me tell you why.

Most people only take out a major loan once a year. How does it look to the credit agencies if you’re taking out several major loans per year? It looks bad. It looks bad enough for the three major reporting agencies to lower your personal credit score. Once that happens, you’re going to find it harder to quality for loans with favorable terms or open up new lines of credit. If your business is dependant on you being able to borrow money then you my friend are in serious trouble. Not only will your business be in trouble but your personal life is now tied to your business. Are you going to qualify for that home loan if there are loans for expensive equipment on your credit report? I think yourre going to lose that house, the new car, and the college loans for your children.

So what’s the solution? The solution is to stop using personal funds and credit to use with your business. Let your business earn its own credit and leave your personal credit alone. Ok, it sounds like a good solution but how do we do that? We make your business its own business entity. We split you and your business into two different entities. You still control your business but your business becomes it’s ‘own person’ with its own credit and responsibilities.

By incorporating your company, you give it the legal right to take on lines of credit, apply for loans and to build its own business credit. After this you enroll in a business credit builder program. A business credit builder program helps you open up lines of credit with vendors. These vendors (unlike many) report your positive actions to business credit reporting agencies like Burns and Bradstreet. Many business don’t know that many vendors only report negative actions and never report positive payment histories. That hurts you and never helps your rating. When vendors participate and send in positive reports your rating improves.

It really is the smart thing to do. With a high business credit, you’ll be able to take out loans with favorable terms. Not only will you save money but you’ll find it less likely to have to personally guarantee the loan and put your assets at risk. Businesses can do credit checks on you and will tend to choose high rated businesses. That’s more customers for you! It’s really win-win all around.

What are your thoughts? We want your opintion. Please leave a comment and let us know what you think.

MEDIA ALERT:  E-Myth Author, Michael Gerber to Help Entrepreneurs in Today’s Economy!  

 Las Vegas, NV March 3, 2008.  The economy is struggling and some consider a recession is right around the corner!  Where can entrepreneurs turn to protect their business and support their families? Scott Letourneau, CEO of Nevada Corporate Planners, Inc. based in Las Vegas, NV will team up with Michael Gerber, the E-Myth business guru, and discuss today’s woes and the state of our financial health.  Michael and Scott are joining forces to educate, enlighten and share their thoughts in these dubious times.Scott Letourneau is the founder and CEO of Nevada Corporate Planners, Inc., and author of “What is the Correct Entity to Protect Your Business and Your Assets.“  He is an authority in helping people form entities, grow their business and protect the assets of that business.  At NCP, our mission is to help companies succeed… and entrepreneurs achieve their dreams!  His Top 5% Club is highly acclaimed by business experts around the country.

In 1977, Michael Gerber built a successful seminar and coaching business teaching business owners that systems allow business owners to remove themselves from their businesses. In the years since, Michael authored 12 different books including the E-Myth.  After creating and failing in his own small business Michael created the E-Myth Worldwide to transform the lives of business owners worldwide. In the years since, his info-marketing business has conducted hundreds of seminars and coached thousands of business owners. After years of business growth, Michael sold the seminar business he created.  Michael Gerber has just released his new book entitled, “Awakening the Entrepreneur Within!” This free Top 5% Club call focuses on Michael’s info-marketing business, how it was built out of the books and speaking engagements and what any info-marketer can do to duplicate his success. Learn business insights from a 30-year veteran of the information marketing business. Michael’s aspiration is to empower business owners to gain more freedom, more money, more time, and more life.  What will be covered?

• A look inside E-Myth Worldwide and how Michael grew it from scratch.
• The promotion strategies Michael used to make his books best sellers and generate more new customers for his business, and how you can do the same.
• Systemizing your marketing for your business to deliver more results easier for your customers.
• Insights from 30 years of marketing to business owners.
• Getting out of the business, how Michael sold E-Myth Worldwide.

Call Date:     March 11, 2008 

Call Time:  6:00 PM  PST

TO ATTEND THIS EVENT, CLICK THIS LINK NOW…
http://www.nvinc.com/MichaelGerber.htm
YOU WILL NOT WANT TO MISS IT!
Contact:Cindy Richman, Executive Assistant
Nevada Corporate Planners, Inc.
888-627-7007
http://www.nvinc.com

…especially if you are a sole proprietorship! The IRS would love for you to continue as a sole proprietorship in your business, because that makes you an easy target! They know that sole proprietorships are most likely to under-report their income and over-report their business expenses. Definitely, low hanging fruit!

 

The IRS believes there to be a $300 BILLION tax gap — $300 BILLION in uncollected taxes — each year! The biggest culprit? Not large corporations, but small business owners. In fact, sole proprietorships are 300% more likely to get audited than someone who does not file a schedule C!

 

And watch out all you E-Bay users! Want to get the IRS really hot and bothered? Don’t run your business like a business. Run it like a hobby, and just watch them have their way with you!  Ignore proper accounting systems from Day 1… just “try” your new business to see if it works (all the signs of a hobby)… and see how fast those business deductions are disallowed!  

 

If you fall into the “hobby-business” category, don’t expect to get your IRS “love letter” notice right away. This particular valentine may take its sweet time to get to you, in the form of an audit with penalties plus a few years’ interest!  Who said love doesn’t last?

 

Solution: Run your business like a business.  Document all your business expenses, use QuickBooks® or some other accounting software to operate your business, and DON’T operate as a sole proprietorship! Incorporating is a much better approach.

 

 

 

Scott Letourneau is the CEO of NCP, Inc. and an authority in helping people form entities, grow their business, and protect the assets of that business. His Top 5% Club is highly acclaimed by business experts around the country. Visit www.nvinc.com to receive your free guide, Costly Mistakes To Avoid When Incorporating in Nevada!

For Your Estate Planner:

 

1. What is the difference between a will and a living trust?

2. How do I tie my company into my living trust?

3. What do I need to consider if I am in a second marriage?

4. What steps do I take to transfer my assets into my living trust?

5. What does my living trust protect me against?

6. When do I need to update my living trust?

 

This should get you started in the right direction.  Keep these questions in mind, and give some thought as well as to the implications for your own situation as you meet with your professionals.

 

I have another valuable tool for your arsenal, too.

 

NCP’s Corporate Coaching and Teleseminar Success Series will give you even more detailed help, providing you access to timely and relevant prerecorded teleseminars with professional in each of these areas.  Even if you haven’t yet chosen your professional team, in just a few hours’ time you’ll be up to speed on the important issues, making a wise choice that much easier.  You can also use NCP as a sounding board to test out issues and scenarios, and open up avenues and areas of thought you may not have touched on before.  (Although we can’t replace your CPA or attorney, our clients have confidently optimized their time together with those professionals, knowing they’ve covered all the bases.)

 

We’re a great sounding board for your success!

 

If you are not a current Corporate Coaching and Teleseminar Success Series client, call NCP at 1-888-627-7007 and let us tell you all about this valuable tool for your budding business.

 

For Your CPA:

1. How should I capitalize the company?

2. If a partner or I capitalize services, what is the result?

3. When do I start payroll?

4. What are my federal, state and local tax concerns?

5. What happens to my pre-organization expenses?

Many small businesses prefer to incorporate or form an LLC in their home state. Typically, it’s less complicated and most cost effective to incorporate in the state where you’re planning to operate your business. Unfortunately, keeping things simple and asset protection are inversely related. In many situation Delaware and Nevada do offer advantages that may be appropriate for your business. For more details go do www.nvinc.com/

If you incorporate outside your home state, you still may be required to qualify to do business in your home state. The cost of a local incorporation will usually be less than incorporating in another state, and then qualifying to do business in your home state as a “foreign” (out of state) corporation.

If you have a partner and/or business activity in more than one state, you’ll have to decide where to domicile your corporation or LLC, and again, register as a foreign corporation or LLC doing business in the state where the activity occurs. That decision should be based on multi-state taxation rules and registration requirements, which vary from state to state.

Delaware and Nevada are often cited as the best states in which to domicile (or form) your new business. Both states have advantages, but not all may apply to your situation.