The Billionaires Business Blueprint

April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT

2 Copyright © 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT

www.corporatecreditassociation.com 2 3 3 3 S a n Ra mo n Va l l e y Rd . S a n Ra mo n , Ca 9 4 5 8 3 Phone:(888)817-8882 Fax:(925)215-4593

3 Copyright © 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT

C o p y r i g h t © 2 0 08 R e g i n a l d Ri n gg o l d A L L RI G H T S RE S E R VE D

No part of this book may be used or reproduced in any form or by any means or stored in any database or retrieval system without express permission in writing by The Corporate Credit Association of America. Some of the articles contained in this report are considered Bonus articles, provided as a benefit to the reader. All Bonus articles are copyright their respective authors. Disclaimer Corporate Credit Association is providing this manual on an "as is" basis and makes no representations or warranties of any kind with respect to its contents. The articles contained herein are sold for informational purposes only and all local laws apply. Any use or misuse of this information is solely the responsibility of the purchaser. CCA disclaims all such representations and warranties, including for example warranties of merchantability and fitness for a particular purpose. In addition, CCA does not represent or warrant that the information in this manual is accurate, complete or current. This information was gathered from sources believed to be reliable, but cannot be guaranteed insofar as they apply to any particular individual. This manual is sold with the understanding that CCA is not engaged in rendering legal or accounting services. Questions relevant to the specific tax, legal, and accounting needs of the reader should be addressed to practicing members of those professions. Neither CCA nor any of its directors, employees, other representatives or advertisers will be liable for damages arising out of or in connection with the use of this manual. This is a comprehensive limitation of liability that applies to all damages of any kind, including (without limitation) compensatory, direct, indirect or consequential damages, loss of data, income or profit, loss of or damage to property and claims of third parties. Let me explain my writing style I have been using the Dragon Naturally Speaking 9 off and on. It is a device that allows you to speak into a microphone and it types what you say. If you notice words that seem like they do not belong in the sentence, it is because the device sometimes has a hard time deciphering the 4 Copyright © 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT

difference between like sounding words. When I am typing I get so excited with the thought of teaching Corporations how to build Corporate Credit, that at times when I write I think faster than I write. I also write like I talk and the result is that my writing style does not mirror Shakespeare. However I get the message across clearly. If you read anything that is grammatically incorrect, I apologize, but keep in mind that it’s the message that is important, not the style. Warning corporate credit is for business activities only!!! The personal use of corporate credit is illegal. Acknowledgements Special thanks to My Heavenly Father, my mother Alesia Webb, to Emily Williams for being my backbone and giving me my two boys, my Boys Reginald Ringgold IV & Ryan Ringgold , my business partner Jerrod Lakey, Victor Pamiroyan if we did not go through what we went through I would not know half of what I know. My Dr. Glen Weirsma, my Attorney Alastair McCloskey and my business coach Jim Fagan I appreciate everything that you have done for me. And to the rest of my friends and family without you none of this would be possible. Thanks to the whole CCA staff. Thanks to allbusiness.com for your help, insight and wealth of knowledge. Thanks to D&B, Experian, Equifax, Gail Donovan, Susan Hammel Joyce, and Stephanie Stephens of the Federal Reserve Bank of New York, Top Secret Publishing credit magic and financial secrets, Kelli Nielson and the Enlightened Wealth Institute, Richard Parker, How to Buy a Good Business at a Great Price, Donna Fox from credit repair to credit millionaire, Nevada Corporate Headquarters, Wikipedia, the free encyclopedia John V. Childers Jr. The Secret Millionaires Guide to Nevada Corporations and anyone I forgot to name thank you for your help and insight.

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Table of Contents Disclaimer………………………………………………………………………….4 Acknowledgements…………………………………………………………….….5 Table of Contents……………………………………………………….…………6 Introduction……………………………………………………………………...10 What you don't know can hurt you………………………………………………11 Jack of all trades…………………………………………………………………12

Chapter 1 Corporate Credit…………………………………………………….16 What is Corporate Credit………………………………………………………...16 Why Corporate Credit……………………………………………………………17 Corporate Credit vs. Personal Credit....…………………………………..…..….19 How much Corporate Credit can I obtain..............................................................20 What kinds of Corporate Credit are available…………………………................21 The 5 C’s of Corporate Credit…………………………………………...............23

Chapter 2 Borrowing Is In …..………………………………………….………25 To borrow or not to borrow...................................................................................25 Once upon a time…..…………………………………………………………….25 Lets get down to business………………………………………………..............26 John & Robert..………………………………………………………………….26

Chapter 3 Leverage……………………………………………………………...29 Definition of leverage…………………………………………………................29 Leveraging……………………………………………………………………….29 How to buy a business with no cash or credit (LBO)……………………………31

Chapter 4 The Different Business entities……………………………...............37 Sole Proprietorships……………………………………………………………...38 General Partnerships……………………………………………………………..39 Limited Partnerships……………………………………………………………..41 Limited Liability Companies…………………………………………………….42 Corporations……………………………………………………………………...47 C-Corporations…………………………………………………………………...49 S-Corporations…………………………………………………………………...50 Close Corporations……………………………………………………………….50 Professional Corporation………………………………………………...............51 International Business Corporation (IBC)……………………………………….51 Non-Profit Corporations…………………………………………………………51 Shelf Corporations……………………………………………………………….53

Chapter 5 Incorporating………………………………………………………...69 Why Incorporate....................................................................................................69 When should one incorporate……………………………………………………70 Where to incorporate..............................................................................................71 Foreign Corporation……………………………………………………………...72 Why Nevada...........................................................................................................73 6 Copyright © 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT Why Wyoming…………………………………………………………...............74 Why Delaware…………………………………………………………...............77 Selecting the right name for your corporation…………………………………...78

Chapter 6 The Business Credit Reporting Agencies………………….............82 Dun & Bradstreet (D&B)……………………………………………................82 D&B Checklist…………………………………………………………………...82 Applying for a Duns number…………………………………………………….84 What’s a business credit profile………………………………………………….85 D&B’s Different Business Credit Reports……………………………………….85 You should make sure you have a business credit profile if..................................86 What is in my Duns profile....................................................................................87 Duns Profile Example (Business Information Report)……………………….….89 How can I improve my business credit profile....................................................100 Duns Right……………………………………………………………………...102 Paydex score.…...…...………………………………………………………….103 Duns Rating.……………………………………………………………………104 Financial Stress Summary………………………………………………………106 Financial Stress Score Table……………………………………………………107 Commercial Credit Score……………………………………………………….107 Commercial Credit Score Table………………………………………………...108 Incidence of Delinquent Payments……………………………………………..109 High-Risk or Red Flagged Status………………………………………………109 Experian……………………………………………………………………….110 Equifax…………………………………………………………………………111 Client Checker…………………………………………………………………111 BusinessInsight/FDInsight……………………………………………………112 Business Credit U.S.A…………………………………………………………113

Chapter 7 The 7 Steps to Business Success…………………………………...115 Step 1……………………………………………………………………….…..116 Step 2…………………………………………………………………………...118 Step 3…………………………………………………………………...………120 Step 4……………………………………………………………………...……121 Step 5……………………………………………………………………...……124 Step 6………………………………………………………………………...…127 Step 7………………………………………………………………………...…128

Chapter 8 The Top 10 mistakes Business Owners Make………………….....136 Mistake 10………………………………………………………………………136 Mistake 9………………………………………………………………………..137 Mistake 8………………………………………………………………………..137 Mistake 7………………………………………………………………………..137 Mistake 6………………………………………………………………………..137 Mistake 5………………………………………………………………………..138 Mistake 4………………………………………………………………………..138 Mistake 3………………………………………………………………………..138 Mistake 2………………………………………………………………………..139 7 Copyright © 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT Mistake 1………………………………………………………………………..139

Chapter 9 Personal Credit………………………………………………….….140 Personal Credit……………………………………………………………….....140 Credit Worthy Officers (CFO’s)..………………………………………………143 Bank Loan Procedure…………………………………………………...............144 Personal Financial Statements……………………………………………….…145 What If I Do Not Have Financials……………………………………………...145 To Personally Guarantee or not to Personally Guarantee....................................145 No Personal Guarantee…………………………………………………………146

Chapter 10 Business Loans & Commercial Finance………………………....149 The Four Stages of Developing a business………………………………….….149 Choosing a Bank That’s Right For You..…………………………………..…..150 Reasons to borrow…………………………………………………………..…..150 Business Loan Checklist……………………………………………………..…151 Business Loan Criteria……………………………………………………….....151 Preparing Your Business Plan and Loan Request……………………………....152 Packaging Your Loan Proposal……………………………………………...…161 How your Business loan request will be reviewed………………...…………...163 Advantages of Business Loans…………………………………………………164 Financial Analysis……………………………………………………………....164

Chapter 11 Financing…………………………………………………………..171 Is Your Business Credit Worthy…………………………………………….….172 Loans Types and Terms………………………………………………………...173 How Much Money...............................................................................................178 What Kind of Collateral…………………………………………………...........178 What Are the Lenders Rules................................................................................181 The Loan Application……………………………………………………….….184 Evaluating the Application………………………………………………..…....184 If Your Application Is Not Approved……………………………………….….184 Conventional and Unconventional Financing……………………………….….185 Sure-Fire methods of Methods of Raising Instant Cash………………………..193 How to Raise Capital for a Business…………………………………………....195

Chapter 12 Think, Look, & Act Like a Billionaire…………………………...201 I Think I Can I Know I Can………………………………………………….....201 Dealing with Bankers………………………………………………………...…202 Image Is Everything………………………………………………………...…..205 Billionaires Don’t…………………………………………………………...…..206 Assessing A Bankers Needs Instead Wants…………………………………….208 The Bankers Response…………………………………………………….........208 The Luncheon with the Banker………………………………………………....209 Add $10,000,000 to Your Balance Sheet for Less Than $50……………..........210

Chapter 13 Establishing Corporate Credit…………………………………...211 Passively Establishing Corporate Credit……………….……………………….211 Actively Establishing Corporate Credit……….……….……………………….211 The Four Factors of Establishing Corporate Credit…………………………….212 8 Copyright © 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT Trade References (Trade Information)………………………………………....213 Applying For Corporate Credit…...…………………………………………….215 Establishing Corporate Credit with Divisions………………………………….217 Obtaining higher limits on Corporate Credit cards…………………………..…221 How to raise $200,000 in 24 hours……………………………………………..227 Establish AAA Corporate Credit in 30 Days…………………………………...227 How to Borrow Money Interest Free…………………………………………...228

Chapter 14 Protecting Your Assets from Uncle Sam & Sue Happy Suzy....231 Better Safe than Sorry…………………………………………………….........233 Estate Planning…………………………………………………………….........234 Family Limited Partnership…………………………………………………….236 Tax Savings……………………………………………………………………..240 Multiple Corporation Strategy………………………………………………….241 Becoming Debt Free With Your Corporation…………………………………..244 Investing in Real Estate with Your Corporation…………………………….…245 How to Stop Paying Property Tax……………………………………………...249 Land Trusts……………………………………………………………………..249 Living Trusts……………………………………………………………………251 The Inside Secrets of Trusts and Personal Tax Shelters………………………..251 You Can’t Squeeze Blood Out of A Dry Turnip…...…………………………..253 Asset Protection does not Protect the Asset……………………………………254 How to Disappear into Corporate America…………………………………….254 How to Get Free Travel……………………...………………………………....254

Chapter 15 Survival Tips for Small Businesses……………………………...257 Organization………………………………………………………………….....260 Corporate Credit Scams & Myths….…………………………………………...261 Food For Thought………………………………………………………………264

Q&A’S…………………………………………………………………………..266 Glossary……………………………………………………………………........278 Appendix………………………………………………………………………...301 Example’s of Financial Statements……………………………………...301 D&B Rating Table……………………………………………………………...311 Trade/Vendor List………………………………………………………………319 Retail Creditors…………………………………………………………………323 Corporate Credit Cards…………………………………………………………328 Funding Sources…………………………………………………………...……331

Notes……………………………………………………………………………..332

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Introduction Over the past few decades I have started, acquired and sold quite a few businesses with my Leverage Buyout Firm. In fact I started my first business when I was 6. I would go around in my Ghostbusters outfit busting peoples’ ghosts for a fee. After I ran out of ghosts to bust (really after I went to every apartment in my apartment complex) I had to think of another way to make money to buy candy and fruit snacks. So I held garage sales in my apartment complex. At first this was a good idea but then I ran into a problem. I ran out of stuff to sell. So I figured since I liked candy so much and I knew my friends and all the other kids at school liked candy too. So I decided to use the money I had made from the garage sales and busting ghosts to buy candy at wholesale. I did not know it was called wholesale at the time, I just knew that my mother would buy me and my sister big boxes of candy and give us candy here and there as rewards for good behavior. I knew that at the price the box of candy costs I could sell the pieces individually and still have enough profit to buy more candy and still have some candy left for myself to eat. I am going to tell you a story about how I got into corporate credit; now I have had one of my corporations since I was old enough to sit on the board of a corporation. When my business partner and I decided to invest in real estate and other businesses, we decided to leverage some of the business credit it MUST have established. We made an appointment at the bank where we had our business checking and saving accounts, to see how much credit our corporation had built up, with its 10 Copyright © 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRE’S BU BUSINESS BLUEPRINT

multiple

business

accounts,

credit

cards

and

vendors.

We had a rude awaking!! We were informed that our corporation had ZERO credit we did not even have a Duns number. r. (For more on the Duns number refer to the Business Credit Reporting Agencies Chapter). The business credit that we did have was based on our personal credit and was all tied to us person personally, ally, not to mention none of the trade references that we had were reporting to D&B. We did some more research and found out that our corporation didn't even have a corporate credit file with D&B or Experian. (For more info on D&B and Experian refer to tthe he Business Credit Reporting Agencies chapter.) How could this happen! We were seasoned business veterans with paid professional advisors! (Or so we thought!) After our shocking discovery, we decided to do our due diligence and we discovered the reall story. As it turns out, our banker wasn't much help. He was as uninformed as we were. So he referred us the banker who handled the business accounts, the banker we spoke with was full of outdated, BAD information. Neither of them knew the first steps to establishing real corporate credit! So we took it in our own hands. What You Don't Know Can Hurt Y You If in your personal life you paid for everything with cash. And then at 45, you finally decide that you want to finance something. Would you be able to to? The answer is no, you would be declined. Why? Well what would your personal credit score be? You wouldn't have one, and that's why you would be declined. This is the same for business credit; only 5% of businesses are successful in obtaining a Corporate rate Credit profile that is separate from their personal credit profile. The fact is 97% of all business credit applications are denied, 94% of all businesses fail within the first two years, four out of five fail within the first five years, and 87% waitt until they run out of money before they do something about it.

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Jack of All Trades Now I was at a business mixture when a guy walked up to me, for privacy reasons will say his name is Jack. Jack: “That was really interesting stuff you were talking about, I'm sure glad I already have corporate credit, maybe I can refer some clients to you. Do you have a business card?” Me: I handed him one “you say you have corporate credit? Now tell me how exactly did you go about setting it up? Jack: Well, I applied for a few credit cards under my business and I was approved. Me: So you have credit cards in your businesses name. Jack: Yes. Me: Are they tied to you personally? Jack: No. Me: Did they ask you for your Social Security Number? Jack: Yes but that's normal isn't it? Me: Yes if you're intent was to personally guarantee that item. Did you give them your DUNS Number? Jack: What is a DUNS Number? Me: D&B provides businesses with a separate unique nine-digit identification number called the Duns number it is used to track and rate your business credit profile. Your Duns number is asked for when applying for lines of credit, and with some credit card and leasing companies. (For more on D&B and the Duns number refer to the Business Credit Reporting Agencies Chapter). Jack: I thought they issued all that stuff when you apply for a credit? 12 Copyright © 2008 Reginald Ringgold

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Me: No you have to apply for a Duns number and register your trade references with D&B so I take it you did not register your trade references with D&B? Jack: I thought that the creditor did that. Me: See what you have to understand, is unlike personal credit with business credit there are certain steps one must follow to obtain corporate credit, or in other words a high Paydex score of 80 or above. (For more on Paydex score refer to business credit reporting agencies chapter). So how many business credit cards do you have? Jack: Seven. Me: Have you still been applying for credit? Jack: Yes. Me: Have you been declined on any of the credit you have applied for lately? Jack: Yes it seemed odd, after the seventh card I've been declined on every card I applied for. Me: How has your credit been affected from all those inquires? Jack: My Fico score dropped. Me: What were the reasons they gave you for being denied? Jack: They said my balances were too high compared to the credit available on my cards, my debt ratio was too high, and I had too many recent inquiries. Me: Your Personal credit was affected when you personally guaranteed the credit on your company’s behalf. The high limits and inquires affected your personal Fico score and your ability to obtain more credit. You were put at risk when you used your personal credit to finance your business. And now because of that your business is at a standstill correct? Jack: Unfortunately you are correct.

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Me: If an emergency occurs and you need to use your personal credit for whatever reason, you will not be able to because you are currently overextended. And even though you can prove your business is responsible for the debt your Fico score is still affected. Though it is true you can expedite the process of building business credit through personally guaranteeing loans. Keep in mind when you personally guarantee a business loan, your tying your personal credit to your business debts. Businesses have needs in order to maintain day-to-day business operations. They need materials, parts, equipment etc. on a continuous basis. And as it expands there's more and more need for capital. Unfortunately with personal credit, the more you apply for financing for the business, the more Inquiries you create. And every time an inquiry is pulled your score goes lower. And every time you acquire debt your debt ratio increases making you undesirable to banks and lending institutions. This is why it is important to establish a corporate credit profile that is separate from your

Personal

credit.

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Chapter 1 Corporate Credit "It is much easier to borrow 1 million in corporate credit than to earn it at your job or spend years trying save it."Reginald Ringgold

What is Corporate Credit? Did you know that business credit is the largest lending market in the world? Corporate Credit is credit that is granted to one business by another business. Corporate Credit functions the same as personal credit, except the debt accumulates in the corporation’s name. Your corporate credit profile is what companies primarily use to evaluate whether to do business with you, and on what terms. Companies rely on your business credit worthiness to make critical decisions, including whether: -to lend you money -you are viable as a partner -to lease the equipment you need to grow your business -to increase your line of credit -to help you carry more inventory at competitive prices -to give you favorable financing rates and terms -you stack up favorably against other companies competing in your market Corporate credit is not a credit card with your business name on it, but rather a corporation that has credit that is separate from the personal credit of its owners. The following business entities will never be able to establish Corporate Credit without personal guarantees: Sole Proprietorships, General Partnerships, and Limited Partnerships. Why one might ask? These entities are simply extensions of their owners as opposed to separate entities. As such the Social Security number of the partner or proprietor will always be used for business financing even if the SP, GP, or LP, has a separate taxpayer ID. I strongly suggest a Corporation, this gives your company the image of a larger corporation with more employees, and 16 Copyright © 2008 Reginald Ringgold

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the highest business credit ratings are reserved for larger corporations with a lot of employees (more on this in the business credit reporting agencies chapter). The longer your business has been in business the more creditability your business has. You can do nothing and as the days go on your corporate credit is getting better and better. Although you can do nothing and your business credit builds. There are steps one must follow to obtain the highest Paydex score and Duns Rating with Dun & Bradstreet (more on these steps in the seven steps chapter). Without advanced techniques it takes six months to two years of corporate credit building and good payments to develop a solid business credit foundation. Why Corporate Credit? Having corporate credit established for a business is the key to its success. Throughout the history of a business the need for credit will most likely arise. Establishing the business’s credit should be started before the company needs it. No lending institution wants to lend money to a business in need of cash flow. The business can start out using the owner’s or officer’s credit to gain approvals under the business name, but as the business grows it should start to establish its own credit history and credit profile that is separate from the personal credit of its owners, in order to take on corporate credit of its own. To prevent people from becoming overextended, consumer credit keeps track of how many credit or loan applications a consumer makes using inquiries, most of which count against your consumer credit score. On the other hand, business credit does not count numerous applications for financing against you, since businesses usually seek financing on a regular basis as a way to run and grow the business. You are only allowed one personal credit profile. But, you can create and grow as many corporations with corporate credit files as you need. That means you can have multiple corporations with 6-7 figure corporate credit limits. Good business credit is the lifeline of your business. Business credit allows you to have convenience in purchasing. Just by building a business credit profile you will be able to limit the use of your personal guarantee. Good business credit enables you to obtain funding for things like expansion, capital expenditures, research and development, staffing etc. It is the principal contributing factor to your businesses future growth, not to mention the cash necessary for survival. Having established Corporate Credit allows you to respond quickly to time-sensitive requirements, without halting or compromising operations.

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Building Corporate Credit allows you to: • • • • •

Limit your personal liability Eliminate the need for using personal credit Prepare your business for future lending needs Protect your personal assets from any business losses Purchase Real Estate, vehicles, equipment etc. without using personal guarantees

Corporate Credit Saves You Money One of the biggest advantages of having a good business credit profile is saving money. By obtaining a more favorable Paydex score, you will be able to lower the interest you pay on loans and leases. For example: Average or No Paydex Good Score Score Loan Amount

Paydex

$50,000

$50,000

Length Loan

of 10 years

10 years

Interest Rate

11%

8%

Payment

$689.34

$606.64

Total Paid

$82,720.80

$72,796.80

Total savings with good credit $9,924.00

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Corporate Credit V.S. Personal Credit Corporate Credit Personal Credit

• Corporate credit does not show up on personal credit reports.

• All personal loans show up on personal credit reports.

• Inquiries do not affect your paydex score.

• Inquiries hurt your Fico score.

• If set up properly Corporate Credit is not tied to your personal credit or you personally. So you are not held liable for your business's debts and actions.

• Personal credit is tied to you personally that's why it's called (personal) credit. This means if you default on a loan your personal credit is affected.

• $50,000 of corporate credit does not require tax returns or financial statements.

• Requesting a $5,000 personal loan requires recent pay stubs and bank statements etc.

• With Corporate Credit there is no such thing as too much credit.

• With Personal Credit too much credit will lower your Fico score and increase your debt ratio. • Personal credit cards do appear on your personal credit report.

• Corporate Credit cards do not appear on you business credit profile. • If you max out a business line of credit it does not affect your paydex score, or your ability to obtain more financing.

• With personal credit if you go over 50% of the high credit available it will lower your Fico score, and hinder your ability to obtain more financing. 19

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• With business credit there are several financing options that are not available to individuals.

• With personal credit financing is limited to personal loans and credit cards.

• With Corporate Credit the individuals who are responsible for dispersing funds are not responsible for any losses that the business may incur.

• With personal credit the individual is responsible for losses.

• Corporate credit is tax deductible

• With the exception of your home personal credit is not tax deductible. • With personal credit if you ruin your personal credit you have to wait years or go through credit repair before your granted credit again at favorable terms.

• With Corporate Credit if you ruin your corporate credit you can start over again.

And the winner is Corporate Credit!

How Much Corporate Credit Can I Obtain? Most businesses are under the impression that it is better to get as much corporate credit as possible when they are first starting up, but it is extremely important to remember that you must be able to demonstrate your businesses ability to successfully manage the debt in order to maintain a strong business credit rating. Your combined corporate credit profile, including your company assets, financial needs, and the overall state of your business finances should all contribute to the amount of credit that you request and will be considered when a potential creditor decides what they will feel comfortable extending to your business. It is important to anticipate not only your financial needs, but what you can and cannot manage in terms of financial responsibility. 20 Copyright © 2008 Reginald Ringgold

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One way to help determine a manageable credit limit is to predict an amount that is small enough so that you can pay it off in full for at least one month during the year. This demonstrates solid business practice and shows that your finances are under control. If you cannot pay off your business credit cards in full for at least one month during the year, it may be seen as a reflection by the potential lender that your business has initially borrowed too much money in the past year, or that your businesses revenues are not what you expected, or that some other form of financial trouble is affecting your business. But ultimately you can create and grow as many corporations with corporate credit files as you need. That means you can have multiple corporations with 6-7 figure corporate credit limits. So it is unlimited the skies is the limit on how much corporate credit your corporation can obtain but make sure that your corporation has the capacity to service the debt. I recommend if you are going to obtain Corporate Credit for a just in case scenario, which is quite alright because it’s better to be safe than sorry, but if it is for just in case then it is best to obtain a revolving line of credit instead of a loan. This way you avoid paying a payment until you utilize the line of credit. What Kinds of Corporate Credit Are Available? When applying for Corporate Credit it is important to know what kinds of Corporate Credit you are applying for. For example if your business needs $10,000 for a new company car, a $10,000 credit card from Home Depot would not help much. So when applying for Corporate Credit, make sure you know what kind of Corporate Credit you are applying for. There are a few types of Corporate Credit available: Cash Credit, Trade/Vendor Credit, and Leases. Cash Credit- is the credit you get from credit cards- such as Visa, Master Card, and American Express as well as lines of credit or any loans from lending institutions, private investors, venture capitalist etc. Most cash credit is reported to Experian. (More on Experian in the business credit reporting agencies chapter.) Trade/Vendor Credit- is credit from stores such as Office Max, Office Depot, Home Depot, Lowe’s etc. A good way to establish trade references is to ask the suppliers who do business with your company to finance the products, materials etc. that they sell to you. Make it clear to your supplier that your businesses goal is to find a supplier that not only provides a reliable product, but also is willing to defer the receipt of payment until your business sells the products. Most Trade 21 Copyright © 2008 Reginald Ringgold

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credit is reported to D&B. (More on D&B in the business credit reporting agencies chapter.) Leases- there are two types of leases Capital leases and operating leases. In a lease you are paying for the deprecation during the term of use on the equipment. Leases are commonly easier to obtain then loans or other types of credit. Capital leases: A lease that meets one or more of the following criteria, meaning it is classified as a purchase by the lessee: the lease term is greater than 75% of the property's estimated economic life; the lease contains an option to purchase the property for less than fair market value; ownership of the property is transferred to the lessee at the end of the lease term; or the present value of the lease payments exceeds 90% of the fair market value of the property. Operating leases: An operating lease is a lease whose term is short compared to the useful life of the asset or piece of equipment (an airliner, a ship etc.) being leased. An operating lease is commonly used to acquire equipment on a relatively short-term basis. Thus, for example, an aircraft which has an economic life of 25 years may be leased to an airline for 5 years on an operating lease. Your Corporate Credit profile includes a variety of factors about your business, such as the date it was started, the skills and experience of your listed officers, and number of employees and annual sales. This type of information is listed in your business credit profile, along with scores and ratings that are derived from your businesses (“character”) past behavior to predict its future behavior. For example, your ability and willingness to pay your bills on time and in the past is factored into your ability and likelihood of paying your bills in the future. The fact is 97% of all business loan applications are declined, because most business owners apply for loans not knowing the banks underwriting guidelines. But how do you become one of the other 3%, educate yourself know the bank’s lending criteria. Did you know most lenders will decline your application if they cannot find your business name and phone in the 411 directory assistance? Most lenders will decline you if your company does not have a Duns number. Most lenders require your debt coverage ratio to be 5 to 1 or your personal fico score to be 680 and above. Corporate credit is evaluated using the 5 C’s of Corporate Credit.

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5 C's of Corporate Credit 1. Capital: a business must have a stable capital base before a bank will grant a loan. Otherwise the bank would be making, in effect a capital investment in the business. Most banks refuse to make loans that are capital investments because the potential for return is limited strictly to the interest on the loan, and the potential loss would exceed the reward. In fact, the most common reasons that banks give for rejecting a business loan application are undercapitalization and too much debt. The bank expects the business to have the equity base of investment by the owner(s) that will help support the venture during times of financial strain. 2. Capacity: a synonym for capacity is cash flow. The bank must be convinced of the firm's ability to meet its regular financial obligations and to repay the bank loan, and that takes cash. More businesses fail from a lack of cash than from a lack of profit. It is possible for a company to show a profit and still have no cash, and that is to be technically bankrupt. Bankers expect the business loan applicant to pass the test of liquidity, especially, for shortterm loans. The bank studies closely the company's cash flow position to decide whether it meets the capacity required. 3. Collateral: collateral includes any assets the owner pledges to the bank as security for the repayment of the loan if the company defaults on the loan, the bank has the right to sell the collateral and use the proceeds to satisfy the loan. Typically, banks make very few unsecured loans (those not backed by collateral) to business start-ups. Banker’s view the owner’s willingness to pledge collateral (personal or business assets) as an indication of dedication to making a venture a success. A sound business plan improves a banker’s attitude towards a venture. 4. Character: Before approving a loan to a business, the banker must be satisfied with the business owner's character. Evaluation of character frequently is based on intangible factors such as honesty, competence, determination, intelligence, and ability. Although the qualities judged are abstract, the evaluation plays a critical role in the banker's decision. Loan officers know that most businesses fail because of in competent management, so they try to avoid extending loans to high-risk managers.

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The business plan and a polished presentation can go far in convincing the bankers of the owner’s capability. 5. Conditions: The conditions surrounding a loan request also affect the owner’s chance of receiving funds. Banks consider factors relative to the business operation such as potential growth in the market, competition, location, form of ownership, and the loan purpose. Again the owner should provide this relevant information in an organized format in the business plan. Another important condition influencing the banker's decision is the shape of the overall economy, including interest rate levels, inflation rate, and demand for money.

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Chapter 2 Borrowing is in "I not only use all the brains that I have, but all that I can borrow."-Woodrow Wilson

To Borrow, or Not to Borrow? You can build great wealth quickly, if you use the leveraging power of corporate credit. Any person can make millions in a short period of time; first he/she has to know: 1.) Who is ready to lend money 2.) Understand borrowing techniques 3.) Borrowers for investment purposes only ("investment purposes only") 4.) And knows how to put corporate credit to use, while building his/her fortune. If you notice in number 3 I said borrow for investment purposes only. Most people will take out a business loan and then will spend the money on some new clothes, a car, or a vacation. This is not recommended because these things depreciate in value. And they do not bring any return on investment, not to mention the extra costs you will incur on gas, electricity etc. when you borrow for business purposes there is a great chance of earning profit. Unlike that new car or boat that doesn't bring you any profit. So why not borrow did you know the banks borrow your money to make more money. Where do you think you go when you need a loan? To the very bank where your money is deposited!

Once Upon a Time “We should love debt because it offsets taxes and builds credit.” A lot of people may be shocked to hear this statement but it’s true. See back in the day the American dream was to pay off your mortgage free and clear to avoid debt, and save up for a new car to avoid interest. But times have changed people are no longer willing to wait for the things they desire. Instead they would rather borrow the money to enjoy their new car now and make monthly payments to pay off the debt. This also gives them more motivation to work harder to make more money 25 Copyright © 2008 Reginald Ringgold

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to pay the loan off. An added bonus is the interest cost is tax deductible. You can work on the job for 50 years and make only enough money to barely get by, but if you start applying the Smart Money strategies and techniques shown in this book you can build great wealth using corporate credit in a very short period of time. Although the average person gripes about the difficulty of borrowing money, most people never tried for anything more than a car or house. At this end of the market, the competition for dollars is keen. Those who think big, however bring big ideas to the major money sources, they find that there are fewer out stretched hands at the zenith and more of a chance of convincing lenders to open their Purses. Remember money lenders are in the business to lend money that is the only way they profit.

Let’s Get Down to Business When an individual borrows money from a bank or any other source for personal use, you get what is called a “personal loan”. The interest for a personal loan is much higher than the interest on a business or any other loan. Why because there is a greater risk involved to the lender when it makes a personal loan. With personal loans often times a person spends the money on a liability that will cost them even more money on expenses. With business loans there are larger profits for the banks, because often time’s businesses take out larger loans, and larger loans equal a higher return on interest, which equals more profit for the banks. Let's face it banks are in business for profit like any other business. There's also a greater chance in getting their money back because business loans are taken out for business purposes, which bring profit instead of more liabilities. Lenders prefer lending to businesses over individuals, for the simple reason that individuals can only have one income stream, while businesses can have many. So put yourself in the banks shoes if you're a bank or a lending institution, who would you feel more comfortable lending your money to an individual or a business?

John & Robert John is a business owner who is looking for capital to get his pottery business off the ground he consults with a business consultant who advises him that it would be wise of him to either seek a joint venture partner or to apply for a business loan. Since he does not have the corporate credit to qualify for a business loan he has no 26 Copyright © 2008 Reginald Ringgold

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choice but to find a joint partner. A buddy of his named Robert approaches him and says I heard you were in need of some capital to get your business up and running. Robert says how about we enter into a joint venture agreement I put up the financial backing, you make the product, and we split the profits 50-50. So John tells Robert that he will have to talk with his wife and he will get back to him later. When John gets home later that evening he says to his wife Robin, Robert approached me today willing to back the business financially, Robin replies Honey that is wonderful, John responds no it's not I would have to split the Profits with him and I have to do all the work. Well can't you hire somebody to help you and don't you want to get your art out there to the public Robin asked. John says yes but I deserve all the profit it's my idea and my art that I created. Later that evening Robert arrives back home to his wife Daisy, he also lets her know that he offered to provide John with the capital he needed for his business so Daisy asks well honey, what did he say. He did not sound too excited in fact he told me he would get back to me I would hope we could make the right decision because 50% of something is better than 100% of nothing. (To be continued)

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Chapter 3 Leverage “We go to school to learn to work hard for money. I write books and create products that teach people how to have money work hard for them. ” Robert T Kiyosaki

The leverage ratios measure a company's use of borrowed funds in relation to the amount of funds provided by the shareholders or owners. These ratios tell the lender how much money you have borrowed versus what money you and other owners have put into your company. This is important because borrowed money carries interest costs and your business must generate sufficient cash flow to cover the interest and principal amounts due to the lender. Generally speaking, companies with higher debt levels will have higher interest costs to cover each month, so low to moderate leverage is nearly always viewed more favorably by prospective lenders. Definition of leverage Leverage Strategic advantage; power to act effectively; mechanical advantage gained by the lever Leveraging Investing with borrowed money as a way to amplify potential gains. Finance: to borrow money hoping to make more: to borrow money in order to buy a company, relying on it to make enough profit to cover the interest payable on the loan. Leveraging Leveraging your assets An example of leveraging your assets would be to put a mortgage on your home to finance your business. Leveraging capital 29 Copyright © 2008 Reginald Ringgold

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You can leverage your capital to build corporate credit. Did you know instead of putting money directly into your business, you can put money in a C.D. account at your local bank and take out a business loan against it. This will show as a line of credit with the Bank on your Duns Profile (More on Duns Profile in the business credit reporting agencies chapter) and this will build your corporate credit. More importantly you would have comparable credit. So let's say you deposit $50,000 in your bank and borrowed $50,000 against it. The bank will report your payments on the $50,000 and you will not have to worry about them reporting it as a secured account, you can even set it up with automatic payment so that the payments will be made automatically! Then, when you go to the next lender all they see is that you have a $50,000 line of credit with that bank. The bank line shows a great business credit history to Dun & Bradstreet now other credit providers and suppliers, will give you comparable credit of a $50,000 line of credit to buy or lease their products. Leveraging Corporate Credit To leverage Corporate Credit you must have Corporate Credit to leverage, an example of leveraging Corporate Credit would be to do a leveraged buyout (LBO). A LBO is a takeover of a company or controlling interest in a company, using borrowed funds, often using the companies’ own assets as collateral. Another example would be to finance your office building instead of leasing. Now without Corporate Credit none of these things are possible. You would not be in a position to buy your office building, car, or whatever it is you desire. With corporate credit you have leverage and with leverage great things are possible. Remember you can leverage your corporate credit to earn more money as long as your profits exceed your expenses. Leverage Exacts Very Excellent Results Always Gained Effortlessly

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It’s no mystery success is gained effortlessly when you prepare yourself with the knowledge that is needed to succeed. Financing is a very critical part of expanding a small business and in most cases always a very large concern for the owners. Nothing is more important and vital to the growth of a small business than having the right financing in place. With corporate credit you have leverage, and access to the financing you need. Leveraged Buyout: A leveraged buyout (or LBO, or highly-leveraged transaction (HLT), or "bootstrap" transaction) occurs when a financial sponsor gains control of a majority of a target company's equity through the use of borrowed money or debt. A leveraged buyout is a strategy involving the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans, in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.

How to Buy a Business without Cash or Credit (Performing a Leveraged Buyout) When doing a leveraged buyout you must follow the LBO guidelines: 1. 2. 3. 4.

The business must have been in business for at least five years. The business must be incorporated The business must have a Duns rating and a Paydex score of 80 or better. The business must have two years audited financials with record of growth, trained employees, a solid customer base, proper equipment and an established inventory.

If a business meets the criteria, you got the green light. It sounds like something only huge corporations can do, but it simply refers to using the assets and income of the company to secure and pay off the debt.

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Here's how it works: 1. The business costs $1 million. 2. The gross revenue is $2 million per year. 3. The cash flow is $600,000. You can use the business as collateral for the $1 million dollar loan, and the $600,000 net cash flow to repay the loan. You should not have to personally guarantee the loan if you follow the LBO guidelines. The business generates gross income of $165,000 per month, with net income of $50,000. After subtracting $20,000 for the loan payment, you would have $30,000 net profit every month to live on. Could you get used to living on $30,000 per month? The only way to put your financial future in your own hands is through business ownership. A growing business will give you the opportunity to make more money in your sleep or while you’re on vacation that you ever dreamed possible. Owning a business is the best vehicle to accumulate financial independence. It’s better than real estate than the Stock Market etc. For example it is better than real estate because there are a lot of businesses that are for sell with the real estate and all other assets included. So not only are you buying real estate, you’re buying the businesses assets and cash flow. This makes obtaining financing for a business a lot easier than financing the real estate alone. It is much easier to obtain financing on a $10,000,000 business with the real estate included then it is to finance a $500,000 house. Because when you purchase a house you have to prove you make enough money to afford the note. But when you buy an existing business with several years in business and cash flow, there is a proven track record showing that the business has the capacity to service the debt. Buying businesses is better than trading stock because anyone can trade stock. But in order to have your own stock traded on the open stock market you must be in business as a corporation. When the shares of stock go up your profit goes up which means you got in on the ground level of the business when the stock was worth whatever par value you set and when the stock skyrocketed so did your net worth. Also an individual can take the profit from selling shares of stock and reinvest them back into the stock market. In the stock market you risk losing money but when you own a business you only risk not making profit. And if you 32 Copyright © 2008 Reginald Ringgold

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Leverage an existing business with all the inventory and equipment needed to operate your initial investment is minimal. Unlike being an employee owning your own business gives you security. As an employee you never know when the company is going to downsize and lay you off, switch ownership, or file for reorganization. When you own a business you make the decisions and delegate whatever duties and decisions you do not want bother with. It doesn’t make much of a difference what your background is, your experience or what’s in your bank account. Your success is determined on hard you push yourself until you finally purchase that business that puts $20,000, $50,000 or whatever it is you need to live comfortably every month. Don’t listen to those who tell you that it is not a good idea because they either work for someone else or work every day like an overworked employee. The fact is when you buy the right business it does require for you to be there for it to operate. The owners and/or management usually stay on for long term or to help transition. The employee’s stay in place and nothing changes except the ownership and any new ideas you implement. Sellers often spend a lot of time and effort trying to prove to you how much of a great business it is and so on and so forth. But keep in mind that if it such a great business then why are they selling it. Get as much information as you can no matter how time consuming it may be. Buying business can be a daunting task as you navigate through the business buying maze of studying, searching, meeting, negotiating, doing due diligence, renegotiating and closing. But you must do your due diligence so you can make an informed decision to buy and not just make an offer on impulse. Allow yourself the time to fully educate yourself on the business. Add proper contingencies giving you a clear exit strategy to protect your corporation and your deposit. Which brings me to my next point always buy the businesses with a corporation this provides liability protection. As stated in the LBO guidelines the business must be incorporated this allows you to put your existing or new corporation as a Director or listed officer of the corporation. Also corporation can go public and put it shares on the open stock market unlike LLC’S. This is why I do not recommend LLC’s, S.P.’s, and G.P.’s not to mention most of these businesses and their debts are tied to the sellers making it harder to transfer ownership and establish corporate credit since the businesses credit is based on the seller. Keep in mind that every business that you come across will have a few imperfections but do not let this discourage you or keep you from moving forward in your Investigation. Here is an example I am currently in contact on a transportation company in Florida this company has great potential. But from the 33 Copyright © 2008 Reginald Ringgold

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outside looking in it did not appear this way at first glance. The numbers for the previous year dipped compared to the year before and they would not explain why until we flew out to Florida to do a site visit. At first we were skeptical but then we realized we were going against our own rules we hopped on the Jet and flew out to Florida. It was a good thing we did because not only was the facility being under used with the potential to rent out the other units, there was an auto body shop out back to service the buses that was bringing in extra income because they were fixing others business in the area. They were they only shop with a facility that fixes tour buses within a 100 mile radius and there are no more being built in the near future. They had an advertising company that did all their artwork and advertising for the transportation company and other companies in the area. But this was not the best part about the business; the best part was that business was in a lawsuit for 5 million with the manufacturing company of the tour buses. The lawsuit was in their favor because three tour buses caught on fire the previous year. This explained why the businesses numbers dropped compared to the year before. Had we not did our due diligence we would not have found out all of the positives of the business. So try your hardest to differentiate and separate the difference between the minuet issues and the catastrophes. Follow these guidelines and you’re on your way to success. When I negotiate a deal to buy a business I always get the seller to carry paper of at least 25% of the business. Unless it’s the deal of a century and the seller is not willing to negotiate because of their current situation. I do this for two reasons, when there are assets involved like equipment and real estate it is easier to get a loan against the assets and have the seller carry paper on the unsecured proportion of the business, which is the business itself. If they seller is not willing to carry paper ask why. Because it could be that he does not believe the company can service the debt because of cash flow issues. This could be the reason they’re selling the business in the first place. This brings me to the second reason I make sellers carry paper is because when the seller still has money vested in the deal they will make sure that they do everything in their power to make sure the business is successful. Again do not get discouraged if you do not have a whole lot of money or a wealth of knowledge on buying businesses. Just like realtors, mortgage brokers, and loan officers are there to assist you in the home buying process. There are Business Brokers, Corporate Attorneys, Corporate Accountants, and Business Bankers to assist you in the business buying process. If you have not yet hired a professional team I suggest you do so before you start the business buying process. Trust me the 34 Copyright © 2008 Reginald Ringgold

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money you save from costly mistakes will be much more then the money you pay for the advice and guidance. Remember if you want to become as rich as Bill Gates, you have to remember that it is cheaper to wait for a small company to come up with something good and then buy them. In the old days, antitrust laws kept monopolies from buying potential competitors. But not anymore, When Microsoft products were threatened by network computers and Web-based applications, they simply bought WebTV and Hotmail.

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Chapter 4 The Different Business Entities “If you want to make over $100,000 a year, why are you talking about making money with someone who makes under $100,000 a year? To whom are you listening?” Wade B. Cook

When starting a new business, one of the first decisions a business owner faces is choosing what form of business entity is best for the business. A Corporate Attorney will help with this decision. The fact is most business owners fail to think this through properly and choose a business entity that does not offer many tax benefits or much protection for their personal assets. Unfortunately most business owners operate as a Sole Proprietorship or a Partnership. Though it is true these business entities are easy and less expensive to start than a corporation, a corporation offers more tax benefits and more protection for one’s personal assets. When trying to establish corporate credit I recommend forming a corporation. I do not recommend Sole Props or partnerships because there is no legal distinction between the business and its owners. Which means the business and its owners are one in the same. I do not recommend LLC’S because of charging orders, if an LLC loses a lawsuit instead of a judgment they are hit with a charging order. The members of the LLC can decide not to distribute profits yet still submit a K-1 distribution to the IRS that states the creditors are responsible for the tax obligation of the distribution, even though the profits were never distributed. Most attorneys will advise their clients not to take a lien on distributions. This makes most creditors require a personal guarantee when trying to apply for business loans. Because of charging orders the owner of an LLC will never be able to build a Corporate Credit profile that is separate from their personal credit profile. Again I do not recommend operating as a Sole Proprietorship or a Partnership but for the sake of education I am going to go over all of the different business entities, their advantages and disadvantages, and their comparisons to each other.

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Sole Proprietorships (S.P.’S) One of the most commonly used business entities is a Sole Proprietorship. It is a business that is owned by one owner, there is no legal distinction between the business owner and the business, so the owner is completely liable for every aspect of the business structure. Although a S.P. is the cheapest and easy business entity to set up (because all you have to do is register your business with the city, file your fictitious business name with the county recorder’s office, put up a sign outside and you’re in business as a sole prop). But this business entity does not provide protection for the business owner’s personal assets, and owners receive fewer tax advantages or tax deductions. So as a sole prop business liabilities automatically become personal liabilities. The company’s bills are their bills. If the business is sued successfully, sole proprietors may get a judgment levied against their personal assets. Advantages Ease of Formation: A Sole proprietorship is one of the easiest business entities to from. It only requires a business license and a DBA filed with state. Pass-through tax treatment: All the profits flow directly through the individual who reports the profits on their personal tax return. This makes things a lot easier because only one tax return is involved instead of two separate ones. Less Upkeep and Paper work: There are fewer formalities to keep track of, no meeting to conduct, and no formal documents to draft up or file except a business license and DBA. Disadvantages Personal Liability: The business owner is responsible for all the debts and obligations of the business, as well as any judgments against the business. This means your personal assets are not protected in the event of a lawsuit against the business. Lack of Continuity: When the business owner dies or for whatever reason is unable the run the business the business dies or languishes. The heir’s or successors can only sell the assets of the business and not the business itself. 38 Copyright © 2008 Reginald Ringgold

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Harder to attract funding and money from investors: A S.P. is not attractive to investors because in the event of a lawsuit, it does not provide much protection for the owner’s personal assets, or the investor’s investment. A S.P. cannot raise capital through offering its stock to the public on the open stock market, because it has no shares of stock. Raising capital is all ways caped off at a very limited amount. This is because most lending institutions don’t want to deal with risk and liability of lending money to a high risk business entity. Most Sole Props are funded by the business owners own funds, which makes them an even greater risk because in the event the business fails the business owners have more to lose. Bigger profits means bigger problems: When a S.P. starts to make more profit it will be taxed at a personal tax rate which is usually higher than the corporate tax rate. Harder to sell: It is harder to sell a S.P. since the value of the business is based on the owner and not the business. General Partnerships (G.P.’S) A partnership consists of two or more individuals or entities coming together for the purpose of conducting a business. Though it is recommended to have an agreement that explains the terms of the partnership, no formal documents are needed to establish a partnership. Some states require registration. Just like a S.P. a partnership has pass-through tax treatment, all the profits flow directly through the individuals who report the profits on their personal tax returns. Partnerships just like any other entity are required to get a tax payer identification number. Though this structure is simple and requires few formalities, partnerships have the greatest risk involved because the partners are responsible for the actions and decisions made by any one of the other partners, even if it was not authorized by all of the partners. So in other words you are responsible and could lose everything you worked so hard for because of someone else’s mistakes and actions. I do not recommend this entity for building business credit. Advantages Ease of Formation: Just like a S.P. a G.P. is a very easy business entity to from. It only requires a business license and a DBA filed with state and a partnership agreement, depending on the state. (If you are going to form a partnership I recommend you draft up a partnership agreement). 39 Copyright © 2008 Reginald Ringgold

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Pass-through tax treatment: All the profits flow directly the through the partners who report the profits on their personal tax returns. Less Upkeep and Paper work: There are fewer formalities to keep track of, no meeting to conduct, and no formal documents to draft up or file except a business license, DBA statement, and a partnership agreement. Disadvantages Personal Liability: The business owners are responsible for all the debts and obligations of the business, as well as any judgments against the business. This means your personal assets are not protected in the event of a lawsuit against the business. Lack of Continuity: If one of the partners dies or retires the partnership is usually dissolved and is no longer valid. Harder to attract funding and money from investors: A G.P. is not attractive to investors because in the event of a lawsuit, it does not provide much protection for the owner’s personal assets, or the investor’s investment. A G.P. cannot raise capital through offering its stock to the public on the open stock market, because it has no shares of stock. Raising capital is all ways caped off at a very limited amount. This is because most lending institutions don’t want to deal with risk and liability of lending money to a high risk business entity. Most Partnerships are funded by the business owners own funds, which makes them an even greater risk because in the event the business fails the business owners have more to lose. Bigger profits means bigger problems: When a G.P. starts to make more profit the business owners will be taxed at a personal tax rate, which is usually higher than the corporate tax rate. Harder to sell: It is harder to sell a G.P. since the value of the business is based on the owners and not the business. Unilateral Decision Making: Each individual owner is responsible for all decisions made by any one of the other owners, even if it was not authorized by all of the partners.

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Limited Partnerships (L.P.’S) A L.P. has the same basic features as a G.P., except for one very significant difference. L.P.’S by definition have one or more limited partners, who generally have neither liability for business activities nor management responsibilities unless otherwise agreed upon. L.P.’S have one or more General Partners who have the same rights, responsibilities, and status as the limited partners do in G.P.’S. L.P.’S are required to have at least one general partner and one limited partner. I do not recommend L.P.’S because the general partner takes on all the managerial responsibility and liability of the partnership. So there is no personal asset protection provided for the general partner. The limited partners who are merely passive investors do not have managerial powers, and they are only liable for the amount they have invested in the partnership. Since the Limited Partners have no managerial powers they have no control over whether the business fails or succeeds. If a Limited Partner participates in the businesses day-to-day activities they risk losing their limited liability protection. There is also Family Limited Partnerships (F.L.P’s) serve the same purpose as the L.P. except all partners of the partnership are family members. Then there is the Limited Liability Partnership (L.L.P) the L.L.P serves the same purpose except all partners are Limited Partners. Unlike G.P.’S, L.P.’S must pay state filing fees and obtain a certificate of limited partnership. However in return, the general partners gain the ability to attract investors who would otherwise not have invested in the partnership if they were subject to the same rules and guidelines that the general partner is subject to. Although a Limited partnership is a very effective tool for asset protection and estate planning. I do not recommend this entity for building business credit. Advantages Limited Liability: The Limited Partner is not responsible for the actions and activities of the partnership beyond the amount of their capital contribution or their contribution obligation as long as the limited partner does not become actively involved in the partnerships day to day activities. Pass-through tax treatment: All the profits flow directly through the partners who report the profits on their personal tax returns. Financial Flexibility: A Limited Partnership can take on more limited partners to raise additional capital. 41 Copyright © 2008 Reginald Ringgold

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Provides Asset Protection: A Limited Partnership is a very effective tool for asset protection and estate planning. Disadvantages Personal Liability: The general partners are responsible for all the debts and obligations of the business, as well as any judgments against the partnership. Lack of Control for the Limited Partners: The limited partners are legally required not to participate in the management of the business. If they do participate, they risk losing their limited liability protection. Bigger profits means bigger problems: When a L.P. starts to make more profit the business owners will be taxed at a personal tax rate, which is usually higher than the corporate tax rate. Limited Liability Companies (LLC’S) An LLC is a legal entity separate and distinct from its owners, who are called "members.", these members may be individuals, partnerships, corporations, or trusts, etc. An LLC is a hybrid between a corporation, which has shareholders, and partnerships, in which the partners own the company but don't have shares. In an LLC, the owners of the company receive units, not shares, and the rights, duties and obligations of LLC members are governed by an "operating agreement." You can compare an operating agreement to the bylaws of a corporation. An LLC is like a LP except it does not require one general partner. The liability is limited to the capital that members have invested in the company. While LLCs have some formalities they must follow, the rules and requirements are not generally as strict or burdensome as the formalities that corporations must follow. For example, the laws do not generally require LLC's to have any annual meetings (although some LLC operating agreements require meetings - but that’s a choice you make at the time you are organizing your company). However, it is a good idea for LLC's to have periodic meetings of its members and managers to discuss significant business matters. At these meetings, it is also a good idea to have a secretary keep written records of what took place, including any votes (i.e., there should be minutes of the meeting). Most states do require some type of filing by the LLC, so you should check the law of the state your LLC is organized in, as well as any foreign states in which you have qualified your company. One of the disadvantages 42 Copyright © 2008 Reginald Ringgold

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of a LLC is if a member dies or for whatever reason no longer wants to be a part of the LLC, the LLC is dissolved. For tax purposes LLC’S are similar to SP’S, GP’S, LP’S, S-Corps, and Trusts. An LLC has the option to have pass-through tax treatment or to be taxed as a corporation. But if the LLC chooses to have passthrough tax treatment and it fails to follow the formalities the LLC will be taxed at a much higher corporate tax rate. Unlike a C corporation, no losses can be carried forward into future tax years and an LLC cannot keep retained earnings, meaning that it must distribute the profits or losses to its members every tax year. An LLC has perpetual life in most states but in others they are limited to no more than 30 years. I do not recommend LLC’S because of Charging Orders. If an LLC loses a lawsuit the members can decide not to distribute profits yet still report a K-1 distribution to the IRS, even if the creditors have not received a dime they will still have to pay taxes to the IRS. The benefit to you is most lawyers will not have their clients accept a lien on distributions because of the potential tax issues, so in most cases you will rarely be hit with a charging order. And for this reason most creditors will always require a personal guarantee. This makes it virtually impossible for the LLC to ever establish corporate credit without a personal guarantee. Here is the LLC Chain of Command Structure: Members- are similar to shareholders in a corporate structure. They are the owners of the company. They do not possess any power in daily decisions. Managers- create the long and short-term policies and goals. They appoint and remove management, and are not involved in daily activities. Management- hires and fires employees and supervises daily operations. Employees- perform the day-to-day operations and carry out all the policies of the company.

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The Structure of LLC’S LLC’S are made up a few key documents. These documents determine the laws, guidelines, procedures and format of how a LLC is put together, operated and dissolved. These documents are: State Statutes- Are laws that are developed by each state that governs how an LLC can operate within their state. Articles of Organization- Is an equivalent to a corporations articles of incorporation, an LLC must file the articles of organization with the secretary of state to begin existence. On the following page is an Example of an Articles of Organization form:

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Articles of Organization I The name of this Limited Liability Company is Corporate Credit Association LLC. II The purpose of this Limited Liability Company is to engage in any lawful act or activity for which a Limited Liability Company may be organized under the BEVERLY-KILLEA Limited Liability Company act. III The name and address in the State of California of this Limited Liability Companies initial agent for service of process is: Name: Reginald Ringgold Address: 2333 San Ramon Valley Blvd. City: San Ramon

State: CALIFORNIA

Zip: 94583

IV This Limited Liability Company will be managed by All Limited Liability Company Member(s)

Signature of Organizer

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Operating Agreement- is an agreement, similar to a corporation's bylaws, among the LLC'S members, which govern the LLC'S operations and the rights of its members. Member List- is required for all LLC’S; it is an annual list of Members that must be filed with the Secretary of State indicating the names of the Members of the LLC. Certificate of Ownership- is the LLC’S paper that represents the percentage of ownership by the members of the company. Advantages Less Formalities: While LLC's have some formalities they must follow, the rules and requirements are not generally as strict or burdensome as the formalities that corporations must follow. Pass-through tax treatment: An LLC has the option to have all the profits flow directly the through its members, or to be taxed as corporation. Charging Orders: Because of the tax issues involved most attorneys will not have their clients accept a lien on distributions. So in the event the LLC loses a lawsuit they in most case will not be hit with a charging and if they are, they can choose not distribute the assets but still hold the creditor responsible for the taxes. Limited Liability: The members are not responsible for the actions and activities of the LLC beyond the amount of their capital contribution or their contribution obligation. No Limitations on ownership: There are no limitations on the type or number of members. Unlike S-Corps that are limited to no more than 75 share holders and all owners must be U.S. Citizens or resident aliens. Disadvantages Charging Orders If an LLC loses a lawsuit instead of a judgment they are hit with a charging order. The members of the LLC can decide not to distribute profits yet still submit a K-1 distribution to the IRS that states the creditors are responsible for the tax obligation 46 Copyright © 2008 Reginald Ringgold

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of the distribution, even though the profits were never distributed. Most attorneys will advise their clients not to take a lien on distributions. Because of charging orders the owner of an LLC will never be able to build Corporate Credit without a personal guarantee. Federal Security Limitations: This is by far the biggest disadvantage of a LLC. The LLC is only available to privately owned companies. In order for a company to go public (IPO), it would have to be a C-Corp. The Company can easily be dissolved: An LLC has perpetual life in most states but in others they are limited to no more than 30 years. And if a member dies or for whatever reason no longer wants to be a part of the company, the LLC is dissolved. Loss of Pass-Through Tax Treatment: If a LLC does not follow the proper formalities and it loses its pass-through tax treatment it will be double taxed at a higher corporate tax rate. Unresolved Taxation Issues at the State Level: Some states require the LLC to pay income or franchise tax. Limited Case studies: Case law backing up the concept is limited. Corporations What is a corporation? “Black Laws dictionary defines a Corporation as: an artificial person a legal entity created by or under the laws of a state or nation, composed, in some rare instances, of a single person and his successors, being incumbents of a particular office, but ordinarily consisting of an association of numerous individuals, who subsists as a body political under a special denomination, which is regarded in law as having a personality and existence distinct from that of its several members, and which is by the same authority, vested with the capacity of continuous succession, irrespective of changes in its membership, either in perpetuity or for a limited term of years, and of acting as unit or single individual in matters relating to the common purpose of the Association, within the scope of the powers and the authorities conferred upon such bodies by law. A franchise possessed by one or more individuals, who subsist as a body political, under a special denomination, and are vested by the 47 Copyright © 2008 Reginald Ringgold

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policy of the law with the capacity of perpetual succession, and of acting in several respects, however numerous the associations may be, as a single individual.” A corporation is a legal person. It has its own “birth certificate,” called a corporate charter, and its own “Social Security number,” called an Employer Identification Number. A corporation can buy real estate and other businesses, and it can have credit. A corporation can even have offspring, in the form of divisions. Corporations are the most commonly used entity for conducting business. A corporation is a separate and distinct legal entity. This means that a corporation can open a bank account, own property sign binding contracts, pay taxes, have certain constitutional rights, do business under its own name, and otherwise participate in society. Corporations issue shares of stock to individuals supplying ownership capital and it issues bonds to individuals lending money to the corporation. The primary advantage of a corporation is that stockholders or shareholders are not personally liable for the debts and liabilities of the corporation. For example, if a corporation looses a lawsuit, and is forced into bankruptcy, the owners will not be required to pay the debt with their own money. If the assets of the corporation are not enough to cover the debts, the creditors cannot go after the stockholders, directors or officers of the corporation to recover any shortfall. A board of directors manages a corporation, which is responsible for making major business decisions and overseeing the general affairs of the corporation. Like representatives in Congress, the stockholders of the corporation elect directors. Officers are appointed by the board of directors to supervise management. The only thing a corporation cannot do is think, walk, talk, vote or act for itself. This is where the owners come into play. A corporation can only act through its people, and those people are its members, officers, shareholders, or agents. A corporation cannot have knowledge or belief independent of the knowledge or belief of its members. A corporation is a citizen of the state where it was formed and does not cease to be a citizen of the state where it was formed by engaging in business or acquiring property in another state. A corporation’s power is derived from the laws and constitutions of the state in which it was formed. Corporations receive many tax benefits that are not available to most of the other entities, such as tax deductions for group accident, health, and retirement plans.

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C-Corporation A C-Corp give provides the most flexibility and still provides limited liability protection for the officers, shareholders, director’s etc. this protection creates the corporate veil. A C-Corp allows unlimited number of shareholders that can live anywhere in the world and be any type of entity. It provides numerous tax benefits that most of the other entities do not provide. In most cases with the proper corporate structure C-Corps pay less tax then individuals. The profits from a CCorp are taxed at corporate rates on an 1120 tax return that is separate from the individual tax returns of the shareholders. Profits from a C-Corp can be kept as retained earnings or distributed to a retirement plan to defer taxes. The ownership of a C-Corp can easily be transferred. The board of directors of a corporation can determine their own “corporate year,” which can be used to defer taxes for up to a year. There are many perks and fringe benefits that are fully deductible; and shareholders do not have to pay self-employment taxes. The flexibility of this corporate structure makes asset protection much easier. The biggest downside to a C-Corp is double taxation. This occurs when the corporation’s profits are taxed initially, then the dividends that are paid out to shareholders are taxed at a personal level. Double taxation can easily be avoided by proper tax planning, retaining the corporation’s profits for future use after they have been taxed on the corporate level, or deferring the corporation’s profits to a retirement plan and not dispersing them to the shareholders is a good way to avoid double taxation. The biggest advantage of a C-Corp is this entity can deduct any business related expense thus lowering the tax liability for the shareholders. (So as long as that new car was for business purposes or that night at the stripe club was with a client, or that new dress with the shoes and purse to match was for a business event etc.) Though there are many advantages of a corporation there are some disadvantages as well. Most corporations have many formalities to follow, such as appointing a board of director’s, and holding shareholder meetings. If these formalities are not followed or proper records are not kept the corporate veil can be pierced. Ways to reduce or minimize the burden of formalities is to form a Close Corporation. So beside double taxation and formalities C-Corp are the best entity to build corporate credit on I strongly recommend a C-Corp to build Corporate Credit.

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S-Corporations There are several qualifications that the corporation must meet in order to elect S corporation status. A corporation must file a 2533, form with IRS to become classified as an S corporation. The corporation may have no more than 75 shareholders, it may only have individuals, estates or certain trusts as shareholders, it must be a domestic corporation formed in the U.S.A, and it may not have nonresident alien shareholders, and it may only have one class of stock. The biggest advantage of an S-Corp is pass-through tax treatment all the profits flow directly the through the shareholders, so there is no double taxation. The S-Corp provides limited liability for its shareholders. S-Corps can own subsidiaries. S-Corps must conform to state statutory restrictions, which limit the transfer of shares and owner of the corporation. Companies expecting start-up losses, or companies that do not expect to issue multiple classes of stock, or do not intend to go public should elect S-Corp status. All the profits of an S-Corp are taxed even if the profits are not distributed. An S-Corp requires full disclosure of corporate owners. S-Corps are subject to the same formalities that C-Corps are subject to. It is possible to avoid burdensome formalities by opting to become a Close Corporation. Close Corporation Under California law if a corporation has 35 shareholders or less the shareholders can elect to be “Close” Corporation. A Close Corp is formed when the articles of incorporation state that the corporation elects to be treated as a close corporation and that there are no more than 35 shareholders. Once a corporation has elected to become a close corporation, the owners can dispense with many of the corporate formalities and govern by shareholder resolution. Close Corps are like G.P’S in a sense that they do not have to adhere to corporate formalities relating to meetings of director’s in connection with the management of its affairs. This structure is good for business owners who struggle to maintain many corporate formalities. One disadvantage the IRS will often disregard the corporation the fact that the corporation is a close corporation and treat the Corp as a partnership for tax purposes and for purposes of piercing the corporate veil. Due to uncertainty of corporate benefits, tax treatment and limited liability, the Close Corp is not the ideal business structure because of unfavorable treatment by the IRS and other federal agencies.

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Professional Corporation A professional corporation is a special kind of corporation that only members of certain professions, such as lawyers, doctors and other healthcare workers, can create. By forming a professional corporation, professionals can limit their personal liability for the malpractice of their associates.

International Business Corporation (IBC) The term international business corporation or IBC refers to a corporation formed in an offshore financial jurisdiction, which is afforded certain tax advantages and protection as to the disclosure of its beneficial owner. Depending on the offshore financial jurisdiction, shareholders of the IBC may remain confidential through the use of bearer shares. Just as with U.S. corporations, the same person may act as a shareholder, director, president, agent, or as any other officer within the company. Generally, however, the beneficial owner(s) will appoint resident officers and directors for the IBC. Typically an IBC is authorized to do business anywhere in the world except in its home country where it was incorporated. The IBC may purchase real estate, cars, businesses, etc. The beneficial owner may act as an agent of the IBC to purchase assets on its behalf. By this means, assets are held under a corporate name, thereby helping to protect the beneficial owner's privacy.

Not-for-profit or Non-Profit Corporation A nonprofit corporation is a corporation formed to carry out a charitable, educational, religious, literary or scientific purpose. A nonprofit corporation doesn't pay federal or state income taxes on profits it makes from activities in which it engages to carry out its objectives. This is because the IRS and state tax agencies believe that the benefits the public derives from these organizations' activities entitle them to a special tax-exempt status. The most common federal tax exemption for nonprofits comes from Section 501(c)(3) of the Internal Revenue Code, which is why nonprofits are sometimes called 501(c)(3) corporations. What are the benefits of forming a nonprofit corporation?

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Nonprofit corporations enjoy an exemption from corporate income taxes on profits from activities that are related to their organizational purpose. Also, a nonprofit is permitted to raise funds by receiving public and private grant money and donations from individuals and companies. (And the tax laws encourage people and businesses to donate money and property by allowing donors to deduct their contributions on their own tax returns.) Finally, structuring an organization as a nonprofit corporation protects its directors, officers and members from personal liability for the corporation's debts and liabilities. How do I form a nonprofit corporation? There are several steps you must take to create a nonprofit corporation. The first is filing the "articles of incorporation," with the corporations division of your state government. To do this, you'll have to pay a filing fee of $30 or so. After you file your articles, you must apply for state and federal income tax exemptions (the most common federal tax exemption comes from Section 501(c)(3) of the Internal Revenue Code), which require you to complete a fairly lengthy set of forms. You must also write "corporate bylaws," a document that sets out the rules that govern your corporation, including procedures for making major business decisions, voting rights and other important guidelines. Finally, before you start doing business, you must elect a board of directors and hold an initial meeting of the board. Is it difficult to run a nonprofit corporation? Although operating a nonprofit corporation requires some attention to detail, as long as you understand and follow some basic rules, you'll be fine. The first rule is to hold required meetings of directors and members and to keep minutes of these meetings in a corporate records book. The IRS also has a thing or two to say about what a nonprofit can and cannot do. For instance, a nonprofit cannot make political lobbying (influencing legislation) a substantial part of its total activities, and a nonprofit must make sure that its activities don't personally benefit its directors, officers or members.

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Shelf Corporations A shelf corporation, also called Aged Corporation, is a C, S, Professional, NonProfit, or Close Corporation that has had no activity. It was created and put on the "shelf" to age. This corporation is then later usually sold to someone who would prefer to have an aged corporation rather than a new one. A business entity that is created through a process other than incorporation (such as a limited liability company) is simply called a shelf company. Common reasons for buying a shelf corporation include: Saving the time involved in taking the steps to create a new corporation. Gaining the opportunity to bid on government contracts. Some states require that your company be in business for a certain length of time. • • •

Creating an appearance of corporate longevity. Access to investment capital. Easier access to corporate credit.

If you decide to purchase a Shelf Corporation to expedite the Corporate Credit process make sure it comes with the following: • 2 year history • All Corporate Formalities must be kept. • Free of any judgments or liens. Lenders look at a number of factors. You need a corporation that has: § § §

Two years in existence or more A Business profile with Dun & Bradstreet and Smart Business Report No judgments or liens.

If any of the above items are missing, you will not be able to use your corporation to your best advantage.

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Example Let’s say you buy a five-year-old shelf corporation. You get an EIN number, all the proper licenses (business license, seller permits, etc.), an office and 4-1-1 listing. You call D&B and get a Duns number, and then they sell you their credit builder. They tell you that you have to add three trade references that are registered with D&B. Finally you get your three trade references and D&B notifies you that they are doing an investigation on your company. You get a phone call from the D&B investigator and he asks you the following question: “Your corporation states that it’s been in business for five years, but when we looked up your business license and contacted the County Recorder’s Office, they claim you have been in business for less than one year. Where have you been for the last four years?” Then they ask you to provide proof that you’ve been in business for the past five years. When you can’t provide it, they put in your D&B file that you have been in business for less than one year, not the five years you claimed. Now the Shelf Corp was ineffective just a waste of time and money. What do you do now? Answer: You need a shelf that has all of the proper documentation to coincide with the years that it has been on the shelf. Pay the past years licensing fees Depending on the city you’re in, you can file for a business license for the shelf corporation and pay to back date the license to the date of Incorporation. Be prepared to pay for each year you are back dating the business License. Just tell the clerk at the county recorder’s office that “you started your business sum years back, and you didn’t bring in any profit until recently, because you were training, getting licensed, certified etc. Whatever works best for your line of work. Although Shelf Corporations are a great way to speed up the process of Corporate Credit, Leveraged Buyouts are another way to expedite the corporate credit process they do not require much out of pocket. And after the Leveraged Buyout is complete you are left with assets and a cash flowing business. And if you follow 54 Copyright © 2008 Reginald Ringgold

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the L.B.O guidelines this business should not only give you all the benefits of a shelf corporation, plus cash flow every month. The only downside to this option is the L.B.O process takes a while to complete. If you are looking for the fastest way possible to expedite the corporate credit process, then a Shelf Corporation might be the way to go for you. But remember there are a lot of scam artist out there. So before you purchase a Shelf Corporation make sure it has all the items listed above. There are several other entities available to business owners and since I do not recommend them for building Corporate Credit I am not going to discuss them. But in the end I recommend a Corporation for building Corporate Credit. Here is the Corporate Chain of Command Structure: Shareholders- (also called stockholders) are the owners of a corporation. As such, the board of directors and the officers of the company owe a fiduciary Duty to the shareholders to do what is in their best interest. Specific shareholder rights are outlined in company bylaws and in state law. Though specific duties and reporting practices vary from state to state, the shareholders generally vote on the president, the election of the board of directors and any major changes in the composition or organization of the corporation. They do not possess any power in daily decision making. Directors- are elected by the shareholders to serve one year terms. They create the long and short-term goals and policies for the corporation. They are also responsible for appointing and removing officers. Officers- are appointed by the board of directors to supervise management. Corporate officers typically consist of the president, vice president, treasurer and secretary. Optionally, there may be additional positions. Many states allow one person to hold all of the offices. The authority and responsibilities of each officer are outlined in the corporate bylaws. The President Is usually elected by the Board of Directors and is responsible for carrying out the orders issued by the Board of Directors. The Treasurer Although the Board of Directors will most likely dictate actual financial policies,

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it is the duty of the treasurer to manage corporate bank accounts, and record corporate finances. The Secretary Is generally responsible for maintaining and keeping corporate records. Management- hires and fires employees and supervises daily operations. Employees- perform the day-to-day operations and carry out all the policies of the corporation. The Structure of Corporations Corporations are made up a few key documents. These documents determine the laws, guidelines, procedures and format of how a corporation is put together, operated and dissolved. These documents are: Corporate Formalities Corporate Formalities are formal actions that must be performed in order to maintain the protection that a corporation provides to personal assets of its directors, officers and shareholders. As part of these corporate formalities, you must maintain your corporate funds separate and apart from your personal funds, hold annual and, as needed, special Board of Directors' meetings and shareholders' meetings to approve transactions entered into by your corporation, write and maintain adequate corporate minutes of the meetings (or written consents in lieu of the meetings), execute and maintain written agreements of transactions such as real estate leases, insider loans, executive employment agreements and benefit plans entered into by the corporation. Failure to observe corporate formalities helps the creditors, other plaintiffs and the IRS to pierce the corporate veil during a lawsuit or an IRS audit, rendering your personal assets at risk. Your corporate records can be kept simple; they just need to be done. Important Corporate Formalities • • • •

Annual meetings and minutes Annual fee to the state Annual filings Resident agent 56

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• • • •

Maintain a distinction between corporate assets and personal assets Separate bank account Separate tax return Avoid undercapitalization

Corporate Records Book A corporate records book is the place to keep important corporate papers all in one place, including Articles of Incorporation, Bylaws, meeting minutes, stock ledger, stock certificates, stock certificate stubs, and stock transfer documents. The corporate records book should be maintained. You may want to purchase a "corporate kit" from one of several companies, although most office supply stores carry the items included in a corporate kit. A corporate kit generally includes a corporate records binder (either with or without embossed corporate name); customized stock certificates; index dividers for Articles of Incorporation, Bylaws, minutes & meetings, resolutions, stock certificates, List of Officers; share register; stock transfer ledger; corporate seal; and instructions for use. State Statutes- Are laws that are developed by each state that governs how a Corporation can operate within their state. Articles of Incorporation- Are the documents that are filed with the Secretary of State in order to form a corporation. They are the primary legal document of a corporation and serve as a corporation's constitution. After approving the articles, the state issues a Certificate of Incorporation the two documents together become the Charter of Incorporation. Articles of incorporation contain: • • • • • • • •

The name of your corporation The corporation's address Period of existence Purpose and power of the corporation Authorized number of shares Classes of stock A "registered agent" (a person who agrees to receive legal papers on behalf of the corporation), and sometimes The names of the corporation's directors 57

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•

And other conditions of operation

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The following is an Example of an Articles of Incorporation form:

Articles of Incorporation I The name of this corporation is Corporate Credit Association Inc. II The purpose of this corporation is to engage in any lawful activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III The name and address in the State of California of this corporation’s initial agent for service of process is: Name: Reginald Ringgold Address: 2333 San Ramon Valley Blvd. City: San Ramon

State: CALIFORNIA

Zip: 94583

IV This corporation is authorized to issue only one class of shares of stock; and the total number of shares which this corporation is authorized to issue is: 1,000,000 shares with a par value of $1.00 per share.

Incorporator

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Corporate Bylaws The bylaws of a corporation contain the rules and procedures that govern the rights and powers of shareholders, directors, and officers. Most lawyers have a prepared "standard" set of template bylaws that may be modified to meet your company's specific requirements. The bylaws are typically adopted by the incorporator or by the board of directors in the organizational meeting or the written consent in place of the organizational meeting. This organizational meeting or written consent is the first action taken by the board of directors in connection with the formation of the corporation. The bylaws cover the following: •

The size of the board of directors

•

When and how board meetings are called (including notice)

•

When and how shareholder meetings are called (including notice)

•

Duties and responsibilities of directors and officers

•

Procedures for exercising voting rights

•

Regulation of the transfer of corporate stock

•

Indemnification obligations for officers, directors, and agents, where indemnification refers to protection from lawsuits and claims

•

The company's fiscal year

•

General corporate matters

Bylaws generally may be adopted, amended, or repealed by the Board of Directors or by a vote of the shareholders; and the bylaws may limit the Board's powers in this respect. Bylaws are more flexible than the articles of incorporation because they are easier to amend. Bylaws are a private document not filed with any state authority. Each state has some form of a Business Corporation Act that governs the lawful operation of corporations and other business entities. If your bylaws do not cover the basic requirement for operation and management of your corporation, by default the statutes within your chosen state's Business Corporation Act will. Keep this in mind when crafting your company's bylaws. It is always a good idea to contact a lawyer with specific, and relevant, experience to help. 60 Copyright © 2008 Reginald Ringgold

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List of Officers and Directors Once the Articles of Incorporation have been filed with the Secretary of State, You must file the List of Officers & Directors by the first day of the second month of incorporation. Every year following that, you must file a current List of Officers & Directors for your corporation. After your business has been incorporated make sure you file your list of officers with the secretary of state in the state where you’re incorporated. The secretary of state will mail this list to your resident agent to the address that was used for the corporation’s resident office for you to fill out and send back to them, you can also fill it out online at the secretary of state’s website. This list should include the name and address of the president, secretary, treasurer, and directors of the corporation. The List of Officers is public record this is why using a nominee officer for the List of Officers is a good idea. Remember this list must be sent in no later than 90 days from the date of incorporation. Note: (Some states have different names for their officers list, for example in California this list is called a Statement of Information for corporations and a Statement of Organization for an LLC. Stock Ledger The stock ledger allows you to keep an accurate record of stock transactions for your corporation, and is an essential element of a corporate records book. A stock ledger is generally included as part of a corporate records kit, and should be maintained in the corporate records book. Any transaction regarding shares of your corporation, whether initial issuance of shares or any subsequent transfer, must be entered in the stock ledger. The stock ledger is also referred to as a stock transfer ledger or a corporate stock ledger. Information Recorded in Stock Ledger The following information is recorded in the stock ledger for each stock transaction: •

Stock certificate number;

•

Shareholder name; 61

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•

Full address of shareholder;

•

Number of shares;

•

Class of shares;

•

Date of purchase;

•

Consideration (monetary value).

Stock Certificates- are the corporation’s paper that represents the number of shares owned by the shareholder written on the Certificate. Minutes & Meetings The Directors and stockholders must provide minutes for meetings that were taken down by the secretary as the meeting progressed. Resolutions After the Articles of Incorporation have been filed and the Bylaws created, the first organizational meeting of your corporation will take place, at which time the Bylaws will be adopted and approved. Also at this meeting, the incorporation process will be completed by adopting the initial corporate resolutions. By the time of the first meeting of the Board of Directors, if necessary, an Action of Incorporator will have been signed, adopting the Bylaws and electing the Directors of your corporation. The Board of Directors holds its first meeting to take certain actions to complete the organization of the corporation. These actions are taken in the form of resolutions, a list of which is stated below. List of Potential Resolutions for First Meeting of the Board of Directors •

Approval of Agent for Service of Process

•

Approval of Bylaws

•

Appointment of Directors

•

Election of Officers

•

Adoption of Corporate Seal

•

Adoption of Stock Certificate Form

•

Selection of Corporate Tax Year 62

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•

Establish Principal Executive Office

•

Secure Federal and State Employer Identification Numbers

•

Select Time(s) for Board of Directors Meetings

•

Select Time for Annual Meeting of Shareholders

•

Authorize Treasurer to Open and Use Accounts

•

Authorize Corporate Account and Designate Authorized Signer

•

Payment of Expenses of Incorporation

•

Securities Law Compliance

•

Filing of Any State-Required Forms

•

Optional Qualification of Stock under IRC §1244

•

Optional Election of S Corporation Status

•

Authorize Issuance of Shares of Stock

•

Omnibus Resolutions

In corporate matters, meetings must be properly noticed, meaning that persons required to attend those meetings must be given suitable notice that a meeting at which their attendance is required will be taking place. In the case of your corporation's First Meeting of the Board of Directors, it's assumed that Board members are aware of a meeting taking place, and that proper written notice won't be provided. As a result, the first, or initial board meeting, is different from all others. It's customary to use a Waiver of Notice and Consent to Holding Meeting of Board of Directors. The Directors should sign this waiver, which will be placed in the corporate records book. It is also possible to conduct initial Board actions by unanimous written consent without an initial meeting. If that procedure is followed, then a document entitled Action by Unanimous Written Consent of Board of Directors in Lieu of Organizational Meeting will be signed by the Directors and placed in the corporate records book. Whether the initial meeting of the Board of Directors is undertaken by unanimous written consent or by an actual meeting with Waiver of Notice, the Directors must take certain organizational actions. These actions are taken in the form of resolutions adopted by Directors at the initial meeting, which relate to the formation of your corporation. Some of the items included in the organizational 63 Copyright © 2008 Reginald Ringgold

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resolutions may also be included in your corporation's Bylaws. Future meetings of the Board of Directors will also require corporate resolutions, such as authorizing agreements, authorizing expenditures, appointing new officers, and other important acts. Annual Meetings The Board of Directors is typically required to have an annual meeting pursuant to the Bylaws, but is likely to have meetings more often than that. Regular meetings of the Board typically take place monthly or quarterly, and are specified in the Bylaws. Special meetings may be held when necessary but may only be held upon proper notice; generally at least two days' notice is required. Some of the actions that may be necessary or desirable for Board approval include the following: •

Amending the Articles of Incorporation or Bylaws (unless only shareholders are allowed to amend pursuant to Articles of Incorporation or Bylaws);

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Entering into major contracts, leases, or other obligations;

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Adopting a stock option plan;

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Borrowing significant sums and providing the security for the loans;

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Declaring distributions, dividends, or stock splits;

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Issuing securities and granting warrants, options, or other rights to purchase securities;

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Entering into Employment Agreements with key employees;

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Electing officers of the corporation and setting or changing their compensation and terms of employment;

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Adopting or amending employee benefit plans;

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Calling shareholders' meetings;

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Buying or selling significant assets; and

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Adopting company policies.

Director Action by Consent It is acknowledged that there may be instances where it is difficult for directors to physically attend required meetings. Similar to shareholder meetings, the Board of Directors may also conduct business by unanimous consent without holding a 64 Copyright © 2008 Reginald Ringgold

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meeting. Check your state's corporation statute for procedural requirements for unanimous written consent of directors without holding a meeting. This authorization for action by unanimous written consent is also typically included in the Bylaws. Voting Corporate Bylaws should address quorum and voting requirements. Voting requirements may also be addressed in the Articles of Incorporation. State corporation statutes will also address issues of quorum and voting requirements. Quorum Most states permit a Board of Directors to consist of "one or more directors." It is a good idea to have an uneven number of Directors for voting purposes. The number of directors is either stated in the Articles of Incorporation or in the Bylaws. When there is a fixed number of board members, a quorum exists whenever a majority of that number is present, except when a supermajority is required for certain matters. Supermajority A supermajority is a requirement greater than a simple majority, which is more than fifty percent. Certain substantial corporate actions might require a supermajority requirement. Proxy Voting Directors typically may not vote by proxy, unlike shareholders. Most states allow directors to participate in regular or special meetings by a telephone conference call. Allowing attendance by telephone is an acceptance of the practical reality that not all directors will always be physically available to attend Board meetings. If this practice is to be allowed by your corporation, it should be included in the Bylaws. Minutes and Written Consent The actions taken by the Board of Directors at all of its meetings must be reflected in minutes of the meetings. Actions taken by written consent will also be reflected in the minutes.

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Issuing Corporate Stock A corporation is owned and controlled by its shareholders. The shareholders make contributions to the corporation in the form of cash, notes, tangible property etc. in exchange for shares of ownership. When stock is sold, a stock certificate needs to be issued. The shares they are given are in proportion to the value of the property they have given. Multiple owners must agree on the value of any contribution that is not cash. Single owners do not have to worry about the value of non-cash contributions since they will receive 100% of the issued shares. In issuing shares to its initial shareholders, the corporation must ensure that it complies with both state and federal securities laws. These laws apply whenever you issue "security," such as common or preferred stock. Typically, the issuance of shares to a small number of founding shareholders qualifies for a "private placement" type of exception from the registration requirements of securities laws. But double-check with your lawyer before you proceed. Any assets put into the corporation will increase the value of the corporation and each share of the corporation’s stock. To determine the value of a corporation you must determine the difference between the corporation’s assets and liabilities, add the value of the goodwill of the corporation then divide that by the number of shares of the corporation’s stock that are issued. In the Articles of Incorporation you must state the number of shares of stock the corporation is authorized to issue and their par value if any. Out of the shares that the corporation is authorized to issued the corporations directors then decide how many shares they will issue. A corporation can authorize 1,000,000 shares of stock to be issued and only issue 1 share of stock and this would make up 100 percent of the ownership of the corporation since the other 999,999 shares have not been issued. This is because a corporation’s ownership is based on the number of shares of stock that have been issued.

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Types of Stock Common Stock Common stock indicates shares that are in a corporation and that have no preferences or priorities over other classes of stock. The rights to distributions, number of votes per share, liquidation rights, and other rights are the same for all shareholders and on a share-by-share basis. Voting Stock This class of stock allows the holder of the shares a voting right for each share. Control of the corporation resides in these shares. Non-Voting Stock These shares are entitled to a portion of the profits, but they represent no control over operations.

Preferred Stock Preferred stock is comprised of shares that give the holders various benefits over the common stock holders. Many professional investors, including venture capitalists, prefer preferred stock to common stock. Preferred stock often offers the following rights: o

A priority on the business's assets upon liquidation

o

A priority on any dividends

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Special voting or veto rights

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The right to force the company to buy back the shares at some point in the future — known as redemption rights

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The right to convert to common stock based on a formula

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Protection against certain stock splits, stock dividends, and future cheap issuances of stock — known as anti-dilution rights

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A possible separate right to elect a designated number of directors

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Cumulative Preferred Stock This stock is a class of stock that carries a guaranteed return. For instance the may pay out a 10 percent annual divided, but if the company does not have good year and there is no profit to pay the 10% divided, the 10% will accumulate into the next year when, the corporation will hopefully make a profit to pay the divided. Convertible preferred stock This stock has a conversion price named at its issuance so that it can be converted to a company's common stock at the set rate. Organization Make sure to keep good records. Plan everything out thoroughly and create and keep the proper documentation. All meetings must be held and documented resolutions, promissory notes, and contracts must be drawn up. Not following corporate formalities and keeping proper documentation can lead to the piercing of the corporate veil. And when the veil is pierced all protection is lost .

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Chapter 5 Incorporating

“A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law.” John Marshall

Why Incorporate? Although incorporating offers many advantages a lot of business owners fail to incorporate because they think that since their business only consist of just them or close friends and family they do not need to incorporate. Unfortunately this can be a business owner’s biggest mistake. Operating as a S.P. or G.P. puts your personal assets at risk in the event the business fails or loses a lawsuit you personal assets are not protected. A corporation is a separate entity, the corporation’s debts and taxes are separate from its shareholders, thus offering personal liability protection. Let me ask you a question would you walk outside in the freezing snow without any clothes on? The answer is no. So why would you operate as a S.P. or a G.P. Every business owner needs personal liability protection for their personal assets. There are 50,000 new lawsuits filed every week with hundreds of millions in rewards. Not only does a corporation provide personal liability protection, it has many tax advantages and is a great tool that can be used to lower your tax liability, and since it has a perpetual life it is also a great tool for estate planning because a corporation is not affected by the death or bankruptcy of a shareholder. But wait it gets better, corporations provide a professional look in the eyes of the public and potential investors making it much easier to obtain capital. A corporation can buy products at wholesale saving the company thousands of dollars. Corporations can also offer shares of stock in the Corp to the public on the open stock market. This is a good way to raise capital that you do not have to payback, you don’t even have to pay interest. All you have to pay is 20% to your investment banker and the rest is profit. A corporation is an artificial person. Its rights, duties and liabilities do not differ from those of a natural person. A Corporation can open a bank account, sign biding contracts, and purchase real estate etc. again the only thing a corporation can’t do is walk, talk, think, and vote. The best part is a corporation will do whatever you tell it to and it will never talk back to you, steal form you or lie to you. 69 Copyright © 2008 Reginald Ringgold

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When Should One Incorporate? If you notice the first step in the 7 steps to success is incorporate. I think a business’s first order of business should be to incorporate. You never know when an angry suppler or a sue happy Suzy client is going to slap your company with a lawsuit. For More information on incorporating your business you can contact us at (888)817-8222 or refer to our website at www.corporatecreditassociation.com Here is an example: Rob & Joey Let’s say Joey and Rob decide to name their pottery business R&J Enterprises. And their first piece of pottery up for sale in their catalog was named R&J’S Masterpiece. Since the business only consist of the two individuals, Joey and Rob decide to from a General Partnership because they saw no need to incorporate because they just looked at a corporation and its annual fees as a way for Uncle Sam to get more money out of them not to mention a bunch of extra paperwork. After all its just pottery they said what is the worst that can happen? This was their biggest mistake. A few months passed after getting their business license, DBA statement, and running the ad in the newspaper. Even though the business had not made a single dime in profits it was hit with a lawsuit. The lawsuit was from a company that had a patent and the rights to the name R&J’S Masterpiece. Neither Joey nor Rob did their due diligence before naming there product and this cost them big. Before they even made a profit and got the business off the ground they were hit with a lawsuit that forced them to shut their doors before they even opened them. Let the story of Joey and Rob be a lesson to all us. A business should incorporate as soon it decides to go into business. You never know what may happen in the future and it is better to be safe than sorry. Besides a corporation has many advantages that S.P.’S G.P.S do not offer.

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Where to Incorporate One of the first decisions a business must make after deciding to incorporate involves selecting the proper state of incorporation. A corporation is not required to incorporate in the state of its operations; however, often the best decision is to incorporate in your home state. Two issues must be weighed to determine the proper state: (1) A dollars and cents analysis comparing the costs of incorporating in the state of operation versus qualifying to do business as a foreign corporation in the state under consideration and (2) Determining the advantages and disadvantages of each state's corporate laws and tax structure. The decision usually falls between the state in which the business is located or in Nevada, Delaware, or Wyoming. If the corporation is a closely held corporation and does business primarily within a single state, a local corporation is typically preferable. The cost of a local incorporation will usually be less than incorporating in another state and qualifying to do business as a foreign corporation in the state. A foreign corporation that qualifies to do business in another state is subject to taxes and annual report fees from both the state of incorporation and the qualifying state. Another disadvantage of incorporating outside of your home state is the possibility of having to defend a lawsuit in another state. The laws of the state in which you incorporate can make a tremendous impact. Make sure that the state in which you incorporate allows your business a range of flexibility in the management and structure of your company, and a high degree of favorable tax regulations. A corporation must either be incorporated in the state to benefit from the laws of the state, or the corporation must qualify to do business in that state as a “foreign” corporation from another state. Once a corporation qualifies to do business in a state other than its domicile where it was incorporated, it must register as a foreign corporation and pay the required fees. When establishing Corporate Credit, it is important not be red-flagged as a sham business having a fake storefront or virtual office in Nevada, so it is much better to incorporate in your home state where you’re headquartered, when it comes to establishing Corporate Credit. The banks you will be applying to for credit will

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much prefer an in state corporation, rather than saying you have Nevada Corporation with your headquarters in your home state. Foreign Corporation A corporation conducting business in one state when incorporated or chartered in another is considered a foreign corporation. If your corporation will conduct business in any state or states other than the state in which it was incorporated, you'll need to determine what qualifications or registrations are required by the other state or states.

Qualification or registration requirements: Every state requires some sort of registration or qualification for foreign corporations. Qualification requirements for foreign corporations vary from state to state, and are regulated by the state's Secretary of State. The form required to be filed by foreign corporations is commonly called the Foreign Corporation Certificate, or the Statement and Designation by Foreign Corporation, and is mainly a way to provide information about your corporation to a different state from another state. Most of these statements require the name of the corporation, the state of corporation, the address of the principal office in the state of incorporation, and the foreign state, the name and address of the agent for service of process, and must be dated and signed by a corporate officer. Some states have strict requirements regarding agents for service of process. Be sure to check on this. Some states also require that foreign corporations state their assets and liabilities. Registration or qualification of a foreign corporation must take place as close as possible to when the corporation starts doing business in another state. There will be a filing fee for registering as a foreign corporation. Many states also require a Certificate of Good Standing (also called Certificate of Authorization or Certificate of Existence) to be filed by a foreign corporation along with the Statement or Registration described above. These certificates are issued by a state official of the state of incorporation as evidence that the corporation exists and is authorized to conduct business in that state.

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Consequences of not qualifying or registering: Penalties and other consequences will apply for failure to qualify and register to do business in another state. Possible consequences include: • • • •

Monetary fines assessed against the corporation; Monetary fines assessed against the corporation’s agents or officers; Denial of the right to enforce contracts in the state courts; Personal liability of the corporation’s officers or agents for the acts of the corporation in the state.

State taxation of foreign corporations: The other reason states have for requiring foreign corporations to register and qualify in their state is to collect taxes from those corporations. You should determine what state taxes your corporation will be required to pay in other states in which it will do business.

Why Nevada Nevada is a very corporate friendly state, with very favorable laws towards corporations. The biggest advantage that the state of Nevada has over most of the states in the country is Nevada does not tax the income of its individuals or corporations. Nor does it require its corporations to pay any franchise taxes, capital stocks taxes, inventory taxes or taxes on corporate shares. Case law prevents easy piercing of the corporate veil unless the corporation commits a fraudulent act. The stockholders are not public record and there is no information sharing with the I.R.S. Stockholders are not required to live in or hold meetings in Nevada, meetings can be held anywhere in the world. Only one person is needed to form a corporation in Nevada and there is no minimum capital required. Nevada corporations may purchase, hold, sell or transfer shares of its own stock. Nevada corporations may issue stock for capital, services, personal property, or real estate, including leases and options. The directors may determine the value of any of these transactions, and their decision is final. State law prohibits inspection of corporate records unless the inquirer owns at least 15% of the corporate stock. If an officer or director of a Nevada corporation does not want to be identified on public record they do not have to be listed. Instead, they can use a nominee, someone other than themselves, to serve as the director and all officers, thus maintaining their privacy.

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Why Wyoming •

Unlimited ability to issue stock—Most states set a limit on the number of shares that you are authorized to issue; Not so in Wyoming! You may issue as many shares as you wish (without any additional costs or fees) by simply making the proper entries in your Articles of Incorporation. Unlimited shares may be of paramount importance to you in particular, if you ever contemplate taking your company public.

•

You can be everything in Wyoming—Some states require that you have more than one person to serve as the various officers and directors of your corporation. Again, not so in Wyoming! One person can fill all of the required corporate positions giving you the ultimate flexibility and control.

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Privacy in Wyoming—The more information about you that appears in the public record the easier it is for you to become a target. Wyoming has no requirement for the names of shareholders to be filed with the state. It asks only for a simple "Annual Report" which requires disclosure of only those assets located within the state of Wyoming and the name of one person, usually the one who submits the report.

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Restrictions and corporate formalities are at an absolute minimum in Wyoming—If you would like less "red tape", bureaucracy and restrictions in your business life Wyoming is the place for you!

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Low annual fees—The annual fees in Wyoming are based solely on the value of corporate assets located within the state. The minimum is $50 and a million dollars worth of assets within the state of Wyoming would cost you only $200. That’s right, $200 in fees for every million dollars worth of assets that you keep within the state of Wyoming and no fees for assets outside of the state.

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As an officer or director you cannot be held responsible for the debts of the corporation—Wyoming law is quite strong in this respect and holds generally that as long as you did not intentionally break the law you are protected from claims against the corporation.

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No minimum capitalization is required in Wyoming—You can fund your corporation with one dollar, with a million dollars or the amount of your choice. And, while there are sound business reasons of avoiding "under 74

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capitalization" the point is that the choice is yours and you enjoy the ultimate in flexibility. •

Directors and/or shareholders meetings may be held anywhere in the world—You are not required to hold meetings in Wyoming; indeed you need never set foot within the state. Wyoming is rich in history and breathtaking scenery but if your tastes run more to the Bahamas, Hawaii or, for that matter, the French Riviera the choice is yours.

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Stock in a Wyoming corporation may be issued in exchange for "anything of value"—You may use cash of course but also property, services or any valuable consideration at the total discretion of the board of directors, which can be one person (you?).

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Maximum anonymity—Nevertheless, in today’s overly litigious society it is a fact of business and personal life that the only thing necessary to involve you in a lawsuit is the perception by someone else that you have assets…you’ve heard it called the "deep pocket theory." Many business people have found it advantageous to maintain financial privacy simply to avoid looking like a good litigation "target." In Wyoming you may use "nominee officers/directors" meaning that anyone you designate can appear on the public record instead of yourself offering you valuable financial privacy. Furthermore, you may also be interested in using nominee or "third party" shareholders who can be the owners of record of the stock, which you control. Ask us how to explain the endless possibilities for privacy using the foregoing two strategies.

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Lifetime proxy—John D. Rockefeller was the first individual to acquire a personal net worth of one billion dollars. When asked late in life how he accomplished such a feat he is reported to have shared with a young interviewer that his simple secret was to "own nothing and control everything." That is indeed wonderful advice for a host of reasons (consider, no one can take from you that which you do not own) but it is sometimes more easily said than done. By allowing another person or entity to own shares you can use proxies to maintain complete control. The problem is that most state laws require proxies to expire and be subsequently renewed every six or seven years. If the "legal owner" declined to renew your proxy you could be literally be left with nothing and no recourse. That is hardly a scenario that makes us neither feel secure nor is it one that we would 75

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recommend to you. However realize that Wyoming allows for lifetime proxies thereby protecting you from any such problem arising. •

If you already have a corporation —Wyoming offers unparalleled flexibility. By filing a few simple forms your existing corporation can become a bona fide Wyoming Corporation. Your existing corporation can retain its original incorporation date after becoming a Wyoming corporation. Anyone examining the Wyoming public record will see a corporation dating back as far as your current corporation does. You can promptly become a Wyoming Corporation without losing the many benefits of the longevity and continuity of operation.

Here are a few more benefits of incorporating in Wyoming: • • • • • • • • • •

No information collected to be shared with IRS Privacy allowed Shareholders are not listed with the state Best Asset Protection Laws Nominee officers are legal Citizenship not required State tax not being considered Wyoming draws little attention No Nevada "Stigma" Lower Startup Costs

Wyoming has no: • • • • • • • • • •

Personal income tax Corporate income tax Inventory tax Gross receipts tax Franchise tax Burdensome regulations Disclosure of shareholders Business or "per-capita" tax Excise tax Sales, property and inheritance taxes are among the lowest in America

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Why Delaware More than half a million business entities have their legal home in Delaware including more than 50% of all U.S. publicly-traded companies and 58% of the Fortune 500. Businesses choose Delaware because Delaware provides a complete package of incorporation services including modern and flexible corporate laws, the highly-respected Court of Chancery, a business-friendly State Government, and the customer service oriented Staff of the Delaware Division of Corporations. One of the most popular places for both U.S. and Non-U.S. entities is Delaware: Low cost incorporation fees; No state corporation income tax for Delaware corporations not operating in Delaware; No name or address disclosure requirement for the initial board of directors; One person may hold all corporate offices; The corporation must have a registered agent in Delaware, but not a business office; And you can form a Delaware corporation, limited liability company, or business entity without going to Delaware; Claims relating to the corporation will be heard by the Delaware Court of Chancery; There is no Delaware income tax for Delaware corporations or limited liability companies that do not do business in Delaware. If your goal is to eventually take your company public then you should incorporate in Delaware. Top 10 reasons to incorporate in Delaware: 1. Delaware is considered the most attractive state in the nation for organizing. 2. Delaware courts have a reputation of reaching reasonable and fair conclusions when construing the corporation laws. 3. Only one incorporator is required. A corporation may be the incorporator. 4. There is no minimum capital requirement. 5. The franchise tax compares favorably with that of other states. 77 Copyright © 2008 Reginald Ringgold

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6. For companies doing business outside of Delaware, there is no corporate income tax. 7. Delaware has no sales tax, personal property tax or intangible property tax on corporations. 8. No taxation upon shares of stock held by non-residents and no inheritance tax upon non-resident holders. 9. A corporation may keep all of its books and records outside of Delaware. 10. You may have a principal place of business/address outside of the State of Delaware as well. Selecting the Right Name for Your Corporation Generally, a corporation can be named almost anything with few exceptions, as long as the name is not already taken by another corporation within the state. The name cannot be misleading or deceptive to the public. The name of the corporation is restricted by the professional category such as Medical or law practice. The name cannot use words like “Trust”, “Trustee”, “Bank”, or any other similar names unless the corporation is licensed or approved by the state regulators as a company doing that type of business. If a corporation is named after a person then the name of the corporation may be required to include incorporation or Inc. after the name. Keep in mind if you are trying to protect assets and privacy is important to you then naming a corporation, trust or any other entity for that matter after yourself or any other family member is generally not a good idea. Make sure you pick a neutral name one that does not limit you such as "Larry's Typing Service," or "John’s Catering Service," a good name that is neutral would be XYZ Enterprises Inc. or ABC Incorporated, neutral names allow your company to sell or do just about anything. Make sure to have a few names in mind just in case your name is not available. Contact us today to see if your name is available (888)817-8222 Ask 500 people already in business how they decided upon their business name and you will get 500 different answers. Everyone has a story behind how they chose their corporations name. Even if the business is named after the owner’s birth name, there's a reason why this was done. When you form a corporation, in a sense, you are causing a new birth to begin. This new birth was created from an idea alone by you or your associates. It will have its own bank account, its own federal identification number, its own credit accounts, its own income and its own bills. On paper, your corporation is another

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individual! Just as if you were choosing a name for your own unborn child, you need to spend considerable time in deciding upon your corporation’s name. There are several reasons why a good business name is vitally important to your corporation. The first obvious reason is because it is the initial identification to your customers. No one would want to do business with someone if they didn't have a company name yet. This makes you look like an amateur who is very unreliable. Even if you call your company "John’s Catering Service," a company name has been established and you are indeed a company. People will therefore feel more comfortable dealing with you. Secondly, a business name normally is an indication as to the product or service you offer. "Larry's Typing Service," "Karate Club for Men," "Jim-Dandy Jack-ofall-Trades," "Laurie and Steve's Laundry," "Missy’s Gift Boutique and "Star 1 Publishers" are all examples of simple business names that immediately tell the customer what product you offer. However, most people will choose the simple approach when naming their business. They use their name, their spouse's name, their children's names or a combination of these names when naming a business. The national hamburgerrestaurant chain "Wendy's" was named after the owner's daughter. However, research has proven that these "cutesy" names are not the best names to use for a business. Many experts claim that it makes the business look too "mom-and-popish." However, this depends on the business. If you are selling something that demands this mood or theme to appeal to your market, it's best to use this approach. Personally, I am inclined to name my Corporation’s with catchy names that stick in people's heads after we have initially made contact. Names like, "Sensible Solutions," "Direct Defenders," "Moonlighters Ink," "Printer's Friend," "Strictly Class," "Collections and Treasures," and "Starlight on Twilight" are all good examples of catchy names. These types of names relate to your product or service but serve as a type of slogan for your corporation. This is a big help when marketing. A friend I know owns a business called "Mint and Pepper." He grows and sells his own line of raw seasonings to people in the local area. At a get-together for small businesses, he passed out his business card. The card had a peppermint candy glued on the back and the slogan read: "Your business is worth a mint to us." This 79 Copyright © 2008 Reginald Ringgold

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marketing concept not only got my friend noticed and remembered, but brought in several large orders for the business. When you name a child, you may not decide upon a definite name until after they are born. You do this because a name is sometimes associated with a type of personality. When you name a Corporation you may need to wait until you have a product or service to sell and then decide upon a name before going into the business itself because your business name should give some clue as to what product or service you are selling. A corporation named "Joe's Collections" normally wouldn't sell car parts and a corporation named "Charlie Horse" would not sell knitting supplies. To generate ideas - begin looking at business signs everywhere you go. Notice which ones catch your eye and stick in your mind. Try and figure out "why" they stuck in your mind. Naturally, the business "Dominos Pizza" sticks in your mind because it is nationally known. These don't count! Look around and notice the smaller businesses. Take your time. Within a few days you should be able to come up with a few potential names for your corporation. Then, when you finally find a few names you really like - try reciting them to other people and get their opinion. It won't be long before your corporation has the proper name that will carry it through its life! Mail Order Hint: Try to avoid very long names so they will fit into small display ads. Amalgamated International Enterprises can be easily presented as AIE, which is easier and shorter to spell. Corporations generally have a distinct name. Historically, some corporations were named after their membership: for instance, "The President and Fellows of Harvard College." Nowadays, corporations in most jurisdictions have a distinct name that does not need to make reference to their membership. In Canada, this possibility is taken to its logical extreme: many smaller Canadian corporations have no names at all, merely numbers (e.g., "1234567 Ontario Limited"). In most countries, corporate names include the term "Corporation", or an abbreviation that denotes the corporate status of the entity. Certain jurisdictions do not allow the use of the word "company" alone to denote corporate status, since 80 Copyright © 2008 Reginald Ringgold

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the word "company" may refer to a partnership or to a sole proprietorship, or even, archaically, to a group of not necessarily related people (for example, those staying in a tavern). Here is a checklist of rules for when naming your corporation: 1.) Do a name check to see if the name is available. 2.) Check with Sectary of State or the Department of Commerce to verify that the name is available for use. 3.) Check online to see if the domain name is available for the name that you have chosen. 4.) Check with US Patent and trademark offices to see if the name is available. 5.) File a trademark on the name/logo with the state and Federal Trademark Office. 6.) Make sure the name is easy to pronounce.

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Chapter 6 Business Credit Reporting Agencies “Avoid speaking with the business credit agencies at all cost. Communicate with them through fax and email this way they can’t trip you up with questions you are not prepared to answer.” Reginald Ringgold

There are 6 main business credit-reporting agencies, D&B, Experian, Equifax, Client Checker, BusinessInsight/FDInsight, and Business Credit U.S.A./Info U.S.A. The 2 main credit-reporting agencies that most companies use are D&B and Experian. Remember with any of the credit-reporting agencies keep in mind, that private information is privately held. You must decide whether or not to provide financial information to the credit agencies. If you're asked by any of the business credit reporting agencies for financials and you do not feel comfortable doing so, just let them know that they are not available at this time (If you do not provide your financials to Dun & Bradstreet a 2 is the highest composite credit appraisal a company can receive. For more info got to the D&B Rating Interpretation Table in the appendix). Dun & Bradstreet (D&B) D&B is by far the world's largest business credit reporting agency, and has been the leading source of business information and insight since it was founded in New York City in 1841 as the Mercantile Agency, the world's first business information provider. The current D&B Corporation was formed upon the separation of Moody's Corporation on September 30, 2000. Over 100 million businesses are registered with D&B. D&B Checklist When it comes time to contacting D&B I recommend that you do not do it over the phone. Try to avoid talking to them over the phone at all costs. Instead, contact them by fax or email. This way you don’t have to worry about saying the wrong thing, or them tripping you up with questions that you are not prepared to answer correctly. Before you apply to D&B for a Duns Number, you should (but are not required to) have the following:

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1. Incorporate your business and have all your paper work filed and in compliance. Been in business for 2-3 years. Be current on all filing Fees, license fees, & taxes. 2. Have a Web address, E-mail address, and a Physical Address in a brick and mortar style office building with your name strip in the lobby directory. The more the locations the better, no home offices (except when using as another branch location) or P.O. boxes. Make sure the exact same business address is used for your DUNS number, the yellow pages listing and phone number as well as on business licenses and company credit cards that you will be applying for later. D&B will base the number of employees on the square footage of your office. So make sure your office can accommodate at least 10 employees because at least 10 employees are needed to obtain the highest Paydex score. 3. Obtain a local phone, fax and 800#. Make sure phone & fax are listed in the Business Directory (411). Have a live operator answering your phones. 4. File current financial statements and Tax Returns with D&B. (2 is the highest Composite Credit Appraisal a company not supplying D&B with current financial information can receive.) 5. A seasoned (2-3 years) business bank reference with at least a low five figure daily balance (no less than $10,000). 6. Have five trade references with positive payment experiences to report. With the balances no higher than 45% of the high credit available. (If your business does not have trade references then it would be best to apply for a Duns number before you apply for trade references).

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Applying for a Duns Number D&B provides businesses with a separate unique nine-digit identification number that is used to track and rate your business credit profile. Your Duns number is asked for when applying for lines of credit, and with some credit card and leasing companies. Most banks and lending institutions will ask for your Duns number. The U.S. Government requires a DUNS Number before granting any grants or government contracts. Once your Corporation is set up and has been issued a Federal Tax ID number, you can apply for your Duns number online at http://www.dnb.com. Obtaining a Duns number is free and takes a couple weeks to about two months. If you want to expedite this process D&B offers a credit building service where they build your business credit profile, the normal process for obtaining a Duns Number takes 30 days, to expedite this process you can go through D&B’s Credit Builder program. This service is ideal for businesses that need to establish their credit rating. This program will shorten the normal thirty day process for obtaining a Duns Number to within five business days. This program builds a full credit profile, and assigns a basic set of D&B scores and ratings that potential creditors can view. If you want a Paydex score to be assigned to your company, then the CreditBuilder Plus is ideal for your business. This service helps businesses establish their credit rating and past payment behavior. CreditBuilder Plus assigns you with a D-U-N-S Number and provides your company with a full D&B credit file, including a D&B PAYDEX score, which can help accelerate the decision process when you're trying to obtain a loan or make purchases on credit. Be prepared to give them the names and phone number of five up to six vendors with whom you have credit terms. D&B will then contact the vendors and get the credit information from them. This program allows your business 30 days to add up to six trade references. Make sure you have notified the vendors and have gone over what they will say before you give their names to D&B. To get a D&B Rating, you must also provide information from your balance sheet, company history, officers, etc. The D&B CreditBuilder Plus service currently will cost you $599.00. D&B also has another program called the CreditBuilder Premium, this program gives you the same benefits as the CreditBuilder & CreditBuilder Plus in addition this program allows your business12 months to add an unlimited number of trade references. The D&B Credit Builder Premium program currently cost $799

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(BE VERY CAREFUL USING THESE SERVICES!). Ever heard of the expression you only get one first impression. This is no understatement when it comes to Dun & Bradstreet. You only get one chance to give the correct information. Normally it takes 30 days to receive your Duns Number but you can pay a fee to expedite the process. What's a Business Credit Profile? Your business credit profile is your businesses credit report, or your businesses resume; some say your business plan is your businesses resume and I do not disagree, but your business credit profile contains critical information that other businesses will use when deciding whether, and on what terms, to do business with you. The credit profile created by D&B is created using information provided by the business owners and vendors of the business which is put into the Duns right system to check for accuracy, which then grants a Paydex score and a Duns Rating to businesses based on the payment experiences and the financials of the business. With the global data collection system D&B continually gathers the data that initiates the creation of business credit profiles on new companies. Many kinds of activities can trigger a profile on a new company, such as incorporating your business, applying for a loan, getting a business telephone number, taking out a lease on office space, even just if another company seeks information from D&B about your business. But still, a new business may not have a complete business credit profile. Like a personal resume, it's important that the information in your profile is complete, accurate and timely. It is true no one knows your business better than you and your business partners. You might have a thriving and profitable business, but when doing business with other companies, often what matters most is what is documented in the credit profile they receive from Dun & Bradstreet on your company. Most companies want a complete and unbiased view of who you are (and how risky it might be to work with you). Paydex scores and business credit reports give companies that want to do business with your company a fast, objective measurement of your credit risk. D&B’s Different Business Credit Reports D&B has three levels of reports to choose from: The Credit eValuater Report: for low risk credit decisions The Business Information Report: for medium-risk credit decisions 85 Copyright © 2008 Reginald Ringgold

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The Comprehensive Insight Plus Report: for high-risk credit decisions You can pay per report, and the prices are reduced for D&B subscribers. The cost per report to nonsubscribers is $29.99, $109.99, & $149.99 with the minimum report you obtain D&B’s assessment of credit worthiness based on past performance, this report is free for subscribers. You should think about your business credit profile in terms of: What is it telling other companies about your company? How does your current business Paydex scores affect the interest you pay on your existing business loans? Did you get the best terms? Have your Paydex scores improved enough to consider refinancing or extending your credit lines? Do new suppliers extend you favorable credit terms, or do they ask you to pay cash on delivery? If your answer to any of the above questions is "I don't know", your business credit profile may not be working to your advantage; it may actually be costing you money. You Should Make Sure You Have a Business Credit Profile If…. You are planning to a obtain business loan. You need to purchase or lease equipment Your cash flow is tight You want to insure you are getting a fair deal from lenders compared to your competition. You want to pay net 30 days instead of C.O.D (cash on delivery). You are paying interest at prime plus one, or even higher.

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You plan to do business with entities that require a D-U-N-S Number, e.g. the US government. These issues and many more like them can be addressed by having a strong business credit profile. A good business credit rating provides you with the financial freedom to take the steps needed for your business to grow, and is a straightforward, unbiased method for other companies to assess your level of risk when considering doing business with you. A poor credit rating will hinder a company’s growth and success preventing you from getting adequate funding on fair terms. Information that goes into creating a business is credit profile comes from a variety of sources, such as: payment and baking data from company suppliers, suits, liens and judgments, UCC's, business registrations, incorporations and bankruptcy filings from the state and country courthouses, corporate financial reports, contracts, grants, loans, and debarments from the federal government. In the case of your Dun & Bradstreet business credit profile, direct investigations and interviews with company principles (i.e. Self-reported data) and other companies that you work with. What is in my Duns profile? Executive Business Summary The Executive Summary provides for convenient review of key report findings. It provides a company’s Duns number, Duns rating when available, address and contact information, number of employees, year business started, date of current management control, line of business, and any other key company information in D&B's database. Special events section: Alerts you to any occurrences that may impact a firm's ability to pay promptly, such as bankruptcies, changes in ownership, acquisitions, or natural disasters.

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Payment analysis by industry: Payments by suppliers' line of business provide insight into how you might be paid. Public filings summary: has information on important legal activities, such as bankruptcy filings, and number of suits, liens, and judgments that may impact a firm's ability to pay. Banking section: Informs you about a company's accounts, loans, and when available, a bank evaluation that depicts a company's overall banking relationships. Financial Summary: is a comparison to key financial ratios for the company's industry. Credit Capacity Summary: is a glance at the number of credit experiences by dollar amount, as well as percent paid within terms.

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Duns Profile Example (Business Information Report) ATTN: John Doe BUSINESS SUMMARY

Report Printed:

G&M Manufacturing Company, Inc 123 ABC STREET SAN FRANCISCO, CA 94110 Do not confuse with other G&M D-U-N-S® Number: 80-773-4378 companies, this is a fictitious company report used for demonstration purposes. SIC: 2752 This is a headquarters location. Branch (es) or division(s) exist. COMMERCIAL Line of business: PRINTING 650 555-5555 Telephone: D&B Rating:

--

JANE DOE

D&B PAYDEX®:

Year started:

1955

12-Month D&B PAYDEX: 36 When weighted by dollar amount, payments to suppliers average 72 days beyond terms.

Employs:

110 (100 here)

Manager:

Based on trade collected over last 12 months.

Financial statement DEC 31 2000 date:

Sales F:

$19,683,736

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Net worth F:

$3,160,644

History:

CLEAR

Financing:

SECURED

SPECIAL EVENTS 05/17/2002 On April 20, 2001 the subject experienced a fire due to an earthquake. According to John Doe, president, damages amounted to $50,000, which were fully covered by their insurance company. The business was closed for two days while employees settled personal matters. SUMMARY ANALYSIS

D&B Rating:-The blank rating symbol should not be interpreted as indicating that credit should be denied. It simply means that the information available to D&B does not permit us to classify the company within our rating key and that further enquiry should be made before reaching a decision. Some reasons for using a "-" symbol include: deficit net worth, bankruptcy proceedings, lack of insufficient payment information, or incomplete history information. For more information, see the D&B Rating Key. Below is an overview of the company's rating history since 04/04/01: D&B Date Rating Applied -04/04/01 The Summary Analysis section reflects information in D&B's file as of May 20, 2002. CUSTOMER SERVICE 90 Copyright © 2008 Reginald Ringgold

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If you have questions about this report, please call our Customer Resource Center at 1.800.234.3867 from anywhere within the U.S. If you are outside the U.S. contact your local D&B office. *** Additional Decision Support Available *** Additional D&B products, monitoring services and specialized investigations are available to help you evaluate this company or its industry. Call Dun & Bradstreet's Customer Resource Center at 1.800.234.3867 from anywhere within the U.S. or visit our website at www.dnb.com. HISTORY The following information was reported 05/17/2002: Officer(s):

JOHN DOE, PRESIDENT JANE DOE, SEC-TREAS

DIRECTOR(S):

THE OFFICER(S) and Corporate details under investigation.

Corporate details under investigation. Business started 1955 by John Doe and Jane Doe, JANE DOE born 1926. Graduated from the University of California, Berkley, CA, in June 1947 with a BS degree in Business Management. 1947-65 general manager for Rusty’s Printing Co, San Francisco, CA. 1965 formed subject with John Doe. JOHN DOE born 1925. Graduated from Stanford, Palo Alto, Ca in June 1946. 19461965 was general manager for Rusty’s Printing Co, San Francisco, Ca. 1965 formed subject with Jane Doe.

AFFILIATE: The following is related through common principals, management and/or ownership. 91 Copyright © 2008 Reginald Ringgold

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G&M Affiliate Ltd, San Francisco, CA, started 1965. Operates as commercial printer. Intercompany relations: None reported by management. CORPORATE FAMILY The following list is updated monthly. Click below to buy a Business Information Report on that family member. For more details on the Corporate Family, use D&B's Global Family Linkage product. Global Ultimate: G&M Co. Inc.

London, UK

DUNS # 81-577-3744

Domestic Ultimate: G&M International Inc.

San Diego, CA

DUNS # 81-577-3744

Parent: G&M Brothers Inc.

New York, NY

DUNS # 81-577-3744

Headquarters: Gorman Co. Inc.

San Francisco, CA

DUNS # 81-577-3744

Subsidiaries: G&M Co. Inc. G&M Co. Inc. G&M Co. Inc. G&M Co. Inc. G&M Co. Inc. G&M Co. Inc.

San Francisco, CA San Francisco, CA San Francisco, CA San Francisco, CA San Francisco, CA San Francisco, CA

DUNS # 81-577-3744 DUNS # 81-577-3744 DUNS # 81-577-3744 DUNS # 81-577-3744 DUNS # 81-577-3744 DUNS # 81-577-3744

More than 25 subsidiaries are available for this business. For the complete list, use D&B's Global Family Linkage product. Branches: G&M Co. Inc. G&M Co. Inc. G&M Co. Inc. G&M Co. Inc. G&M Co. Inc.

San Francisco, CA San Francisco, CA San Francisco, CA San Francisco, CA San Francisco, CA

DUNS # 81-577-3744 DUNS # 81-577-3744 DUNS # 81-577-3744 DUNS # 81-577-3744 DUNS # 81-577-3744 92

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G&M Co. Inc.

San Francisco, CA

DUNS # 81-577-3744

More than 25 branches are available for this business. For the complete list, use D&B's Global Family Linkage product. BUSINESS REGISTRATION CORPORATE AND BUSINESS REGISTRATIONS PROVIDED BY MANAGEMENT OR OTHER SOURCE The Corporate Details provided below may have been submitted by the management of the subject business and may not have been verified with the government agency, which records such data. Registered Name: G&M Manufacturing Company, Inc.

Common stock Business type:

Corporation type:

Date incorporated:

CORPORATION Authorized shares:

1,000

Par value:

1.00

PROFIT

MAY 21 1955

State of incorporation: CALIFORNIA

Filing date:

MAY 21 1955

Registration ID:

testcase101

Where filed:

SECRETARY OF STATE/CORPORATIONS DIVISION, SACRAMENTO, CA 93

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OPERATIONS 05/17/2002 Description: Commercial printing specializing in advertising posters, catalogs, circulars and coupons. ADDITIONAL TELEPHONE NUMBER(S): Facsimile (Fax) 512 7947670. Has 200 account(s). Net 30 days. Sells to commercial concerns. Nonseasonal. Employees: 110, which includes partners. 100 employed here. Facilities:

Rents premises in a one story cinder block building.

Location:

Central business section on well traveled street.

Branches:

Subject maintains a branch at 321 XYZ Street, San Diego, CA.

SIC & NAICS

SIC: Based on information in our file, D&B has assigned this company an extended 8digit SIC. D&B's use of 8-digit SIC's enables us to be more specific to a company's operations than if we use the standard 4-digit code.

NAICS: 323110Commercial Lithographic Printing

The 4-digit SIC numbers link to the description on the Occupational Safety & Health Administration (OSHA) Web site. 94 Copyright © 2008 Reginald Ringgold

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Links open in a new browser window. 27520000

Commercial printing, lithographic

D&B PAYDEX The D&B PAYDEX is a unique, dollar weighted indicator of payment performance based on up to 266 payment experiences as reported to D&B by trade references. 12-Month D&B PAYDEX: 36 3-Month D&B PAYDEX: 23 When weighted by dollar amount, When weighted by dollar amount, payments to suppliers average 72 days payments to suppliers average 111 days beyond terms. beyond terms.

Based on trade collected over last 3 months.

Based on trade collected over last 12 months. When dollar amounts are not considered, then approximately 13% of the company's payments are within terms.

PAYMENT SUMMARY The Payment Summary section reflects payment information in D&B's file as of the date of this report. Below is an overview of the company's dollar-weighted payments, segmented by its suppliers' primary industries: Total Total Rcv'd Dollar (#) Amts ($)

Largest High Credit ($)

Within Days Slow Terms (%)

Top industries: 95 Copyright © 2008 Reginald Ringgold

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Misc. business 7 service The highest Now Owes on file is $2,000,000 The highest Past Due on file is $1,000,000 Dun & Bradstreet has 266 payment experiences in its file for this company. For your convenience, we have displayed 80 representative experiences in the PAYMENTS section. PAYMENT DETAILS

Detailed payment history Date Paying High Reported Record Credit (mm/yy) ($)

Now Owes ($)

Past Due ($)

Selling Terms

Last Sale Within (months)

Accounts are sometimes placed for collection even though the existence or amount of the debt is disputed. Payment experiences reflect how bills are met in relation to the terms granted. In some instances payment beyond terms can be the result of disputes over merchandise, skipped invoices etc. Each experience shown is from a separate supplier. Updated trade experiences replace those previously reported. FINANCE

05/17/2002 Three-year statement comparative: Fiscal

Fiscal

Fiscal 96

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Current Assets Current Liab's Current Ratio Working Capital Other Assets Net Worth Sales Long Term Liab Net Profit (Loss)

Dec 31 1998

Dec 31 1999

Dec 31 2000

5,735,650 4,521,811 1.26 1,213,839 2,623,143 2,838,982 17,685,297 998,000 584,077

6,022,432 4,747,902 1.27 1,274,530 2,754,300 2,980,930 18,569,562 1,047,900 613,280

6,383,778 5,032,776 1.27 1,351,002 2,920,416 3,160,644 19,683,736 1,110,774 650,077

Fiscal statement dated DEC 31 2000: Assets Cash Accts Rec Inventory Other Curr Assets Curr Assets Fixt & Equip Other Assets

829,185 2,020,011 1,670,307 1,864,275 6,383,778 2,212,435 707,981

Total Assets

9,304,194

Liabilities Accts Pay Bank Loans Notes Pay Other Curr Liab’s Curr Liab’s L.T. Liab-Other COMMON STOCK RETAINED EARNINGS Total

2,845,063 1,012,830 445,200 729,683 5,032,776 1,110,774 50,000 3,110,644 9,304,194

From JAN 01 2000 to DEC 31 2000 annual sales $19,683,736; cost of goods sold $15,837,499. Gross profit $3,846,237; operating expenses $3,196,160. Operating income $650,077. Net income $650,077. Submitted MAY 18 2001 by Jane Doe, president. Accountant: Stanley & Brooks CPAs. ACCOUNTANT'S OPINION A review of the accountant's opinion indicates the financial statements meet generally accepted accounting principles and that the audit contains no qualifications.

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BALANCE SHEET EXPLANATIONS OTHER CURRENT ASSETS Consist of prepaid expenses and a loan receivable. OTHER ASSETS Consists of deposits. BANK LOANS Due to the bank at prime interest rate, are secured by accounts receivable and inventory and will mature in 3 years. NOTES PAYABLE Due on printing equipment. OTHER CURRENT LIABILITIES Consist of accrued expenses and taxes. LONG TERM DEBT Consists of the long term portion of the equipment note. On May 16, 2002, Roger Jones, CEO, confirmed company name, address, principals, annual sales and operational information using Dun & Bradstreet's Internet-based update method (eUpdate) at www.dnb.com.

KEY BUSINESS RATIOS DEC 31 2000 Statement date: Based on this number of establishments: 24 Firm Return of Sales: Current Ratio: Assets / Sales: Total Liability / Net Worth:

3.3 1.3 47.3 194.4

Industry Median Return of Sales: Current Ratio: Assets / Sales: Total Liability / Net Worth:

3.5 1.5 51.1 155.9

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BANKING (05-01) Balances average in a low 7 figure amount. At Dec 31 2000, a low 7 figure was outstanding under short-term lines of credit, which are secured by accounts receivable and inventory. PUBLIC FILINGS The following Public Filing data is for information purposes only and is not the official record. Certified copies can only be obtained from the official source. JUDGMENTS

SUITS

If it is indicated that there are defendants other than the report subject, the lawsuit may be an action to clear title to property and does not necessarily imply a claim for money against the subject. LIENS A lien holder can file the same lien in more than one filing location. The appearance of multiple liens filed by the same lien holder against a debtor may be indicative of such an occurrence. UCC FILINGS

The public record items contained in this report may have been paid, terminated, vacated or released prior to the date this report was printed.

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GOVERNMENT ACTIVITY

Activity summary Borrower (Dir/Guar): Administrative debt: Contractor: Grantee: Party excluded from federal program(s):

NO NO YES NO NO

Possible candidate for socio-economic program consideration Labor surplus area: N/A Small Business: YES (2001) N/A Woman-owned: N/A 8(A) firm: Minority-owned: YES (2002) The details provided in the Government Activity section are as reported to Dun & Bradstreet by the federal government and other sources.

How Can I Improve My Business Credit Profile? You can influence your business credit profile, and you can proactively improve your businesses credit worthiness; once you know what information is most important you can pay more attention to it. In general, you can develop a strong business credit profile by: Paying on time. The payment experiences other companies have with your company are the most impactful data in your business credit profile. For this reason, you should ensure that you your company pays within the terms set forth by your suppliers. This is the best way to drive a positive credit rating. Ensuring all relevant trade experiences are represented. Are you paying large sums on a timely basis to key suppliers and lenders that aren't being reflected on 100 Copyright © 2008 Reginald Ringgold

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your profile? If so you are missing out on a key opportunity to get the credit you deserve for paying your bills on time. After conducting a large volume of business you should check your profile twice a year, to make sure that all vendor payment relationships are reporting to Dun & Bradstreet and all other business credit reporting agencies. Keeping your personal finances in good order. If you are the owner of an emerging business, until your company develops a good business credit profile of its own, perspective creditors may always review your consumer credit profile. Some creditors require anyone who owns 10% or more of the business to have a personal fico score of 680 or better. How well you manage your personal finances can impact your company's credit worthiness. Keep in mind your business and your personal ratings are separate and distinct. One is not used to directly impact the other. Keeping your debt financing down. The capital structure of your business, that is the extent to which you use equity or debt to finance your operations, is an important determinant of your credit worthiness. If other companies see a lot of debt on your balance sheet, whether in absolute terms or relative to your competitors, they are less likely to extend credit as you pose a greater risk of default. Make sure your business has a modest debt-to-asset ratio of 60/40 or better. Contributing to your own profile. Some credit managers prefer detailed reports with a lot of supporting information, enabling them to access risk. Communicating as much information about your business as you can to Dun & Bradstreet assures a more robust report. Likewise, doing business with companies that you know frequently report their experiences to D&B builds your profile.

Keep an eye on the key financial indicators in your own report to see how they compare to other companies in your industry. In doing so, you can benchmark yourself, identify areas for improvement and is sure to lead a sure they profile with adequate information for satisfactory credit investigation.

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D-U-N-S Right D&B'S global commercial database contains more than 100 million business records. A proprietary process called DUNS Right, which transforms the enormous amount of data collected daily into decision-ready insight, enhances the database. Through D&B’s worldwide network businesses gain access to the world's largest and highest quality global commercial business information database. Duns Right is a system of quality assurance including over 2,000 automated and manual checks in five consecutive quality drivers that make sure that the profile is accurate and as comprehensive as possible. D&B has created a proprietary set of key ratings and scores that use information gathered from these sources to present an unbiased view of creditworthiness. A complete D&B business credit report includes the following proprietary scores and ratings: The following steps are taken by Dun & Bradstreet when investigating your company to compile a business credit report. n Check the date that you were incorporated n Check the state of your Corporation with the secretary of state in which you file n Look to see if you, any nominees, or listed officers of the Corporation had been listed or named in any other corporations that have been issued Duns numbers and the current status of those corporations. n Check to see if your corporation has a business license and the date that it was issued. n Check to see if your business phone, fax, and address are listed in the Business Directory (411). n Check out your business address to see if it is a home or brick and mortar style office building with a name strip in the lobby directory. n They will base the number of employees on the square footage of your office. (So it is important to be honest) n Then they check your trade references to make sure they are in good standings and that the report to D&B.

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Paydex score The Paydex score is equivalent to a Fico score for individuals except it is a score used by D&B for businesses. The Paydex score is a predictive indicator that measures the likelihood of your business paying within an agreed upon timeframe. It can be for a 3 or 12 month period. You can view the trend to see if a company’s payment experiences are improving or worsening. To obtain a paydex score requires trade references that report to Dun & Bradstreet. Paydex scores range from 0 to 100, and a score of 80 or higher is a good score. To obtain the highest Paydex score you need it least five-trade references to report positive payment experiences to Dun & Bradstreet. The Paydex is a weighted average; so for trade references that report to D&B the higher the dollar amount the greater the importance in scoring when compared with the lower dollar trade references. (So when it comes to your Paydex if you have ten accounts at $1,000 & one at $100,000 it would be more detrimental to your paydex to pay your trade with the $100,000 balance late then it would be to pay all ten of your $1,000 dollar trades on terms, this works the same in reverse so always pay the larger trades first.) Here is the D&B Score Interpretation Table: D&B Score Interpretation Table D&B PAYDEX Score 100

Payment Habit Anticipate

90

Discount

80

Prompt

70

15 days beyond terms

60

22 days beyond terms

50

30 days beyond terms

40

60 days beyond terms

30

90 days beyond terms

20

120 days beyond terms

UN

Unavailable

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To get a high PAYDEX score, you need 5 vendors that will give you corporate credit. You need 5 vendors who will report positive payment experiences to D&B. You need to pay your vendors 15 days in advance. A common mistake most business owners make when obtaining corporate credit is thinking a good paydex score will qualify the corporation for a loan. A good paydex score is only one piece to the puzzle. The paydex score is one of many factors a bank looks at when determining to grant a business loan. Just because your corporation has an 80 paydex score that certainly does not demonstrate the corporation’s “financial capacity” to repay a large loan. This is where the Duns Rating, Financial Stress Score, and Commercial Credit Score come into consideration.

D-U-N-S Rating A Duns rating has various rating schedules, but overall is an assessment of your businesses creditworthiness and viability. D&B issues a DUNS Rating based on location, Years in business, the employee size, and the financial statements of the business. It also takes into account payment history. The highest Duns Ratings are reserved for companies who: Have been in business for 5 or more years. Have a net worth of over $1 M. Have 50 employees or more. Have their business based in the same state as the officers. Address and phone in the business name with live operators. Multiple branch locations. Have a physical address. 8. Pay bills on time

1. 2. 3. 4. 5. 6. 7.

Again these are characteristics that businesses that receive the highest Duns ratings have. Corporate Credit Association INC is not recommending that you necessarily do any of these things. But if you happen to have the characteristics, it may result in a higher Duns rating from D & B. The 5A to HH ratings reflect company size based on net worth or equity as computed by D&B. These ratings are assigned to businesses that have supplied 104 Copyright © 2008 Reginald Ringgold

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D&B with current financial information. For 5A to HH Ratings, the Composite Credit Appraisal is a number between 1 and 4 that makes up the second half of the company's Rating and reflects an overall assessment of creditworthiness. The creditworthiness assessment is based on both payments and financial stability. Financial Strength Rating

US$

Composite Credit Appraisal High

Good

Fair

Limited

5A

50,000,000 and over

1

2

3

4

4A

10,000,000 to 49,999,999

1

2

3

4

3A

1,000,000 to 9,999,999

1

2

3

4

2A

750,000 to 999,999

1

2

3

4

1A

500,000 to 749,999

1

2

3

4

BA

300,000 to 499,999

1

2

3

4

BB

200,000 to 299,999

1

2

3

4

CB

125,000 to 199,999

1

2

3

4

CC

75,000 to 124,999

1

2

3

4

DC

50,000 to 74,999

1

2

3

4

DD

35,000 to 49,999

1

2

3

4

EE

20,000 to 34,999

1

2

3

4

FF

10,000 to 19,999

1

2

3

4

GG

5,000 to 9,999

1

2

3

4

HH

Up to 4,999

1

2

3

4

The 1R and 2R ratings categories reflect company size based on the total number of employees for the business. They are assigned to business files that do not contain a current financial statement. In 1R and 2R Ratings, the 2, 3, or 4 creditworthiness indicator is based on analysis by D&B of public filings, trade payments, business age and other important factors. 2 is the highest Composite Credit Appraisal a company not supplying D&B with current financial information can receive.

Rating Classification Rating

Number of Employees

1R 2R

Composite Credit Appraisal High

Good

Fair

Limited

10 employees and over

2

3

4

1 to 9

2

3

4

Alternative Ratings Used INV

Indicates that D&B is currently conducting an investigation to gather information for a new report.

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DS

Indicates that the information available does not permit D&B to classify the company within our rating key.

-- (blank)

The blank symbol should not be interpreted as indicating that credit should be denied. It simply means that the information available to D&B does not permit us to classify the company within our rating key and that further enquiry should be made before reaching a decision. Some reasons for using a "-" symbol include: deficit net worth, bankruptcy proceedings, lack of insufficient payment information, or incomplete history information.

ER

Certain lines of business, primarily banks, insurance companies and government entities do not lend themselves to classification under the D&B Rating system. Instead, we assign these types of businesses an Employee range symbol based on the number of people employed. No other significance should be attached to this symbol. ERN should not be interpreted negatively. It simply means we do not have information indicating how many people are employed at this firm.

NQ

Not Quoted. This is generally assigned when a business has been confirmed as no longer active at the location, or when D & B is unable to confirm active operations. It may also appear on some branch reports, when the branch is located in the same city as the headquarters.

US Emplo yee Range Designation ER1

1000 or more employees

ER2

500 to 999 employees

ER3

100 to 499 employees

ER4

50 to 99 employees

ER5

20 to 49 employees

ER6

10 to 19 employees

ER7

5 to 9 employees

ER8

1 to 4 employees

ERN

Not Available

Financial Stress Summary The D&B financial stress model was design to help predict a business’s potential for failure. It predicts the likelihood of a firm ceasing business without paying all creditors in full, or reorganizing or obtaining relief from creditors under state/federal Law over the next 12 months. In other words the likelihood of your company going bankrupt or out of business within the next year. This rating is a comparison of the financial strength of your company with other companies that are in your industry. The D&B financial stress summary is made up of four key factors: Factor #1 The financial stress class indicates that this firm shares some of the same business and financial characteristics of other companies with this classification. The financial stress class ranges from 1-5, 1 being the highest class and 5 being the lowest 106 Copyright © 2008 Reginald Ringgold

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Factor #2 The financial stress score: offers a more precise measure of the level of risk then the class and percentile. Factor#3 The financial stress national percentile: reflects the relative ranking of a company among all other companies in D&B's database Factor #4 Incidence of financial stress: is based on historical data in D&B's database. The incidence of financial stress shows the percentage of companies in a given class that discontinued operations over the past year with lost to creditors. The national average represents the national failure and is provided for comparative purposes. Here is the D&B financial Stress Score Table: Financial Stress Score Financial Class 1

Stress Financial Stress Percentile Score Range Range 1377-1875 21-100

Score Incidence of Financial Stress 0.49%

2

1353-1376

11-20

1.37%

3

1303-1352

5-10

3.73%

4

1225-1302

2-4

8.30%

5

1001-1224

1

35.80%

Commercial Credit Score D&B's commercial credit score predicts the likelihood of your business paying in a severely delinquent manner (90 + days past terms) during the next 12 months, based on the information in D&B's database. It's a brief overview of your businesses character and financial capacity. It focuses on how your company pays its bills and treats its credit and debt obligations compared with other companies in your industry. A severely delinquent business is defined as a business with at least 25% of its payments slow and at least 10% of its payments 90 days or more past due. 107 Copyright © 2008 Reginald Ringgold

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Often times this section will include your businesses net worth, income statement and historical financials that is if you provide a D&B with that information. If you have not provided D&B with your financials then D&B gathers the information on the report from what they gather from your creditors. So there's a good chance if you have not provided them with your financials that it might just contain your credit information. Although sending your financials to D&B will most definitely increase your rating, it will also make it a semi-public record. D&B uses statistical probabilities to classify businesses into three different score categories: 1. Commercial credit score ranges from 101-670, 101 displays the highest probability of a severely delinquent payment (90 + days past terms). A 670 reflects the lowest probability of delinquency. The risk of default doubles with each 40 points. For instance a company with a 340 scores twice as likely to default on a loan and a company with a 380 score. 2. Credit score percentile ranges from 1-100%, 1% represents the highest probability of a severely delinquent payment, and 100% represents the lowest. These ranges represent where the company ranks in comparison to all the other businesses in D&B's database. 3. Credit score class allows lending institutions to quickly assess the probability of a business going into default, 1 represents the lowest risk, and a 5 represents the highest risk. Here is the D&B Commercial Credit Score Table: Commercial Credit Score Commercial Credit Score

Credit Percentile

536-670

Score

Credit Score Class

Incidence Delinquency

91-100

1

2.5%

493-535

71-90

2

4.8%

423-492

31-70

3

12.9%

376-422

11-30

4

24.2%

101-375

1-10

5

58.8%

of

Commercial credit scores are not available for companies that:

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Have an open bankruptcy or are labeled “HIGHER RISK” Or “RED-FLAGGED STATUS”. (These companies automatically receive a “0” rating). Have "deteriorated" which means the business is showing signs of financial distress such as operations difficulty or business failure. Have been reporting to D&B without a full Duns Right investigation (companies that have not provided financials to D&B) Have missing information, an invalid address or telephone number. Incidence of Delinquent Payments The Incidence of Delinquent Payments shows the percentage of businesses in the same score category that paid in a severely delinquent manner (90 + days past terms) over the past year. The incidence of delinquent payments among all businesses in the D&B database represents the national delinquency rate and is provided for comparative purposes. High-Risk or Red-Flagged Status D&B has a high-risk status for companies that will destroy a company's ability to obtain business credit. When a company is put into high-risk status the chances of obtaining any kind of favorable rating is impossible. An easy way for a company to get put in high-risk status would be to pay on a loan or lease 30 days after the due date, or to give contradicting or incorrect information to Dun & Bradstreet or any of the other business credit reporting agencies. The business credit bureaus frequently put companies on the dreaded high-risk list with no recourse for the company, it happens all the time! And unlike personal credit, there are no laws protecting companies from the business credit bureaus. Based on my experience it is wise to have a professional company look at your corporation to make sure that your company is not put in High Risk status (If your company is put at a highrisk status is easier to start fresh with a new company, then to attempt to get out of a high-risk status).

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Experian Experian is emerging in the business credit-reporting field as the other business credit-reporting agency besides Dun & Bradstreet that most companies use to order a business credit report. Experian tracks information on more than 15 million companies. Like D&B, an Experian business file number is generated when a company request information on your company. Experian uses your businesses Tax ID unlike D&B’s Duns number Experian also has a business credit score that is known as an Intelliscore. Credit Cards, loans and lines of credit report to Experian. Once you have had 2-5 creditors report to Experian you will be granted with an Intelliscore. Intelliscores range from 0-100, an 80 + is a good score. You can get familiar with Experian’s business credit report by going to: http://www.experian.com under business or www.smartbusinessreports.com services. There are two ways to obtain a Experian Smart Business report, you can pay on a per report basis or gain access to unlimited reporting for a monthly fee. You can choose from four different reports. The Experian Limited Report- This report allows you to check facts about a company and obtain both a credit summary and a payment summary, along with information on any judgments the company might have. This report cost $8.00 The Experian CreditScore Report- This report includes everything in the Limited Report, as well as information on bankruptcies, tax liens, and a credit ranking score. This report cost $19.95 The Experian Profile Report- This report includes all the information in the CreditScore report as well as payment details, inquires, and a UCC-1 summary. This report cost $39.95 The Experian ProfilePlus Report- This report is used for checking on public companies because it includes Standard & Poor’s information. This report cost $44.95

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Equifax Through an exclusive agreement with the small business financial exchange, Inc., a nonprofit association comprised of leading national and regional financial institutions, Equifax provides access to banking and leasing information on small businesses. Advanta Corp., Amsouth, Bank of America, capital one Wachovia, Wells Fargo, and United Association of Equipment Leasing are a few of the members of the small business financial exchange. Equifax’s reports allow you to verify business information, determine whether there are any outstanding bankruptcies, judgments or liens on that company, and review a company’s existing financial obligations (including bank loans, leases, supplier’s invoices and utility services). You can also use Equifax’s Small Business Credit Risk Score, which helps you make an objective determination about credit risk. To use this service you’ll pay a membership fee, plus an additional charge per report. To get more familiar with the Equifax business credit report go to Equifax’s website: www.equifax.com/sitepages/biz/smallbiz/ under small business credit reports sample. Client Checker Client Checker is the credit agency for freelance professionals or, small businesses and self-employed individuals, and other business-to-business vendors. Client Checker provides business credit reports and other credit information that small businesses and self-employed individuals can use to make quick decisions about working with other companies. Client Checker's database contains information provided by other small businesses and self-employed individuals that are registered users who share their trade experiences. Payment data is also collected from users of Billing Tracker, both agreed to anonymously share their trade payment experiences (late pay, slow pay, etc.). Users can search for a specific company by company name, geographic location, or any other attributes. The Aggregated business credit report shows how promptly a given client company pays its bills. This report lists the number of reports of non-payments of bills and also the average number of days that bills are paid late. Just like Dun & Bradstreet and Experian Client Checker has a unique score called the PayQuo. The PayQuo score 111 Copyright © 2008 Reginald Ringgold

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works on a statistical average of numbers between 20 and 90. A 90 represents the highest meaning a business pays early or according to terms, and a 20 represents the lowest meaning more than 120 days late or delinquent. PayQuo Score

Payment Habit

90

Pay early or according to terms

80

Late up to 10 days

70

Late up to 20 days

60

Late up to 30 days

50

Late up to 60 days

40

Late up to 90 days

30

Late up 120 days

20

More than 120 days late or payment is written off

If you have five companies that are reporting to Client Checker on your business, and 2 report your company pays early, and one reports you pay 8 days beyond terms, and one company reports that your company pays 28 days beyond terms, and another company report your company pays 48 days late, your score is calculated as: 90 + 90 + 80 + 60 + 50 = 370 / 5 = 74 To get more familiar with the Client Checker business credit report go to their website: www.ClientChecker.com/business_credit_reports.htm BusinessInsight/FDinsight BusinessInsight formally FDinsight is part of factual data corp., an information technology company with headquarters in Loveland, Colorado. FDinsight delivers business-to-business information services via electronic commerce. In order to obtain a credit profile from FDinsight you must be listed with D&B, Equifax, or Experian.

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Business Credit USA Business credit USA is a division of info USA Inc. for over 30 years they have been compiling accurate and current information in their database of over 14 million U.S. businesses. More than half of their database is on small businesses (those with fewer than 4 employees). Their database is compiled from a variety of sources including the Yellow Pages, business White pages, local courthouses, 411 directory assistance, United States Post Office address file and other proprietary sources. This verification process ensures the accuracy of the information. Every year Info USA Inc. the parent company attempts to verify over the telephone every business in their database to deliver the most accurate and update information. The credit scoring is based on demographic factors of a business and also the line of business, which a particular business lies, some of the factors they consider are employee size, revenue size, years in business, and industry type. They also factor information such as bankruptcy, public filings, judgments, and liens. The credit score indicates ability to pay. You can purchase a copy of your Business Credit USA report. www.businesscreditUSA.com

Just go to

PRBC and CreditInvest are two new smaller business credit bureaus coming up fast in the business credit market place. Both companies offer a business credit report and scoring system that is delivered to their customers. You can visit PRBC at www.PRBC.com and CreditInvest at www.CreditInvest.com.

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Chapter 7 The Seven Steps to Success (The Corporate Credit Process) “If you do not give up on establishing Corporate Credit you cannot fail” Reginald Ringgold

This chapter assumes you've already been in business for 2-3 years, whether you started the business yourself or acquired an existing business from another party. It assumes you have already protected yourself through Incorporating. Now what’s next? How do you obtain the financing you need for your business? How do you acquire automobile leases, credit cards, and lines of credit with no personal guarantee? The following section will walk you step by step through critical steps needed to gain financial credibility to establish corporate credit to get almost anything you need with no personal guarantee! This process may seem very simple to you because there are only seven basic steps involved. However keep in mind the implementation of these steps can get difficult, so it is important to approach these steps in the order that they are soon below, and with a great deal of preparation, if not your business could end up red-flagged and marked high risk. Let's go over the seven steps: 1. Hire a good professional team, incorporate, apply for F.E.I.N number, and be in compliance: file officers list, minutes, meetings, by-laws, resolutions, seals, business licenses, D.B.A’s & permits. Be in business for at least 2 years & be current on all filing Fees, license fees, and taxes etc. 2. Obtain a Web address, E-mail address, and a Physical Address in a brick and mortar style office building with your name strip in the lobby directory. 3. Obtain a local phone, fax and 800#. Make sure your phone & fax are listed in the Business Directory (411). Have a live operator answering your phones between the hours of 9-5. Obtain Corporate Identity: logo, company stationary, company letter head, business cards, brochures etc. 115 Copyright © 2008 Reginald Ringgold

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4. Have a seasoned business bank reference (2-3 years) with at least a low five figure daily balance (no less than $10,000). 5. Prepare two years financial statements and tax returns; have them Audited and re-prepared by CPA. 6. Apply for DUNS number. 7. Establish five trade references that report positive payment experiences to D&B and five credit cards/cash lines that report positive payment experiences to Experian. Again, this sounds deceptively simple, but of course the seven simple steps are overwhelming in their implications. For example step one is a task in itself since most businesses don't make it past their second year in business. And step 4 can be quite difficult since the average person can’t get their hands on $10,000. $tep #1 Hire a good Professional Team. It has been said that hiring a good professional team is the best thing you can do for business or personal asset planning. The money you spend on a good team, will more than pay for itself, and the accountant, attorney, and financial advisor will share with you the ways that you can personally take advantage of your corporate status. And, if that wasn't enough, the cost for their services is a 100% write off on your taxes! Incorporate: your business, form a separate entity preferably a C-Corp. This attracts more investors and gives off the image of a larger corporation with more employees, which is needed to obtain the highest Paydex score with Dun & Bradstreet. After your business has been incorporated make sure you file your list of officers with the secretary of state in the state where you’re incorporated. The secretary of state will mail this list to your resident agent to the address that was used for the corporation’s resident office for you to fill out and send back to them, you can also fill it out online at the secretary of state’s website. This list must be sent in no later than 90 days from the date of incorporation. Note: (Each state varies with their time frames, to find out the web address for the S.O.S where you have incorporated your business put in secretary of state then the name of the state in a search engine for example secretary of state Nevada. This list has to be sent in 116 Copyright © 2008 Reginald Ringgold

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every year for your corporation Note: (Some states have different names for their officers list, for example in California this list is called a Statement of Information for corporations and a Statement of Organization for an LLC. For states that require you to provide the address for the corporation on the officer’s list, do not file the officer’s list (statement of information) until you are sure on the address of the business. If the state does require an address then file the statement of information at the end of Step 2. If you do file the statement of information before you are sure on the address you will be forced to amend the statement of information because of the address change. If you do not amend the statement of information to reflect the new address then your corporation will be out of compliance because of informational discrepancies which can lead to a highrisk status hindering your ability to obtain financing for the corporation. Apply for F.E.I.N. (federal employer identification number) you can request a tax ID number at the IRS website at http://sa1.www4.irs.gov/sa_vign/newformss4.do You need a tax ID number for business credit, even if you don't have employees. If anonymity and asset protection is the reason for incorporating your business then giving your social security number is not a good idea when applying for an EIN because it eliminates the privacy. A good way to avoid giving a SSN when filling out the SS4 form for your EIN would be to give an EIN from another company. CCA offers this service for our clients. (Note that you must apply for your EIN before you apply for your business License, if it is not done in this order then you will be required to give your social security number and this is not recommended.) Be in compliance: this means keeping and maintaining corporate records such as: articles and bylaws, Minutes for meetings of decision-making, minutes of any resolutions decisions beyond normal operations, corporate seals etc. File a D.B.A Fictitious Business name statement with the county recorder’s office. (If the D.B.A is for a parent corporation it will be doing business as itself. If the D.B.A is for a division then it will be filed under the parent corporation doing business as the name of the division. Be current on all filing Fees with the secretary of state, license fees, and taxes. For more assistance with getting your business in compliance call us toll free at (888)817-8222 Have been in business for at least 2-3 years. This does not mean you have to have been incorporated for 2-3 years; you could have been operating as a sole 117 Copyright © 2008 Reginald Ringgold

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proprietor, or a partnership. You just have to have been in business with a business license or EIN for least 2-3 years. Be current on all filing Fees, license fees, and taxes etc. Option #1 Purchase a shelf corporation A shelf corporation, also called Aged Corporation, is a Corporation that has had no activity. It was created and put on the "shelf" to age. This corporation is then sold to someone who would prefer to have an aged corporation rather than a new one. Option #2 Find a financial backer, someone whose only interest in the company is financial. Use their resources and form a Joint venture with the Financial Backer. This will provide whatever your business lacks (More information on financial backers and finding Financial Partners in the following sections) $tep# 2 Have a physical address: that means no P.O. boxes, private Mail Boxes. The businesses (head quarters) main office must be in a brick and mortar office building with a sign outside or a name strip in the directory in the lobby. Make sure the exact same business address is used for your DUNS report, secretary of state, the yellow pages listings and phone number as well as on business licenses and company credit cards that you will be applying for later. The more the locations the business has the better, Dun & Bradstreet will come by and do a physical inspection of the work site so it is important not to cut any corners when it comes to implementing this step. I also say no to Mail Boxes, PO boxes etc. because when establishing corporate credit you want to project an image of a mature and established business, so make sure your corporation's physical presence is consistent with that of an established business. The mailing address of your business can be different than your physical address. The mailing address can be a PO Box, mail drop, or virtual office, but you must always designate it as "mailing". Now this does not mean you have to purchase some huge commercial real estate office building, or rent an extravagant office complete with full staff. Renting or subleasing a small office space from any other business that has offices available will do just fine. There are companies that offer leases and subleases for executive suites and small office spaces anywhere from 450 square feet and up, prices vary 118 Copyright © 2008 Reginald Ringgold

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depending on the square footage and location of the office. D&B will base the number of employees on the square footage of your office. So make sure your office can accommodate at least 10 employees because at least 10 employees are needed to obtain the highest Paydex score. For an extra fee a lot of these companies offer resources such as a conference room, a receptionist that will answer your phone, forward your phone calls, and all other amenities that come with a typical office. Once you find the office make sure your business is listed in the business Yellow Pages. Remember the more locations, the better. To meet this requirement you can use your “Executive Suite” as the main office and your home address as another branch location. The physical address must meet the following requirements: • • • •

•

Must be a physical location Cannot be a PO box, mail drop, or virtual office Cannot be shared with any other business If using an office suite, you must have a lease agreement and have no other business listed at your suite number. Not all office suite set-ups will be acceptable to the business credit bureaus. If your business is home based, I recommend signing a lease agreement between the business and the individual who owns the home to maintain the separation between the business and your personal life. Have a Web address and E-mail address: There are several key factors for maintaining a positive business image. For the credit markets, you must project and maintain the image of a thriving and professional business that pays its debts and pays on time. No successful established business would fail to operate without a website or e-mail address. If you don't already have a website look into getting one not, just for establishing Corporate Credit, but because without a website you're losing out on business to your competitors that do have a website. Again just as I said with the office this doesn’t mean paying tens of thousands of dollars for a website with all the bells, whistles, and flash screens, nor does it mean a rinky-dink homemade website (unless that's all your budget can afford). A website with diversity good graphics and a few pages such as: home, services, products, about us, and contact us will do just fine. The website should have the same office address and contact information that you give to Dun & Bradstreet. Your business email address must include your business name. Banks, Vendors 119

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and Lending institutions do not like to see businesses with email extensions such as: SBC Global, Yahoo, Hotmail, Comcast, etc. They expect you to have a website and a matching email address attached to that website domain. Example website: (www.yourbusinessnamehere.com) Example email: ([email protected]) Here are a few companies that provides very inexpensive domain names: www.godaddy.com www.register.com www.buydomains.com

$tep# 3 Obtain a local phone, fax and 800# Yes, your business does need a business phone line listed with (411) directory assistance. You must have a live operator answering the phones between the hours of 9-5. The phone and fax number must be registered with the business credit bureaus and used with every lending or credit application on your business. Dun & Bradstreet will call the number you provide so make sure there is someone answering the phone between the hours of 9-5. If you don’t have a local phone, fax and 800# we recommend www.ringcentral.com for virtual set-up that will allow you to forward calls to up to 5 different numbers simultaneously. Have a local phone fax and 800# listed with (411) Directory Assistance Creditors will also check to see if your business is listed in the business yellow pages. You should have the phone, fax, and the name of the corporation listed in the business Yellow Pages. If your business is not listed in the business Yellow Pages make sure you do so before calling Dun & Bradstreet. The Yellow Pages should have the same office address and contact information that you give to Dun & Bradstreet. If your phone and fax are not listed go to www.superpages.com

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You should assume that credit grantors will always check with directory assistance to verify the phone and address. This means: • Your company’s phone number and address must be listed with directory assistance under the same business name as is on the business license. • DBA's should also be listed with directory assistance. Phone companies will usually allow more than one listing under a phone number. • Your company’s main phone number cannot be a cell phone number. (You can forward your land line number to a cell phone and your toll free number can be forwarded to your land line). • Your company’s phone number must coincide with the city's area code in which the business is located and the business license is filed. • The phones must be answered in the name of the business listed with the credit bureaus at all times. • Have a Live operator answering the telephones between the hours of 9-5. It is not recommended to use a voicemail as the main format for answering your business phone unless it’s after business hours. • Voicemails must state the name of the business. Corporate Identity: Yes your company needs stationary, company letter head, and business cards etc., it helps to have a logo and brochures. $tep# 4 Have a seasoned business bank reference: you need at least one seasoned business bank reference that is at least 2 years old, with a low five-figure average daily balance. A low five-figure average daily balance is $10,000 or more at all times in the account. Now this does not mean, if you don't have a five figure balance you won't get corporate credit. It just means it will slow up the process, and make things a little more difficult. With a high four-figure balance you can still get credit you just won't be able to get the higher credit lines that are reserved for businesses that maintain a low five-figure balance. Also banks record your opening balance the bigger the deposit the more important they will consider your corporation. If you have a personal savings or some money put to the side, place that money into your business checking account and let it sit for a while. This will give the appearance to companies pulling your business profile that your company has financial stability. For businesses that are just opening an account, and do not have the capital to put a large deposit up for their opening balance, even 121 Copyright © 2008 Reginald Ringgold

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if you need to borrow the money for a couple weeks to deposit it then withdraw it and return it to the source that it came from, do whatever you can to deposit as much as you can for your opening balance. You will notice the difference in the way the bank treats you based on the size of your opening balance, and the businesses average daily balance. And last but not least business funds and personal funds must be separate. It does not matter how much is in the personal account you just must keep it separate from the business. What if I don't have a low five-figure balance or 2-3 year history? Grab a ski mask and Rob the bank just kidding!! Do not rob the bank that was just a joke. You'd be surprised at the things people do when you tell them to do it. You have a few options if you do not have a low five-figure balance or a 2-3 year history. Option #1 TEN MILLION IN THE BANK IN AS LITTLE AS 4 WEEKS (OWN YOUR OWN TEN MILLION DOLLAR CORPORATION) It is important to form your corporation in a state where the state law allows you to assign any "par-value" to your stock as you like, even though there are no assets to back up your valuation. Thus, it is possible to assign a par value of $1 each to 10,000,000 shares of stock and list it in your book as "assets." You can then take the $10,000,000 in shares of stock and deposit them in an Operating Investment Account with a bank that offers this service. Applying this strategy enables your business to provide a bank reference with an eight figure balance on deposit at all times. It's strictly a paper ploy but can be used in a number of situations to enhance your image among other prospective lenders, investors, business partners etc. By appearing wealthy you can swing many deals and make friends with people in higher positions of power. For more assistance please call us toll free at (888)8178222 Option #2 I am sure you have a personal checking account in which you write checks and pay bills. More than likely you may pay bills online. Since your business checking account is brand new, pay some of your bills through your business checking account in order to generate account activity. Companies need to see a decent balance and or account activity. Now I know this completely contradicts my 122 Copyright © 2008 Reginald Ringgold

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earlier statement of keeping your business finances separated from your personal. But as long as you have a personal account with money in it (No set amount) you should be fine. But I do not recommend applying this strategy for longer than 6 months just till the company can generate activity on its own. Option #3 The following is a story about Sally. Sally is trying to obtain financing for her business, but the only thing stopping her is she has only had her business checking account for one year. Fortunately she has had her personal checking account for over 10 years. She applies one of my techniques she learned at one of my boot camps. She goes down to the bank where she has her personal checking account and hands them a D.B.A statement (“ doing business as”) or a fictitious business name statement showing that she is personally doing business under her business name. By doing so she now can use her personal account with the D.B.A along with her other business account that she has had for one year, on her financial statement, trade sheet, and bank reference sheet. When the lending institution goes to verify the account, they will see that the personal/business account has been open for 10 years. (Note: Once you add the DBA to your personal account you must open a new personal account. Because you do not want to comingle corporate funds with personal funds.) (Beware using a D.B.A or fictitious business name on your personal account, leaves you wide open for the piercing of the corporate veil.) But this should not be an issue in the beginning, when establishing corporate credit. Because a lot of times there aren't very much assets to protect, but when you get the wealth do everything in your power to preserve it. (When applying for a bank account with a corporation that has been formed for anonymity and asset protection giving your social security number is not a good idea. To avoid giving your SSN when opening your corporate account open a non-interest bearing account these account do not require a SSN, more on asset protection in the protecting your assets chapter.) Option #4 If you have a business account from another business that is not in a high-risk or restricted industry (for more info on restricted industries refer to the survival tips 123 Copyright © 2008 Reginald Ringgold

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chapter) with a 2-3 year history and a low five figure balance, then it is possible to add a division to your business bank account most banks will allow up to 3-4 divisions per account. Option #5 Find a financial backer, someone whose only interest in the company is financial. Use their resources and form a Joint venture with the Financial Backer. This will provide whatever your business lacks (More information on financial backers and finding Financial Partners in the following sections) Note: If you do not have a business or personal bank account with history then open a new account under the name of your corporation. All you should need to open a corporate bank account is a copy of your Articles of Incorporation, your corporations Tax ID and in some cases a business license and a banking resolution.) $tep# 5 Prepare Two Financials and have them re-prepared by a CPA When it comes to financials you want to accent the positive and avoid the negative. For example, a resume must include a person's educational experience. If your education is not much to brag about, for instance if you did not finish college, or dropped out of high school, then you would simply leave the education section out of your resume. This is the same with financials, only include the factors that will boost your credibility and show your ability to repay the loan. Remember when it comes to borrowing money there is no time to be humble. This is your opportunity to toot your own horn. When preparing two years financials you would like to have a balance sheet and income statement for the last two years, and a year-to-date for the year you are currently in. That means if the year you are preparing financials is 2007, you should have a year-to-date statement to the end of the most recent calendar quarter of 2007. You should also have tax returns for 2005 and 2006 with the figures matching the figures on your financials. Again no one knows your business better than you and your business owners, it is okay to prepare your financials but in 124 Copyright © 2008 Reginald Ringgold

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order to give your financials credibility you should have them prepared by a CPA licensed with the IRS. (Refer to the appendix for examples of financials.) Have your CPA prepare a "compiled financial statement" for the last two years prior to the current year. And if you have figures for the current year, have him prepare a year-to-date financial statement. You do not want a reviewed statement, because not only are they very costly, and take a long time to prepare, but a reviewed statement is not as credible as an audited statement, it serves the same purpose as a compiled statement but could end up being very detrimental. If you choose to go with the audited financial statements, and they don't paint the picture you were looking for, have the CPA prepare a compiled statement. But remember with an audited statement it is much easier to obtain credit without a personal guarantee. If a CPA gives you problems, or is hard to work with find another one “there's plenty fish in the sea”. Review the statements to make sure they look as good as they possibly can without creating any unnecessary tax liability for yourself. Make sure your liabilities do not exceed 40% off your assets. If possible at least 10% of your net worth should be cash or any other liquid assets. You may use estimates, guesstimates or projections with a compiled statement since the CPA does not verify or question the figures you provide them with. If you are a new business I recommend a compiled financial statement since estimates and projections can be used. Financials are not set in stone if you choose to have them redone simply have them identified as "amended financials". If you do not have two years financial statements refer to the section Finding a Financial Partner. (When applying for over $250,000 most lenders will require a detailed business plan for more info on business plans refer to chapter 10.) Having a strong balance sheet When applying for a business loan, the lender will usually look at your company’s Financials which includes your company’s balance sheet. A solid balance sheet with assets exceeding liabilities is important to be viewed as a low credit risk by commercial lenders. Here are a few ways to keep a good balance sheet, retain cash, wait to write-off bad receivables, manage inventory, lease rather than purchase equipment. Your balance sheet is a direct reflection of your Duns Rating. Because your Duns Rating is based on net worth (Financial Strength), and your balance sheet is a snap shot of your company’s net worth.

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Add $10,000,000 to your Business Balance Sheet for less than $50.00 You can add $10,000,000 or more to your balance sheet. It is important to form your corporation in a state (Nevada or Wyoming) where the state law allows you to assign any "par-value" to your stock as you like, even though there are no assets to back up your valuation. Thus, it is possible to assign a par value of $1 each to 10,000,000 shares of stock and list it in your book as "assets." You can then take the $10,000,000 in shares of stock and add the corporate stock as assets to the businesses balance sheet. This strategy will give the corporation an image of a big fortune 500 company. Establishing a Duns Rating with current financials You can send in a current balance sheet to D&B that shows the corporation has a ten million dollar net worth, and as long as the corporation is paying its bills within terms you can establish a 3A1 Duns Rating with D&B. Have two year's tax returns prepared by a CPA It is okay if you have not filed your tax returns yet, is better to file late then to file improperly. If you have not filed your tax returns simply take your financials and prepare the corresponding tax returns based on the figures in them. The tax returns can be filed or held for future filing. I recommend that you file them if there is no reason not to. In fact you are required to if your business made a profit. If you need to make any changes, just file amended tax returns. When asking a lending institution to rely on your financials, in order for them to be truthful your tax returns need to be sent to the IRS. Otherwise you will be lying to the lender, and that is a Federal offense. The information in your financials must be provable; in case a potential creditor challenges the accuracy of them you don't want to be in a position where you can’t provide proof that they are accurate. It's important to show as much income capacity and earning capacity as your business can without creating a tax liability. Make sure you have listed all expenses and have made any adjustments to income that you possibly can. Financials are a catch 22 you want to show good Net profit when it comes to submitting them to lenders and potential creditor's. But when it comes to sending them to the IRS you want to show that you are barely breaking even.

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Here’s how you do it: Nevada is a tax free state; there are no corporate or personal income taxes. first you must establish a Nevada LLC(Your Private LLC) to work in conjunction with your Current Home Corporation (Your Public Corporation). Set the Nevada LLC in place to where it will be providing Consulting and leasing equipment or property to your Home Corporation. Your Nevada LLC (Your Private LLC) can act as a consultant, supplier, marketing & advertising service, and or financier to your Home Corporation (Public Corp). Your Home Corp. can then divert the profits that would be taxed and direct them to your Nevada LLC where there is no state tax. For example let’s say your Public Corp is a car dealership. You could have your Nevada LLC purchase the vehicles from your current supplier then mark them up to near retail value, and sell them to your Public Corp so they can be resold at full retail value. What you have just done is left all of the profit from the sale of the vehicles in tax free Nevada and reduced or eliminated any state tax that your company would have had to pay had you left the profit in your non-Nevada Corp. When this strategy is implemented in a high tax state like California, your overall tax savings can be substantial. Again Public Corp. eliminated a high tax profit by paying consulting fees to Private LLC. Leaving very little net profit to be taxed on. It also protected its assets from litigation by moving them over to Private LLC. (For more information on the Multiple Corporation Strategy refer to the Multiple Corporation Strategy section in the protecting your Assets from Uncle Sam & Sue Happy Suzy). $tep#6 Apply for DUNS number: The normal process for obtaining a Duns Number takes 30 days, to expedite this process you can go through D&B’s Credit Builder program. This service is ideal for businesses that need to establish their credit rating. This program will shorten the normal thirty day process for obtaining a Duns Number to within five business days. This program builds a full credit profile, and assigns a basic set of D&B scores and ratings that potential creditors can view. (For more information on applying for Duns Number refer to business credit bureaus chapter in the applying for a Duns number section).

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$tep#7 Establish five trade references: that report positive payment experiences to D&B. And five credit cards/cash lines of credit that report positive payment experiences to Experian. (Remember trade references report to D&B and credit cards/cash lines of credit report to Experian and Equifax.) For references make a list of businesses (vendors) that you are currently doing business with who would be willing to report to D&B. Remember you must make purchases to establish some payment experiences. So if you have not used the trades make small purchases from $50$500 from each vendor. Do not make all of your purchases on the same day. Space out your purchases over a few days or weeks. Establishing a Paydex & Intelliscore Make sure you pay your bills promptly, that means pay the bill no later than the due date. If possible pay the companies’ bills at least 10 days before the due date. It is important not to go over 45% of the high credit available on any given trade line. Make sure you have a modest debt-to-asset ratio (60/40). Make sure all of your payment experiences are being reported to Experian and Dun & Bradstreet. Keep in mind business credit is not like personal credit you must pay promptly, the earlier the better. Every day beyond the terms you're slow to pay it brings your Paydex score down. Unlike personal credit where you get 30 days before a late reflects on your credit report. Most vendors you will encounter NEVER report good credit to anybody. On the other hand if you don't pay on time you will definitely be reported negatively. If you do not have five established trade references you can go to the bank were you have your business checking account and open a line of credit secured by your deposit, and then apply the secured banking round robin strategy. Once you have five trade references if you have a problem with them reporting to D&B go through the D&B Credit Builder Program this process will expedite the process of reporting the trades references to D&B. (For more information on the secured banking round robin strategy and trade references refer to the establishing trade references chapter).

Option 1 If the creditors are not reporting to D&B or Experian then request for them to provide you with a reference letter with the activity and history of the trade reference. 128 Copyright © 2008 Reginald Ringgold

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Option 2 Another option would be to transfer your personal accounts that have positive payment experiences to your business. This option allows you to transfer the positive payment experience that you have established on your personal account. Prepare a properly constructed bank and trade reference sheet for your Corporate Credit portfolio.

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The following is an example of what a trade reference sheet should look like: ABC Inc. 123 Blvd. Suite. 001 San Francisco, Ca 98321 (415)555-5555

Johnny’s Office Supplies Xyz St. San Francisco, Ca By Fax Only: (415)555-0000

Sally’s Printing Service Anywhere Road. San Francisco, Ca By Fax Only: (415)555-5545

Trades: Jacks Business Venture 321 Ave. San Francisco, Ca By Fax Only: (415)555-5050

Stanley’s Equipment Warehouse Any street Way. San Francisco, Ca By Fax Only: (415)555-5115 Amber’s Art’ & Craft’s Your street Blvd. San Francisco, Ca By Fax Only: (415)555-0055 Bank References:

Bank of the People Our street Rd. (415)555-1055 Account#0000-654321 Contact Mr. Banker

International Bank That street Ave. (415)555-0151 Account#0000-123456 Contact Miss. Banker Landlord: Your Landlord Nowhere, Ave. By Fax only: (415)555-3255

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Again this process may seem very simple to you because there are only seven basic steps involved. However keep in mind the implementation of each step is equally important in the process of obtaining platinum corporate credit. What if I do not have any of the above items listed in the seven steps? Find a Financial partner (Financial Backer) Since a corporation is a legal person it can cosign for another corporation through a joint venture strategic alliance. If your business does not have any one of the above items listed in steps 1-7, or is just a new startup company. An option would be to find a financial partner (a corporation that has assets and proof of financial capacity) to go into a joint venture agreement with, who will put up their financials in exchange for a fee, or shares of stock, in other words a piece of the pie. You put together a consolidated financial statement, which would permit you to include his bank statements, financials, and trade references etc. on your company's bank reference sheet and business balance sheet. You are required to give your financial partner an equity position so that as an owner of the corporation their assets and financials can be consolidated into your business. If the officers of the Corporation do not have well enough personal credit, you can also have a financial partner act as a credit officer for the Corporation. Another option for a business that is lacking in any area in the seven steps would be to do a leveraged buyout. In order for this to work the company you are going to acquire must have been in business for at least 2-3 years preferably 5, the business must be incorporated, the business must have a Duns rating, a Paydex score of 80 or better, and audited financials etc. If the business meets the LBO guidelines you can proceed with the leveraged buyout. After the LBO is complete draft up a joint venture/strategic alliance agreement between the company you bought doing the LBO and the company that you are trying to establish corporate credit on. If this is done correctly the company you acquired using the leveraged buyout strategy, will provide anything the other company is lacking. (For more information on leveraged buyouts refer to the how to do a leveraged buyout section in Leverage chapter).

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Finding a financial partner You can form a strategic alliance with a financial partner whose only interest in your corporation is financial. These partners would have no other duties or responsibilities unless otherwise agreed upon. And he would not have to be a listed officer on the corporation, or sign any documents except the initial strategic alliance agreement unless you have personal credit problems, which will interfere with your ability to get higher lines of credit. A financial partner could be someone close to you like your father or any other relative or close friend. But if this option is not available there are private investors and other individuals that would lend you their financials for a fee. Keep in mind that if you're going to have them be a listed officer on the corporation they must have good personal credit, they should but are not required to operate as a corporation, they have to be willing to let you use their bank account(s) as a bank reference, they should be willing to merge their financials with yours into consolidated financial statement. Keep in mind that this does not give you access to their assets. Though it sounds far-fetched, if you make the partnership lucrative enough, you will have no problem finding a financial partner. You can put out ads advertising for a financial partner. Here are a few examples of some ads: Financial backer needed with good financials. Excellent risk-to-return ratio. No cash, collateral, or personal guarantees needed. Fax query to: (800)000-0000

Overnight riches No risk involved. Capital or assets needed for solid backer to yield large profits. Contact us at: (800) 555-5555

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Sample Strategic Alliance Agreement (The name of the financial backers Corp. goes here) has inquired about becoming a financial backer in a joint business venture with (your company name goes here). As a financial backer you will provide financials. You will have no management or decision-making authority, or any other duties or responsibilities unless otherwise agreed upon. These tasks are reserved for the directors and officers of the corporation. In exchange for corporate shares you will merge your financial information with our financial information into a consolidated financial statement. There are no personal guarantees by you. There is no change in your control over your assets. No money is moved or transferred from your account. And no one signs on any your bank accounts. And your assets are not pledged as security under any circumstances. The corporation will be a limited liability form of business and is designed to protect against the personal liability of the directors, officers, and shareholders. We can say with confidence that when corporate formalities are followed, and the role of the joint venture partner is limited to that of a shareholder, piercing the corporate veil for personal liability should be significantly minimized. Please signify your willingness to enter into the above, described venture by signing below. In doing so, you authorize (your company name here) and its officers or directors, to merge your financials, bank, and trade references with those of the subject Corporation for purposes of producing a new consolidated financial statement.

(Business name if applicable)

(Signature of financial backer) Date

(Your business name)

(Officer's signature) Date

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You should also create a resolution stating the following: “We the board vote and elect to issue __% of the shares of stock in the corporation to our parent corporation xyz Inc. for aging and credit purposes. (For information on corporate resolutions refer to the business entities chapter in the corporations section.) John and Robert Story Continued: John: I went to a few banks and they all turned me down because my business account was not seasoned enough, and my average balance was too low. Not to mention my Fico score dropped because of excessive inquiries. So I have been giving a lot of thought to the joint venture offer you made me earlier this week. And I decided I'm in, under one condition, we split the profits 75/25 since all I need from you is your financials there is very little risk involved. Robert: I was beginning to think you were avoiding me John. You made a good decision the sky is the limit

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Chapter 8 The Top 10 mistakes business owners make when financing their business.

“The essence of success is that it is never necessary to think of a new idea oneself. It is far better to wait until somebody else does it, and then copy him in every detail, except his mistakes.” Aubrey Menen

Business owners typically make one or more mistakes when trying to obtain financing for a new business or expand or grow their existing business. Most business owners don't even realize they are making a mistake until it is too late and their business has already been red flagged. By simply educating yourself it is possible to avoid these costly mistakes. To help you avoid these mistakes I've provided a list of the top 10 mistakes business owners make when trying to obtain financing. These mistakes can cost a business a lot of time and money. And in some cases could result in a red flag high-risk status with D&B. Mistake #10 Not doing your due diligence. Most business owners do not follow up with Dun & Bradstreet to make sure all their information is correct, and all their trade references are being reported. Remember most vendors do not report trade experiences to Dun & Bradstreet. It is important to make sure you have five trade references that report to Dun & Bradstreet. I recommend you review your business credit report from all 6 business credit reporting agencies on a regular basis to make sure all information is correct, there is no conflicting information, and all trade references are being reported.

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Mistake #9 Being too anxious to obtain financing and rushing through or skipping any one of the seven steps. As I said in the seven steps chapter the implementation of each step is very critical, rushing or skipping any one of the seven steps could result in a red flag or highrisk status with D&B. Mistake #8 Using business credit to supplement income Although business credit can come in handy in months when the business doesn't do so well. It cannot be used to supplement income, business credit is a loan issued to your business, and just like any other loan it has to be paid back with interest. Mistake #7 Using business credit for personal use When you use business credit for personal use such as a car, T.V., or a boat etc. you are not receiving any return on investment (ROI). In fact you’re acquiring a liability that causes more expenses. The use of business credit for personal use is illegal. To get around this it is possible to have the corporation issue you a loan with a very high interest rate of course more on this in the protecting your assets chapter. Mistake #6 Forming a business entity and establishing business credit that is not separate from your personal credit. Most business owners are operating as a Sole proprietorship or a General Partnership. These business entities offer no liability protection for personal assets. The business and the business owners are one. Which means you are personally held liable for your company's debts and actions. In other words if you're SUED you're SCWERED. Most business owners personally guarantee loans on the business's behalf. In the first and second stage of developing a business it is common to be asked to personally guarantee a loan. But after you've established a 137 Copyright © 2008 Reginald Ringgold

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Duns Rating, and a Paydex score of 80 or better, and have been in business for at least 5 years you should no longer be asked to provide a personal guarantee. Mistake #5 Using close friends and family’s funds. If you inconvenience your family members and close friends to finance your business you are digging yourself a deeper hole to crawl out of. Now in the event of your business failing as 97% of all businesses do in the first five years, not only will your business have failed. But you will have dragged your friends and family into the whole mess as well. Mistake #4 Not paying company bills on time Not paying your companies bills on time will dramatically bring your Paydex score down. Unlike the Fico score, which is only affected if you pay 30 days after your due date. The Paydex score is based on your average days to pay. Meaning every day beyond the terms agreed your payment is not received, your Paydex score drops. So if you pay two days beyond the terms every month on all your trade references that report to D&B your Paydex score would be 79. And if you pay three days beyond the terms your Paydex score would be 78. Mistake #3 Applying for credit and not knowing lending institutions loan criteria. Most business owners apply for business credit without knowing whether or not their company is in compliance with the lending institutions lending requirements. You should have completed the first six steps in the Seven Steps Chapter before you start applying for business credit. Lenders say that businesses in the third and fourth stage of the development process are ready to approach commercial banks and other traditional lending institutions for financing. Businesses in the first and second stage of the development process should seek financing from informal investors such sources of funding may include private investors, Venture Capitalists, Angel Investors, government grants etc. for more information on lending criteria refer to the bank loan criteria section in the business loans and commercial finance Chapter. 138 Copyright © 2008 Reginald Ringgold

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Mistake #2 Pledging personal assets Any time you pledge your assets such as take-out a HELOC on your house, or borrow against your life insurance policy or 401(k) to finance your business you are putting your personal assets at risk. If the business cannot repay the loan, the bank will put a lien on your home, or your life insurance policy will be wiped out etc. The only time you should pledge your personal assets is if the lender requires it and it is the absolute last resort. Operating as a sole proprietorship or a General partnership also puts your personal assets at risk. To take it one step further one should not own or have any personal assets. Instead have a trust, or a corporation own the assets that no one knows you control besides your lawyer. (More on asset protection in the protecting your assets chapter). Mistake #1 Using personal credit to finance your business. If you have used your personal credit or personal funds to finance your business don't worry you are not alone. The number one mistake business owners make when financing their business is using personal funds or personal credit. When you use personal funds to finance your business, everything rides on the company's success, if the business fails you lose the investment you put into the business. In some cases it could result in bankruptcy. The more debt you have on your personal credit report the higher your debt-to-income ratio, it doesn't matter if it's for personal use or business use. Too much debt will lower your personal Fico score. You're also lowering your personal Fico every time you apply for business credit using a personal guarantee. See every time you apply for credit whether it's for personal use or business use, your hit with an inquiry, an inquiry can lower your personal credit score anywhere from 1-3 points. The lower your score drops and the higher your debt ratio the harder it is to secure financing… especially financing with the most favorable terms.

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Chapter 9 Personal Credit

In [my book] The Art of the Deal I warned readers to never personally guarantee anything. - Donald Trump, How to Get Rich, page 7

Personal Credit Since this is a manual on Corporate Credit I will assume that you know the basics on personal credit so we will not go too deep into detail on this subject. Fico scores range from 300-850 with 300 being the lowest and 850 being the highest. Your credit score is based on five major things in your credit history: 35%- Payment history 30%- Amount you owe 15%- Length of credit 10%- Types of credit 10%- New credit Payment History Your payment history is the frequency and amount you've paid on past debts. In the event that a debt has been sent to collections it will stay on the record for 7 years. If you have a debt that has been in collections for 5 or so years (so it’s almost to the 7 year mark) do not just pay it off, because once you pay you will have “paid collections” on your record for another 7 years. Instead, call the collections company and tell them you fully intend to pay the debt if they will write a letter to each repository (company that does credit reports -- there are 3) telling them to expunge the collection once you have paid. With their affirmative answer, pay it! You have their word that it will not be on your credit report. Amount you owe 140 Copyright © 2008 Reginald Ringgold

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The amount you currently owe for your credit cards, mortgage, car, etc. is on your credit history. This can be good or bad, depending on how much you owe compared to the limit you have. My advice to you is to not max out your credit cards! Your credit report is based on the amount you owe on your credit card compared to the credit limit. If your amount owed/credit limit is 0-30%: green light, 30-60%: yellow light, 6090%: red light. Your credit score will be higher if you have three cards in the green light range as opposed to one card that is in the red light range. Hint: Mortgages are on your credit report. If you have many loans you don’t want to continually go to the same bank. Your mortgage broker will help you (he gets paid if you get your loan). Be up front with your mortgage broker about your loans so he can shop at different banks. If he doesn’t know where your other loans are he might try to get you a loan at a bank where you already have a loan and they could deny you. Length of Credit The length of time you have established credit is important. The sooner you get started building your credit, the longer you will have to create a high credit score. Get credit history started young! Buy things on your children’s' credit so they have some established when then need it. Types of Credit There are different types of credit. Mortgages are good (unless you have a lot of them). Some credit cards are good and some are not. Don’t open department store cards – cancel them. Lowes and Home Depot are okay because they will be beneficial to you. Note: If you only have dept store cards, don’t cancel them because you need some form of credit history. Work on opening a new card (see possible good cards below) then cancel your department store cards.

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New Credit Getting new credit cards, cars, etc. can hurt your credit score because your credit is checked each time you apply for something new. Sometimes when your credit is checked it lowers your credit score. There are hard-hit and soft-hit credit pulls. A hard-hit credit pull is not good. This is when you have a mortgage broker, car dealer, etc. pull your credit -- it lowers your credit score every time you do! A soft-hit credit pull is okay. This is when you pull your own credit. You can do this as much as you’d like. How Is the Personal Credit of the Officers, Directors, & Owners of the corporation? One area of your business you should be aware of when establishing Corporate Credit, is the damage an individual with a challenged fico can have on the process. If an individual was associated with another company that has filed bankruptcy or has a high risk credit status, and is now an officer of your corporation, he/she could potentially damage your corporation’s Corporate Credit rating. For example, if John Doe is listed as a Director and/or Officer on your corporation’s Officer’s List, but he was previously an officer of another corporation that received a "high risk" status from the credit bureaus, these credit bureaus could then tag the "high risk" status on your company. Unfortunately there are currently no laws protecting small businesses from the credit bureaus. Make sure all the officer’s of your corporation have a fico score of 680 or better and are free of association with any company with a "high-risk" status. Though it is true you can obtain Loans and leases under your company with no personal guarantees, your personal credit plays a very important role when establishing Corporate Credit. In the early stages of establishing Corporate Credit you will be asked by banks and lending institutions to provide a personal guarantee on almost every occasion. Even after you have established a Duns Rating and a Paydex score of 80 or better, banks and lending institutions still want to see the personal credit of any officer of the corporation who owns anywhere from 10-25% or more of the business. Why? Because a person’s credit tells a lot about a person’s character, how you run your personal life is a pretty good indicator on 142 Copyright © 2008 Reginald Ringgold

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how you run your business. Banks usually look for a Fico score of 680 or better. Now this does not mean if you do not have a 680 you cannot get financing, it just makes your chances for getting approved a lot higher, interest rates lower etc. if you have good personal credit. If you, any shareholders, or any other officers of the corporation do not have at least a 680 Fico, you can apply the same strategies I provided in the finding a financial partner section in the seven steps chapter to find a credit worthy officer for the corporation. Here are a few ads you can run: Creditworthy officer needed for local corporation Excellent risk-to-return ratio. No cash or collateral needed.

Overnight riches No risk involved. Capital or assets needed for solid backer to yield large profits. Contact us at:

Call (800) 000-0000 (800) 555-5555

Credit Worth Officer’s (CFO’s) Not only will creditors check the personal credit of any officer who owns more than 20% but in most cases they will want the officer’s to provide a personal guarantee as well. To avoid this create a resolution for the Credit worthy officers of the corporation to control up to 100% of stock. With the words control up to 100% being used in the resolution this allows multiple credit worthy officers (CFO’s) to simultaneously state that they control up to 100% of the corporation’s stock while applying apply for credit on the corporation’s behalf. You can have as many credit worthy officers (CFO’s) as you want as long as you elect them to the financing committee. If you are issuing stock certificates to the CWO which you should, make sure that you put an expiration date on the stock certificate (60-90 day timeframe). This way you won’t have to worry about any problems with getting those shares back from the CWO. Not to mention you don’t want to own the stock for too long because it’s ok to own stock as long as you’re not sued while you own it, and you never know when a lawsuit may occur.

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“The resolution should state we the board vote and elect that everyone named in the financing committee can state he/she controls up to 100% of stock (up to means 1-100%). They do not own the stock for a personal nature; they own the stock for credit purposes only.” Bank Loan Procedure These loans are not designed to put money in your pocket. They are designed to get banks to trust you and start loaning you money along with posting A-1 personal credit ratings on your credit report to show your credit worthy. The best credit reference you can furnish is a record of having borrowed money from a bank. Since bank loans are hard to get, a good reference will usually rate you as AAA-1 and open the doors to the credit world for you. The following is a technique for using the banks money to build an excellent credit rating. First of all go to a bank of your choice. Make sure they report to the same credit bureau that you are building your credit file at. Open a regular savings account there for no less than $1,000. Wait 3 days for the account to be posted and then go back to the same bank and ask for a $1,000 loan offering your savings account as collateral. Since your loan is totally secured by your savings account the bank won't even make a credit or employment check. Take the $1,000 loan, go to another bank and do it all over again. Go to at least 3 banks doing the same thing. Ask for a 6 or 12 month payment plan for each loan and take your payment account passbook with you each time you ask for a loan because you'll have to surrender it to the bank in order to get the loan. After leaving the third bank you'll still have the $1,000 cash in hand. Now go to a fourth bank and open a checking account if you don't already have one. Wait two days, and then make one monthly payment on each bank loan from your new checking account. Wait a full week and send your second monthly payment to each bank. Repeat one week later with your third month's payment. Once you've followed my plan you'll be eligible for signature loans, credit cards, home or auto financing, or anything else. A credit investigation at this point will list you as an excellent credit risk. And why not? Within 30 days you'll have an active checking account, three $1,000 savings accounts and three $1,000 loans on which you are three months ahead on payments. You'll also have great credit ratings on your credit report. And as you continue reading you'll see that you'll also have a fourth A-1 credit rating from the bank that will issue you your visa and/or Master card. 144 Copyright © 2008 Reginald Ringgold

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By making the first 3 payments you have unfrozen equal amounts of cash in your savings account. You can now withdraw enough money from your savings account to make your upcoming payments. Continue In this manner until the loan is paid off. You'll still retain most of your original $1,000 because it continues to draw interest while used as collateral. This helps offset the interest charges you pay. Try to keep a little money in each savings account for future references. Personal Financial Statements Depending on the lending institution, requesting a loan $50,000-$100,000 or more requires personal financial statements. A personal financial statement indicates your net worth. Each partner or shareholder owning a substantial percentage (for example, 10-20% or more) of the business should submit one. A personal financial statement is important to the lender, particularly if you have never received financing for your business before, because it gives the lender evidence of personal assets you could pledge to secure a loan. What if I do not have personal financial statements? If you do not have personal financial statements, then follow the strategies provided in the finding a financial partner section & the personal credit section. To Personally Guarantee or Not to Personally Guarantee? question

That is the

As I stated earlier in the beginning stages of establishing corporate credit, you will be asked 95% of the time to provide a personal guarantee. The other 5% if you’re lucky would be collateralized credit, credit that has collateral that can be reposed in the event that your corporation were to default on the loan. But once the corporation has established a track record with that creditor, a Duns rating, and a Paydex score of 80 or better it is possible to obtain business credit without a personal guarantee. Although most lending institutions will require most start up businesses to provide a personal guarantee, this does not mean that you have to be the personal guarantor. Even if your FICO score is 850 let someone else personally guarantee the loans on the business's behalf. You get the best of both worlds, you give the bank their personal guarantor, and you do not have to be that guarantor. Besides you 145 Copyright © 2008 Reginald Ringgold

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wouldn't believe how many people get a kick out of being able to say that they are a listed officer of a corporation, or would be willing to be a credit worthy officer in exchange for profit. No Personal Guarantee Using personal credit to finance your business can cause problems. Because businesses require more cash to operate than consumers do, you may seem overextended. Your personal credit will not be portrayed accurately if you are using it to run your business. What if you have excellent personal credit but absolutely under no circumstances want to provide a personal guarantee? The Key factor here is your ability to negotiate and use common sense. Consider these possible remedies; 1. Have the corporation offer alternative collateral instead of the personal guarantee. Convince your supplier or vendor to accept a security interest on assets of the business instead. Or maybe he can accept a guarantee from an affiliated corporation. 2. Maybe you can only get half the credit line without a personal guarantee instead of $50,000 maybe you can get $25,000 to start with. 3. Ask the creditor if they would be willing to drop the personal guarantee if you paid on time for the first six months. The key is to negotiate 4. Find a creditor that wants your business. If you show them some cash up front they may be more than willing to forgo the personal guarantee, and if they say they won't tell them their competitors will. Remember if you have an existing relationship with a creditor and the corporation is unable to pay its bills on time, never give the creditor a personal guarantee at that point no matter how much they insist on one. It is a good Idea to have a credit worthy officer for the corporation, someone to personally guarantee loans on the corporation’s behalf. But if you have to sign the personal guarantee make sure your business partners sign also. The goal is to avoid personal guarantees as much as possible and to pay those debts first that have the personal guarantees. Creating a Credit worthy Officer • File a DBA under an AKA • Then apply for a Tax ID number,

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• Establish credit with the assumed name (AKA) (If you currently have personal credit cards add your AKA as an authorized user to expedite the process of establishing credit with the AKA), • Start establishing corporate credit with the assumed name as the personal guarantor. once you have been approved order an additional card in your name by adding yourself as an authorized user. • If anonymity is not important to you then this strategy can also be applied incorporating your name. Either way applying this strategy correctly will provide you with an endless supply of credit worthy officers that will personally guarantee loans on the corporation’s behalf. Thus providing a personal guarantee and avoiding a personal guarantee at the same time. Separating the two Though it is true you can expedite the process of building business credit through personally guaranteeing loans. Keep in mind when you personally guarantee a business loan, your tying your personal credit to your business debts. Businesses have needs in order to maintain the day-to-day business operations. They need materials, parts, equipment etc. on a continuous basis. And as it expands there's more and more need for capital. Unfortunately with personal credit, the more you apply for financing for the business; you acquire more debt and more Inquiries. Making you undesirable to lending institutions because your score dropped and your debt ratio went up. This is why it is important to establish a corporate credit profile that is separate from your Personal credit. As we discuss in the incorporating chapter you can separate your personal liability and protect your personal assets from that of the business just by incorporating. It is possible to build a business credit profile for a sole proprietorship or partnerships; however you are still responsible for all the debts of the business. I recommend building your business credit as a corporation. Because a corporation makes smaller companies seem larger in appearance. And the highest D&B ratings are reserved for larger corporations.

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Chapter 10 Business Loans & Commercial Finance “A bank is a place that will lend you money if you can prove you don’t need it” Alan Harrington

Establishing Corporate Credit for a business can be a dilemma because until you've developed a good track record, many commercial banks and other traditional lenders will be reluctant to extend credit to your business until it has established a Duns Rating Paydex score, Intelliscore etc. In order to identify the type of lending institution most likely to lend to your business, it is most important to pinpoint which of the four stages of development your business is currently in. The four stages of developing a business 1. Stage one the business is a start up 2. Stage two the business has a business plan and product samples but no reserves 3. Stage three the business has a full business plan and pilot programs in place 4. Stage four the business has been in operation for some time and has documented revenues and expenses. Lenders suggest that instead of approaching conventional lending institutions, businesses at stages one and two should seek financing from informal investors. Such sources of funding may include local development corporations, state and local governments offering low-interest micro loans, private foundations offering program-related investments, credit unions featuring small business lending. Lenders say that businesses in stage four, and in some cases stage three are significantly developed enough to approach a commercial bank or any other conventional lender for a business loan.

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It is wise to first approach the bank with which you have an account and an established relationship. It wouldn't hurt to have your accountant or lawyer contact the bank and present your proposal. Choosing a Bank that’s Right for You It is important in the beginning stages of Corporate Credit to select the right bank. Do NOT choose any bank. There are two main objectives to seek when searching for a new bank. 1.) Find a bank that is aggressively seeking new business. 2.) Choose one with which you can develop a personal relationship. To select a bank that is aggressive, simply watch for extended advertising campaigns. They are very costly, and must bring in new business in order to be continued. Look also for smaller banks, ones with just a few offices. They tend to be more aggressive, more lenient on qualifications, much friendlier and more personalized in the service they offer. They are forced by nature of their Competition to be more flexible. With the small, independent bank, you will get friendly service, and often will be called by name. The tellers remember you and do not need to request your identification every time you want to cash a check. Small banks do not have a large loan committee that spends lots of time shuffling papers. They may however, stall your loan application for a day or so in order not to appear too anxious! It’s a minor issue...and not one to be overly concerned about. Big banks seem to have forgotten that the customer is number one. You will be far more pleased with a small bank and the personalized service when it comes to getting loans and other services for your business. Reasons to Borrow There are three major reasons why businesses borrow; 1.) The first and most common reason is to purchase assets. A loan to acquire assets could be for buying short-term, or current, assets—such as inventory—and would be repaid once the new inventory is converted into 150 Copyright © 2008 Reginald Ringgold

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cash as it is sold to customers. Or, the funds could be for the addition of long-term, or fixed, assets, such as equipment. 2.) The second reason is to replace other types of credit. For example, if your business is already up and running, it could be time to take out a bank loan to repay money that you borrowed. Or, you may wish to use the funds to pay suppliers more promptly to get a discount on the price of the merchandise. 3.) The third reason is to replace equity. If you wish to buy a partner's share in your corporation but you don't have the capital to do it, you may consider borrowing it. Business Loan Check List

• • • • • • • •

All seven steps in the seven steps chapter Business plan Corporate resolution to borrow funds Year-to-date profit and loss and balance statement Cash flow projections for the next 12 months All business and personal credit reports Bank and Trade reference sheets Collateral sheet

Business Loan Criteria To get an approval for your business loan, you must be able to meet the lending criteria. Some lending institutions are more risk averse than others, and will therefore have more stringent criteria. To increase your chances of a successful funding, you will need to present the following information: 1. The purpose of the loan. The lender will be looking for something that fits within the range and expertise of your business. The amount may cover a number of items, so you will need to cover each.

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2. The amount required, and the repayment term of the business loan you request. (e.g. $50,000 term 10 years, payable quarterly). Remember ask for a specific amount and take whatever amount you calculate that you need and double it and ask for that amount. 3. Details of how you plan to repay the loan. 4. Details of collateral you will be able to pledge to the lender. This will act as reassurance for the lender. In the early stages of establishing corporate credit if you are not willing to provide a personal guarantee then be prepared to put up some aspect of security. 5. Personal financial statements from all the principals of the corporation. Lending institutions usually want financials from any principals who own at least 10%-25% or more of the corporation. That’s if they even request financials at all. 6. 2 Years audited financial statements; you will need to provide financial statements prepared by a C.P.A preferably audited. 7. Accounts receivables (debtors) and payables (creditors) ageing reports. 8. You will need to include your business plan with detailed information about the market you operate in, management capabilities, what line of business you are in etc. If you are a new business the emphasis is going to be on your business plan, and the collateral your business can provide against the loan. The First Step: Preparing Your Business Plan and Loan Request When you apply for a business loan, you will need to provide certain information about yourself and your business in the form of a business plan. A business plan can act as an ongoing management guide to help you establish production goals and measure actual performance. Your business plan can help demonstrate to a prospective lender that you have the knowledge, managerial competence, and technical capability to run a successful business. The plan must be thorough and well organized. The finished document should be typed and placed in a binder. Make several copies for each of your prospective lenders and keep several copies for your files. I recommend that you get your 152 Copyright © 2008 Reginald Ringgold

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accountant or a professional at a small business development center to help you prepare the business plan. How to Prepare a Business Plan That Guarantees Big Profits Success in business comes as a result of planning. You have to have a detailed, written plan that shows you what the ultimate goal is, the reason for the goal, and each milestone that must be passed in order to reach your goal. A business plan is a written definition of, and an operational plan for achieving your goal. You need a complete business tool in order to define your basic product, income objectives and specific operating procedures. YOU HAVE TO HAVE A BUSINESS PLAN to attract investors obtain financing and hold onto the confidence of your creditors, particularly in times of cash flow shortages - in this instance, the amount of money you have on hand compared with the expenses that must be met... Aside from an overall directional policy for the production, sales efforts and profit goals of your product - your basic "travel guide" to business success - the most important purpose your business plan will serve, will be the basis or foundation of any financial proposals you submit. Many entrepreneurs are under the mistaken impression that a business plan is the same as a financial proposal, or that a financial proposal constitutes a business plan. This is just a misunderstanding of the uses of these two separate and different business success aids. The business plan is a long range "map" to guide your business to the goal you've set for it. This plan details the what, why, where, how and when, of your business - the success planning of your company. Your financial proposal is a request for money based upon your business plan your business history and objectives. Understand the differences. interchangeable.

They are closely related, but they are not

Writing and putting together a "winning" business plan takes study, research and time, so don't try to do it all in just one or two days.

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The easiest way is to start with a loose leaf notebook, plenty of paper, pencils, pencil sharpener, and several erasers. Once you get your mind "in gear" and begin thinking about your business plan, "10,000 thoughts and ideas per minute" will begin racing through your mind... So, it's a good idea when you aren't actually working on your business plan, to carry a pocket notebook and jot down those business ideas as they come to you - ideas for sales promotion, recruiting distributors, and any other thoughts on how to operate and/or build your business. Later, when you're actually working on your business plan, you can take out this "idea notebook" - evaluate your ideas, rework them, refine them, and integrate them into the overall "big picture" of your business plan. The best business plans for even the smallest businesses run 25 to 30 pages or more, so you'll need to "title" each page and arrange the different aspects of your business plan into "chapters." The format should pretty much run as follows: Title Page Statement of Purpose Table of Contents Business Description Market Analysis Business Location Management Current Financial Records Explanation of Plans for Growth Explanation of Financing for Growth Documentation Summary of Business & Outlook for the future Listing of Business & Personal References

This is a logical organization of the information every business plan should cover. I'll explain each of these chapter titles in greater detail, but first, let me elaborate upon the reasons for proper organization of your business plan. Having a set of "questions to answer" about your business forces you to take an objective and critical look at your ideas. Putting it all down on paper allows you to change, erase and refine everything to function in the manner of a smoothly oiled machine. You'll be able to spot weaknesses and strengthen them before they develop into major problems. Overall, you'll be developing an operating manual 154 Copyright © 2008 Reginald Ringgold

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for your business - a valuable tool that will keep your business on track, and guide you in the profitable management of your business. Because it's your idea, and your business, it's very important that YOU do the planning. This is YOUR business plan, so YOU develop it, and put it all down on paper just the way YOU want it to read. Seek out the advice of other people; talk with, listen to, and observe, other people running similar businesses; enlist the advice of your accountant and attorney - but at the bottom line, don't ever forget that it has to be YOUR BUSINESS PLAN! Remember too, that statistics show the greatest causes of business failure to be poor management and lack of planning - without a plan by which to operate, no one can manage; and without a direction in which to aim its efforts, no business can attain any real success. On the very first page, which is, the title page, put down the name of your business – XYZ Inc. with your business address underneath. Now, skip a couple of lines, and write in all capital letters: PRINCIPAL OWNER - followed by your name if you're the principal owner. On your finished report, you would want to center this information on the page, with the words "principal owner" offset to the left about five spaces. Example: XYZ Inc. 1234 SW 5th Ave. Anywhere, USA 00000

PRINCIPAL OWNER: You’re Name That's all you'll have on that page, except the page number... -1Following your title page is the page for your statement of purpose. This should be a simple statement of your primary business function, such as: We are a service business engaged in the business of selling business success manuals and other information by mail. The title of the page should be in all capital letters across the top of the page, centered on your final draft - skip a few lines and write the statement of purpose. This should be direct, clear and short - never more than two (2) sentences in length. 155 Copyright © 2008 Reginald Ringgold

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Then you should skip a few lines, and from the left hand margin of the paper, write out a subheading in all capital letters, such as: EXPLANATION OF PURPOSE. From, and within this subheading, you can briefly explain your statement of purpose, such as: Our surveys have found most entrepreneurs to be "sadly" lacking in basic information that will enable them to achieve success. This market is estimated at more than 100 million persons, with at least half of these people actively "searching" for sources that provide the kind of information they want, and need. With our business, advertising and publishing experience, it is our goal to capture at least half of this market of information seekers, with our publication, MONEY MAKING MAGIC! Our market research indicates we can achieve this goal, and realize a profit of $1,000,000 per year within the next 5 years... The above example is generally the way you should write your "explanation of purpose," and in subtle definition, why you need such an explanation. Point to remember: Keep it short. Very few business purpose explanations are justifiably more than a half page long. Next is your table of contents page. Don't really worry about this one until you've got the entire plan completed and ready for final typing. It's a good idea though, to list the subjects (chapter titles) as I have, and then check off each one as you complete that part of your plan. By having a list of the points you want to cover, you'll also be able to skip around and work on each phase of your business plan as the idea or the interest in organizing that particular phase, stimulates you. In other words, you won't have to make your thinking or your planning conform to the chronological order of the "chapters" of your business plan - another reason for the loose leaf notebook... In describing your business, it's best to begin where your statement of purpose leaves off. Describe your product, the production process, who has responsibility for what, and most importantly, what makes your product or service unique - what gives it an edge in your market. You can briefly summarize your business beginnings, present position and potential for future success, as well. Next, describe the buyers you're trying to reach - why they need and want or will buy your product - and the results of any tests or surveys you may have conducted. Once you've defined your market, go on to explain how you intend to reach that 156 Copyright © 2008 Reginald Ringgold

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market – how you’ll alert these prospects to your product or service and induce them to buy. You might want to break this chapter down into sections such as... publicity and promotions, advertising plans, direct sales force, and dealer/distributor programs. Each section would then be an outline of your plans and policies. Moving into the chapter on competition, identify who your competitors are their weaknesses and strong points - explain how you intend to capitalize on those weaknesses and match or better the strong points. Talk to as many of your "indirect" competitors as possible those operating in different cities and states. One of the easiest ways of gathering a lot of useful information about your competitors is by developing a series of survey questions and sending these questionnaires out to each of them. Later on, you might want to compile the answers to these questionnaires into some form of directory or report on this type of business. It's also advisable to contact the trade associations and publications serving your proposed type of, business. For information on trade associations and specific trade publications, visit your public library, and after explaining what you want, ask for the librarian's help. The chapter on management should be an elaboration on the people operating the business. Those people that actually run the business their job titles, duties, responsibilities and backfilled résumé’s. It's important that you "paint" a strong picture of your top management people because the people coming to work for you or investing in your business will be "investing in these people" as much as your product or ideas. Individual tenacity, mature judgment under fire, and innovative problem-solving has "won over" more people than all the AAA Credit Ratings and astronomical sales figures put together. People becoming involved with any new venture want to know that the person in charge - the guy running the business knows what he's doing, will not lose his cool when problems arise, and has what it takes to make money for all of them. After showing the "muscle" of this person, go on to outline the other key positions within your business: who the persons are you've selected to handle those jobs and the sources as well as availability of any other help you might need.

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If you've been in business on any kind of scale, the next chapter is a picture of your financial status - a review of your operating costs and income from the business to date. Generally, this is a listing of your profit & loss statements for the past six months, plus copies of your business income tax: records for each of the previous three years the business has been an entity. The chapter on the explanation of your plans for the future growth of your business is just that - an explanation of how you plan to keep your business growing - a detailed guide of what you're going to do, and how you're going to increase your profits. These plans should show your goals for the coming year, two years, and three years. By breaking your objectives down into annual milestones, your plans will be accepted as more realistic and, be more understandable as a part of your ultimate success. Following this explanation, you'll need to itemize the projected cost and income figures of your three year plan. It'll take a lot of research, and undoubtedly a good deal of erasing, but it's very important that you list these figures based upon thorough investigation. You may have to adjust some of your plans downward, but once you've got these two chapters on paper, your whole business plan will fall into line and begin to make sense. You'll have a precise "map" of where you're headed, how much it's going to cost, when you can expect to start making money, and how much. Now that you know where you're going, how much it's going to cost and how long it's going to be before you begin to recoup your investment, you're ready to talk about how and where you're going to get the money to finance your journey. Unless you're independently wealthy, you'll want to use this chapter to list the possibilities and alternatives. Make a list of friends you can approach, and perhaps induce to put up some money as silent partners. Make a list of those people you might be able to sell as stockholders in your company - in many cases you can sell up to $300,000 worth of stock on a "private issue" basis without filing papers with the Securities & Exchange Commission. Check with a corporate or tax attorney in your area for more details. Make a list of relatives, and friends that might help you with an outright loan to furnish money for the development of your business.

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You can refer to the list of venture capital organizations. Visit the Small Business Administration office in your area - pick up the loan application papers they have read them, study them, and even fill them out on a preliminary basis - and finally, check the costs, determine which business publications would be best to advertise in, if you were to advertise for a partner or investor, and write an ad you'd want to use if you did decide to advertise for monetary help. With a listing of all the options available to your needs, all that's left is the arranging of these options in the order you would want to use them when the time comes to ask for money. When you're researching these money sources, you'll save time by noting the "contact" to deal with when you want money, and whenever possible, by developing a working relationship with these people. In your documentation section, you should have a credit report on yourself. Check your tri-merge credit report online with Transunion, Experian, or Equifax, or check at the credit department in your bank for the nearest credit reporting office. When, you get your credit report, look it over and take whatever steps are necessary to eliminate any negative comments. Once these have been taken care of, ask for a revised copy of your report and include a copy of that in your business plan. If you own any patents or copyrights, include copies of these. Any licenses to use someone else's patent or copyright should also be included. If you own the distribution, wholesale or exclusive sales rights to a product, include copies of this documentation. You should also include copies of any leases, special agreements or other legal papers that might be pertinent to your business. In conclusion, write out a brief, overall summary of your business - when the business was started, the purpose of the business, what makes your business different, how you're going to gain a profitable share of the market, and your expected success during the coming 5-years... The last page of your business plan is a "courtesy page" listing the names, addresses and phone numbers of personal and business references - persons who have known you closely for the past five years or longer - and companies or firms you've had business or credit dealings with during the past five years. Appendices/exhibits. This section should document any issues that can't be addressed in the text. For example, distribution agreements, contracts for the

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purchase of your product, and your operating licenses would all be included as appendices. And, that's it - your complete business plan. Before you send it out for formal typing read it over once a day for a week or ten days. Take care of any changes or corrections, and then have it reviewed by an attorney and then, an accountant. It would also be a good idea to have it reviewed by a business consultant serving the business community to which your business will be related. After these reviews, and any last-minute changes you want to make, it'll be ready for formal typing. Hire a professional typist to type the entire plan on ordinary white bond paper. Make sure you proofread it against the original. Check for and correct any typographical errors then one more time - read it through for clarity and the perfection you want of it. Now you're ready to have it printed and published for whatever use you have planned for it - distribution amongst your partners or stockholders, as the business plan for putting together a winning financial proposal, or as a business operating manual. Take it to a Kinko’s or OfficeMax in your area, and have three copies printed. Don't settle for photocopying... Have it printed! Photocopying leaves a slight film on the paper, and will detract from the overall professionalism of your business plan, when presented to someone you're trying to impress. So, after going to all this work to put it together properly, go all the way and have it duplicated properly. Next, stop by a stationery store, variety store or even a dime store, and pick up an ordinary, inexpensive bind-in theme cover for each copy of your business plan. Have the holes punched in the pages of your business report to fit these binders and then slip each copy into a binder of its own. Now you can relax, take a break and feel good about yourself. You have a complete and detailed business plan with which to operate a successful business of your own. A plan you can use as a basis for any financing proposal you may want to submit. And a precise road map for the attainment of real success.

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Packaging Your Businesses Loan Proposal Whether or not you receive funding for your business depends on how well you present yourself, your business and your financial needs to a lender. Keep in mind that lenders have to make loans, but they must make good loans, loans they know will be repaid. Preparing your loan proposal is the best way to improve your chances of obtaining the capital your business needs. A good loan proposal should contain the following key elements: General Information •

• •

Business name, E.I.N number, Duns number, names of principals, social security number and percentage of ownership for each principal, and the business address. Purpose of the loan: exactly what the loan will be used for and why it is needed. Amount required: the exact amount you need to achieve your purpose.

Business Description • •

History and nature of the business: details of what kind of business it is, its age, number of employees and the businesses current assets. Ownership structure: details on your company's legal structure.

Management Profile Develop a short statement on each principal in your corporation; provide background, education, experience, skills and accomplishments. Market Information Make sure to clearly define your businesses products as well as your markets. Recognize who your competitors are, and explain how your business competes in the marketplace. Profile your customers and explain how your business can satisfy their needs.

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Financial Information •

• •

Financial statements: balance sheets, profit and loss and cash flow statements for the past three years. If you are just starting out, provide projected balance sheets and income statements. Personal financial statements on yourself and other principal owners of the business. Collateral you would be willing to pledge as security for the loan.

The process of applying for a business loan is a stringent one. Lending institutions evaluate their applicants based on the information that is provided as well as their judgment of the viability and profitability of the business being financed. Thus, business loan applicants should submit a loan proposal along with their applications with the purpose of creating a positive impression upon the lender. The first element of a loan proposal is an executive summary, providing short descriptions of the Line of business and the industry, the purpose of the loan, the proposed repayment conditions as well as the terms of the loan. After that, the businesses information is provided, with detailed information on the nature of the business, businesses address, company history, the products or services provided, key differentiation factors of the business or the product, the general growth of the industry, competitive information, growth potential and target market. It would help if you could include your growth projection plan for the business, as well as the marketing strategy for the business. Apart from that, if you plan to offer product or service extensions in the future, you should provide these descriptions within your loan proposal. If possible, geographical expansion plans will help as well. The next section that needs to be in the proposal would be the credentials and experience of each employee in upper management. Impressive credentials will provide assurance to the lender that individuals who are responsible and capable manage the company. This is important as having the wrong people managing the company could be detrimental for the business. In any loan application, historical records are essential to be used in evaluating the performance of a company. As new start-up companies do not yet have these records, the financial statements of the principals of the corporation will be used as the basis of evaluation. Two years Tax Returns are also required by lenders. All of 162 Copyright © 2008 Reginald Ringgold

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these historical records provided should be the latest copies less than 90 days old, with the exception of the Financials and Tax Returns. If the loan applied for is for an existing company that has been operating long enough to have company financial statements, then they should be included in the loan proposal. Don’t forget to add a listing of accounts receivables and other short term and long term debt should be attached. On the other hand, if the loan application is submitted for a new business, a proforma balance sheet and profit and loss account should be provided. Apart from that, a cash flow projection for the upcoming year is drafted to indicate the possibility of recovering the debt. This also means that projected revenue, profits, costs incurred and expenditure should be listed out with definite explanations provided as well as a list of assumptions. If you have assets that you wish to pledge as collateral for your loan, details for this should be provided in the proposal as well. It is often common for lenders to request for dual sources of repayment in the event that one source is defaulted. This means that if the business owner defaults on his repayments, the collateral can be sold in order to repay the loan. Finally, other documents normally required for a loan application would be items like articles of incorporation, lease agreements, partnership agreements, license, references, etc. As the list of required documentation, information and attachments differs between lenders, it is best to check with the lender on their specific information and documents required to be attached with the loan proposal before you submit it. How Your Business Loan Request Will Be Reviewed When reviewing a loan request, the banker is primarily concerned about the repayment of the loan. To help determine this ability, many bankers will order a copy of your business credit report from D&B or Experian. Therefore, you should work with these agencies to help them present an accurate picture of your business. Using the business credit report and the information you have provided, the banker will consider the following issues: •

Do you have a sound record of credit-worthiness as indicated by your credit report, work history and letters of recommendation? This is very important. 163

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• • •

•

Have you prepared a loan proposal and business plan that demonstrate your understanding of and commitment to the success of the business? Does the business have sufficient cash flow to make the monthly payments on the amount of the loan request? Have you invested savings or personal equity in your business totaling at least 25% to 50% of the loan you are requesting? (Remember, a lender or investor will not finance 100% of your business.) Do you have sufficient experience and training to operate a successful business?

Advantages of Business Loans More favored treatment by lending intuitions Have you ever noticed when you walk in the bank how the business owners get treated different? They get their own section in the bank, and they have their own line, with their own bankers. When you are applying for a business loan you get the Red Carpet Treatment because bankers know that there is more profit with business loans because businesses take out larger loans. Less frequent payments and more favorable terms, some lending institutions will allow you to pay annual payments instead of monthly. But when a bank allows annual payments they usually want the interest in advance. Easier renewal of the loan with a business loan it is easier to renew, than renewing a consumer loan. With a business loan all you have to do to renew the loan is fill out a form. Lower interest rates leaves more to allocate to other things the business needs. Easier to obtain, business loans can be made for several reasons which makes it easier to obtain than any other type of loan. Lenders are more comfortable lending money to a business because the chances of being paid back are greater than with personal loans. Because individuals usually have one income source and businesses usually have multiple. Financial Analysis In addition to the "Five C's of Corporate Credit," a prospective lender will use a balance sheet and four primary financial statements to make a credit decision. 164 Copyright © 2008 Reginald Ringgold

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A Personal Financial Statement This statement indicates your net worth. Each partner or stockholder owning a substantial percentage (for example, 20 percent or more) of the business should submit a personal financial statement. A personal financial statement is important to the lender, particularly if your business has not established Corporate Credit, because it gives the lender evidence of personal assets you could pledge to secure a loan. A Balance Sheet Provides you with a snapshot of your business at a specific time, such as the end of the year. It keeps track of your company's assets, or what the company owns (including its cash), and the company's debts, or liabilities (generally loans from others). It also shows the capital, or equity, put into the business. A Profit and Loss Statement A P&L statement shows the profit or loss for the year. The profit and loss statement, also called the income statement, takes the sales for the business, subtracts the costs of goods sold, and then subtracts other expenses. A Statement of Cash Flows Presents the sources of cash in your business—from net income, new capital, or loan proceeds—versus the expenditures, or uses of the cash, over a specified period of time. You will appreciate having an effective accounting system. Without an effective accounting system, you won't know if you are profitable or not, let alone if you are liquid enough to pay for the next order of merchandise. A good system also will help you track your company's growth and anticipate future cash needs. Ratio Analysis Another tool the lender will use is financial ratio analysis. Ratios permit review of a company's current financial performance versus that of previous years. In the same way that a medical checkup tests one's heart, lungs, and changeable factors 165 Copyright © 2008 Reginald Ringgold

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such as body weight, an analysis of a company's financial performance considers the status, changes, and relationships of critical components of a company's health. The lender also may use financial ratio analysis to consider how a company is doing when compared to another company. A limitation of such comparative analysis is that different industries are driven by different factors. As a result, the financial ratios of a manufacturer and retailer can be quite different even though both companies may be similarly successful. Lenders are trained to appreciate both the benefits and limitations of ratio analysis and to consider financial results in the context of the company's "peer group" of similar companies within its industry. Profitability Profit is the compensation an entrepreneur receives for the assumption of risk in a business venture. The profitable business must cover its overhead expenses and generate profits for its owner out of its "after-product-costs" cash. Gross Profit Margin One commonly used measure of profitability is gross profit, which is your sales minus your product costs. In ratio form, it is called the gross profit margin. Operating Profit Margin Another measure of your profitability is the operating profit margin. This is the core cash flow source that is expected to grow year to year as your business grows, and it excludes interest expense, taxes, and "extraordinary items" such as the sale of property or other assets. Higher profitability from one year to the next is generally considered a good sign for a company. Liquidity How much cash does your business have on hand for immediate use? 166 Copyright © 2008 Reginald Ringgold

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Quick Ratio The quick ratio shows what assets your business can immediately convert to cash, such as the business checking account and money market accounts. Current Ratio The current ratio is a broader indication of liquidity because it includes inventory. For purposes of showing your immediate access to cash, many lenders find it less useful than the quick ratio. In general, lenders look for your current assets to exceed your current liabilities. Leverage The leverage ratios measure the company's use of borrowed funds in relation to the amount of funds provided by the shareholders or owners. These ratios tell the lender how much money you have borrowed versus what money you and other owners have put into your company. This is important because borrowed money carries interest costs and your business must generate sufficient cash flow to cover the interest and principal amounts due to the lender. Generally speaking, companies with higher debt levels will have higher interest costs to cover each month, so low to moderate leverage is nearly always viewed more favorably by prospective lenders. Debt Ratio The most common leverage ratio is called the debt ratio. Turnover The turnover ratios focus on the operating cycle of your business by examining its cash flow. They show the amount of time it takes for cash to move through the accounts receivable, inventory account, and accounts payable in your business. It is important to know how many days it takes your company to purchase inventory, pay for it, sell it, and collect the cash for the sales. Those sales you make on the customer's promise to pay at a later date (also known as credit sales) may not actually produce cash for 30 to 60 days. You can get squeezed if you don't understand this cycle and find that you have to pay for new supplies before your customers have paid you. 167 Copyright © 2008 Reginald Ringgold

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Gaining an understanding of the cash flow of your business is the most important financial planning tool you have. An examination of the turnover ratios can help you to understand the operating cycle in your business. The three turnover ratios are the collection period ratio, the days to sell inventory ratio, and the day’s purchases in accounts payable ratio. Collection Period Ratio First, the collection period ratio indicates how quickly you collect the cash your customers owe you. The earlier you collect it, the sooner you can put it to work purchasing more inventory or paying for current orders; so the lower the number, the better. Days to Sell Inventory Ratio Along the same lines is the second turnover ratio, the days to sell inventory ratio. The days to sell inventory ratio tells how efficient you are at matching your purchases to your sales. Low inventory days indicate that you've accurately forecasted the demand for your product. That way excess inventory isn't accumulating on your shelves and adding to costs. Days Purchases in Accounts Payable Ratio The day’s purchases in accounts payable ratio is the third turnover ratio. This ratio measures how quickly you pay your suppliers for inventory purchased. Generally speaking, it is advantageous for small businesses to pay for products promptly so they can take advantage of price discounts. Pro Forma Financial Statements and Financial Projections Pro forma financial statements are the entrepreneur's best guess about what next year will look like for the business. These tools will help you anticipate whether next year's cash flow will be sufficient to cover all your costs, and if not, how much money you will need to borrow.

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For a longer horizon, financial projections permit you to make estimates about future sales levels, expansion costs, or general business conditions and see how such conditions would affect your company's financial results in the years to come. The preparation of pro forma's and projections is a complex exercise that requires a sound knowledge of financial accounting. A comprehensive discussion of these tools is beyond the scope of this text. However, with the help of your accountant you can provide both you and your potential lenders with valuable insights into your business.

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Chapter 11 Financing “Time is more valuable than money. You can get more money, but you cannot get more time.”- Jim Rohn

Knowledge of the financial facts of business can save you lots of time and money. Even more important, such information can help a business to borrow capital at a time when it needs it most. This Chapter is designed to give the highlights of what is involved in sound business borrowing. This Section discusses the following fundamentals of borrowing: 1. Credit worthiness 2. Loan Types and Terms 3. Amount of money needed 4. Collateral 5. Loan restrictions and limitation 6. The loan application 7. Standards which the lender uses to evaluate the application. 8. If you’re application is not approved 9. Conventional & unconventional financing

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1.) Is Your Business Credit Worthy? The ability to obtain money when you need it is as necessary to the operation of your business as is a good location or the right equipment, reliable sources of supplies and materials, or an adequate labor force. Before any lending institution will lend you money, the banker must feel satisfied with the answers to the five following questions: •

•

•

•

•

What sort of person are you, the prospective borrower? By all odds, the character of the borrower comes first. Next is your ability to manage your business. What are you going to do with the money? The answer to this question will determine the type of loan, short or long-term. Money to be used for the purchase of seasonal inventory will require quicker repayment than money used to buy fixed assets. When and how do you plan to pay it back? Your banker's judgment of your businesses ability and the type of loan will be a deciding factor in the answer to this question. Is the cushion in the loan large enough? In other words, does the amount requested make suitable allowance for unexpected developments? The banker decides this question on the basis of your financial statement, which sets forth the condition of your business and on the collateral pledged. What is the outlook for business in general and for your business particularly?

Adequate Financial Statements The banker wants to make loans to businesses, which are solvent, profitable, and growing. The two basic financial statements used to determine those conditions are the balance sheet and profit-and-loss statement. The former is the major yardstick for solvency and the latter for profits. A continuous series of these two statements over a period of time is the principal device for measuring financial stability and growth potential. In interviewing loan applicants and in studying their records the banker is especially interested in the following facts and figures. General Information:

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Are the books and records up-to-date and in good condition? What is the condition of accounts payable, and notes payable? What are the salaries of the ownermanager and other company officers? Are all taxes being paid currently? What is the order backlog? What is the insurance coverage? Accounts Receivable: Are there indications that some of the accounts receivable have already been pledged to another creditor? What is the accounts receivable turnover? Is the accounts receivable total weakened because many customers are far behind in their payments? Has a large enough reserve been set up to cover doubtful accounts? How much do the largest accounts owe and what percentage of your total accounts does this amount represent? Inventories: Is the merchandise in good shape or will it has to be marked down? How much raw material is on hand? How much work is in process? How much of the inventory is finished goods? Is there any obsolete inventory? Has an excessive amount of inventory been consigned to customers? Is inventory turnover in line with the turnover for other businesses in the same industry? Or is money being tied up too long in inventory? Fixed Assets: What is the type, age, and condition of the equipment? What are the depreciation policies? What are the details of mortgages or conditional sales contracts? What are the future acquisition plans? 2.) Loan Types & Terms When you set out to borrow money for your business, it is important to know the kind of loan you need from a bank or other lending institution. Keep in mind that the purpose for which the funds are to be used is an important factor in deciding the kind of money needed. But even so, deciding what kind of money to use is not always easy. It is sometimes complicated by the fact that you may be using some of the various types of loans at the same time and for identical purposes. 173 Copyright © 2008 Reginald Ringgold

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Keep in mind that a very important distinction between the types of loans is the source of repayment. Generally short-term loans are repaid from the liquidation of current assets, which they have financed. Long-term loans are usually repaid from earnings. The purpose of your loan is also critical in determining the type of loan you request. You also should make sure that the timing of the repayment schedule on your loan matches the incoming cash flow you will use to make the payments. There are a number of loan types available to commercial borrowers, including lines of credit, seasonal commercial loans, installment loans, collateralized loans (which are secured with assets), credit card advances, and term loans. Regardless of the type, most loans have the following features. Common Loan Features Loans are long term or short term. Interest rates vary depending on the term, type, size, and risk of the loan. Repayment may be a lump sum or on a monthly or quarterly schedule. Payments may be delayed until the funds help your business generate cash flow. The loan may be committed, meaning the bank agrees to lend to you under certain terms as you need funds without requiring you to re-apply each time. Some loans require that you maintain compensating balance levels in a deposit account Short Term Loans You can use short-term bank loans for purposes such as financing accounts receivable for, say 30 to 60 days. Or you can use them for business purposes that take longer to pay off - such as for building a seasonal inventory over a period of 5 to 6 months. Short term loans are usually for a term of a year or less, and in some cases lenders expect short-term loans to be repaid in one lump after their purposes have been served: for example, accounts receivable loans, when the outstanding accounts have been paid by the borrower's customers, and inventory loans, when the inventory has been converted into salable merchandise. Banks grant such money either on your general credit reputation with an unsecured loan or on a secured loan. 174 Copyright © 2008 Reginald Ringgold

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The unsecured loan is the most frequently used form of bank credit for short term purposes. You do not have to put up collateral because the bank relies on your credit reputation. The secured loan involves a pledge of some or all of your assets. The bank requires security as a protection for its depositors against the risks that are involved even in business situations where the chances of success are good. Here are a few tips on short term loans: 1. Try to pay off at least 10% every time you go to renew the loan, you should pay off your loan at least once a year. 2. Always pay the interest due. If not the lending institution will call the entire loan due plus interest. 3. It is a good idea to keep a business bank account with the bank that you have the loan with. The business account should have at least a low figure balance as we discussed in the seven steps. Term Loans Term loans are used to finance your permanent working capital, new equipment, buildings, expansion, refinancing, and acquisitions. Commercial banks are the major source of funding. The term of the loan is based on the useful life of the assets being financed or used as collateral. Your projected profit and cash flow are two key factors lenders consider when making term loans. Term borrowing provides longer terms then short term loans. If you break it down into two forms: (1) intermediate - loans longer than 1 year but less than 5 years, and (2) long-term - loans for more than 5 years. However, for your purpose of matching the type of loan to the needs of your company, think of term borrowing as a kind of money, which you probably will pay back in periodic installments from earnings.

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3-15 YR Balloon Loans Balloon loans offer interest rates that are fixed for a period of years. Typically these loans are pegged to a treasury index. Terms are for 3, 5,7,10 or 15 years. The amortization schedules are generally for 20 or 25 years. When a balloon loan matures at the end of the agreed term, a balloon payment for the remaining balance will be due. Adjustable Rate Loans An adjustable rate loan will typically fully amortize with no balloon features. These loans may or may not have adjustment caps. The rate is determined by an index plus a margin. The indexes used are generally U.S. Treasury bond rates. Rates are adjusted at a certain point in time using either the current rate of the index in question or the average of the index for the prior year. In either event, the index used will correspond to the adjustment term. If the loan is a three year adjustable, then the index used should be the three year treasury index. Some adjustable rate loans are fixed for an initial period of years and then will adjust after that period. For example a 5/1 adjustable is fixed for the first five years and thereafter will adjust each year. The index used will be the one year treasury rate. Asset Based Loans A lender advances funds based on a percentage of your current assets. The loan is used as source of funds for working capital needs. A lender typically takes a security position in the assets owned by the business. Factoring Factors actually buy your receivables and rely on their own credit and collection expertise. Essentially, your customers become their customers. Factoring is used by firms who are unable to obtain bank financing. The cost of financing is usually higher than other forms of S-T financing.

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Contract Financing Funds are advanced to you as work is performed. Payments by the contracting party are generally made directly to the lender. Equity Capital Some people confuse term borrowing and equity (or investment) capital. Yet there is a big difference. You don't have to repay equity money. It is money you get by selling a part interest in your business. You take people into your company who are willing to risk their money in it. They are interested in potential income rather than in an immediate return on their investment. Credit Lines Under a credit line agreement, the lender supplies a business with funds intended to fill temporary shortages in cash that are brought about by timing differences between outlays and collections. Credit Lines are typically used to finance inventories, receivables, and project or contract related work. Equipment, Real Estate, and Auto Loans Loans are fully secured by the equipment being purchased. Typically banks loan 60-80% of the value of the equipment and is repaid over the life of the equipment. Lenders make long term loans secured by commercial and industrial real estate. The loan is usually made up to 75% of the value of the real estate to be financed. Repayment terms range from 10 to 20 years. Lenders also make second mortgages on real estate. The amount of the second mortgage is based on the appraised market value and the amount of the first mortgage. Leasing Leasing can be accomplished through a bank, leasing or finance company. Your business will be subject to the same type of review as when seeking a loan, specifically on the cash flow of a company, value of lease object and useful life. Lease terms range from 3 to 5 years. At the end of the lease, there are generally 3 options: purchase, renew and return.

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3.) How Much Money? The amount of money your business needs to borrow depends on the purpose for which you need funds. Figuring the amount of money required for business construction, conversion, or expansion - term loans or equity capital - is relatively easy. Equipment manufacturers, architects, and builders will readily supply you with cost estimates. On the other hand, the amount of working capital you need depends upon the type of business you're in. While rule-of-thumb ratios may be helpful as a starting point, a detailed projection of sources and uses of funds over some future period of time - usually for 12 months - is a better approach. In this way, the characteristics of the particular situation can be taken into account. Such a projection is developed through the combination of a predicted budget and cash forecast. The budget is based on recent operating experience plus your best judgment of performance during the coming period. The cash forecast is your businesses estimates of cash receipts and disbursements during the budget period. Thus, the budget and the cash forecast together represent your plan for meeting your working capital requirements. To plan your businesses working capital requirements, it is important to know the "cash flow" which your business will generate. This involves simply a consideration of all elements of cash receipts and disbursements at the time they occur. These elements are listed in the profit-and-loss statement, which has been adapted to show cash flow. They should be projected for each month. 4.) What Kind of Collateral? Sometimes, your Personal Guarantee is the only security the bank needs when making a loan. At other times, the bank requires additional assurance that the loan will be repaid. The kind and amount of security depends on the bank and on the businesses situation. If the loan required cannot be justified by the borrower's financial statements alone, a pledge of security may bridge the gap. The types of security are: endorsers; co makers and guarantors; assignment of leases; trust receipts and floor planning; chattel mortgages; real estate; accounts receivables; saving accounts; life insurance policies; and stocks and bonds. In a substantial number of States where the Uniform Commercial Code has been enacted, paperwork for recording loan transactions will be greatly simplified. 178 Copyright © 2008 Reginald Ringgold

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Credit Worthy Officers, Endorsers, Co-makers, and Guarantors Borrowers often get other people to sign a note in order to bolster their own credit. These endorsers are contingently liable for the note they sign. If the business defaults on the loan, the bank expects the endorser to make the note good. Sometimes, the endorser may be asked to pledge assets or securities too. A co-maker is one who creates an obligation jointly with the borrower. In such cases, bank can collect directly from either the maker or the co-maker. A guarantor is one who guarantees the payment of a note by signing a guaranty commitment. Both private and government lenders often require guarantees from offices of corporations in order to assure continuity of effective management. Sometimes, a manufacturer will act as guarantor for customers. Assignment of Leases The assigned lease as security is similar to the guarantee. It is used, for example, in some franchise situations. The bank lends the money on a building and takes a mortgage. Then the lease, which the dealer and the parent franchise company work out, is assigned so that the bank automatically receives the rent payments. In this manner, the bank is guaranteed repayment of the loan. Warehouse Receipts Banks also take commodities as security by lending money on a warehouse receipt. Such a receipt is usually delivered directly to the bank and shows that the merchandise used as security either has been placed in a public warehouse or has been left on your premises under the control of one of your employees who is bonded (as in field warehousing). Such loans are generally made on staple or standard merchandise, which can be readily marketed. The typical warehouse receipt loan is for a percentage of the estimated value of the goods used as security. Trust Receipts and Floor Planning Merchandise, such as automobiles, appliances, and boats, has to be displayed to be sold. The only way many small marketers can afford such displays is by borrowing money. Such loans are often secured by a note and a trust receipt. This trust receipt is the legal paper for floor planning. It is used for serialnumbered merchandise. When you sign one, you 179 Copyright © 2008 Reginald Ringgold

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(1) Acknowledge receipt of the merchandise, (2) Agree to keep the merchandise in trust for the bank, and (3) Promise to pay the bank as you sell the goods. Chattel Mortgages If you buy equipment such as a cash register or a delivery truck, you may want to get a chattel mortgage loan. You give the bank a lien on the equipment you are buying. The bank also evaluates the present and future market value of the equipment being used to secure the loan. How rapidly will it depreciate? Does the borrower have the necessary fire, theft, property damage, and public liability insurance on the equipment? The banker has to be sure that the borrower protects the equipment. Real Estate Real estate is another form of collateral for long-term loans. When taking a real estate mortgage, the bank finds out: (1) The location of the real estate, (2) Its physical condition, (3) Its foreclosure value, and (4) The amount of insurance carried on the property. Accounts Receivable Many banks lend money on accounts receivable. In effect, you are counting on your customers to pay your note. The bank may take accounts receivable on a notification or a non notification plan. Under the notification plan, the purchaser of the goods is informed by the bank that his or her account has been assigned to it and he or she is asked to pay the bank. Under the non notification plan, the borrower's customers continue to pay you the sums due on their accounts and you pay the bank.

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Savings Accounts Sometimes, you might get a loan by assigning to the bank a savings account. In such cases, the bank gets an assignment from you and keeps your passbook. If you assign an account in another bank as collateral, the lending bank asks the other bank to mark its records to show that the account is held as collateral. Life Insurance Another kind of collateral is life insurance. Banks will lend up to the cash value of a life insurance policy. You have to assign the policy to the bank. If the policy is on the life of an executive of a small corporation, corporate resolutions must be made authorizing the assignment. Most insurance companies allow you to sign the policy back to the original beneficiary when the assignment to the bank ends. Some people like to use life insurance as collateral rather than borrow directly from insurance companies. One reason is that a bank loan is often more convenient to obtain and usually may be obtained at a lower interest rate. Stocks and Bonds If you use stocks and bonds as collateral, they must be marketable. As a protection against market declines and possible expenses of liquidation, banks usually lend no more than 75 percent of the market value of high grade stock. On Federal Government or municipal bonds, they may be willing to lend 90 percent or more of their market value. The bank may ask the borrower for additional security or payment whenever the market value of the stocks or bonds drops below the bank's required margin. 5.) What Are the Lender's Rules? You should be aware that the lender will expect you to agree to certain performance standards and restrictions in order to ensure that your business can repay the loan. But the lending institutions are not just interested in loan repayments. They are interested in borrowers with healthy profit-making businesses. Therefore, whether or not collateral is required for a loan, they set loan 181 Copyright © 2008 Reginald Ringgold

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limitation and restrictions to protect themselves against unnecessary risks and at the same time against poor management practices by their borrowers. Especially in making long-term loans, the borrower as well as the lender should be thinking of: (1) The net earning power of the borrowing company, (2) The capability of its management, (3) The long range prospects of the company, and (4) The long range prospects of the industry of which the company is a part. Such factors often mean that limitation increase as the duration of the loan increases. What Kinds of Limitation? The kinds of limitations, which a business owner finds set upon the business depends, to a great extent, on the business. If the business is a good risk, only minimum limitations need be set. A poor risk, of course, is different. Its limitation should be greater than those of a stronger company. Look now for a few moments at the kinds of limitations and restrictions, which the lender may set. Knowing what they are can help you see how they affect your operations. The limitations, which you might run into when applying for a business loan, are: 1.) Repayment terms. 2.) Pledging or the use of security. 3.) Periodic reporting. 4.) A demand to close out all other open lines of credits with other lending institutions. A loan agreement, as you may already know, is a tailor-made document covering, or referring to, all the terms and conditions of the loan. With it, the lender does two things: 182 Copyright © 2008 Reginald Ringgold

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1.) Protects position as a creditor (keeps that position in as protected a state as it was on the date the loan was made) and 2.) Assures repayment according to the terms. The lending institution reasons that the borrower's business should generate enough funds to repay the loan while taking care of other needs. The lender considers that cash inflow should be great enough to do this without hurting the working capital of the business. Covenants - Negative and Positive The actual restrictions in a loan agreement come under a section known as covenants. Negative covenants are things, which the borrower may not do without prior approval from the lender. Some examples are: further additions to the borrower's total debt, non pledge to others of the borrower's assets and issuance of dividends in excess of the terms of the loan agreement On the other hand, positive covenants spell out things, which the borrower must do. Some examples are: 1.) Maintenance of a minimum net working capital, 2.) A requirement of a minimum balance on deposit with the bank. 3.) Repaying the loan according to the terms of the agreement, and 4.) Supplying the bank with financial statements and reports. 5.) Carrying of adequate insurance, Overall, however, loan agreements may be amended from time to time and exceptions made. Certain provisions may be waived from one year to the next with the consent of the lending institution. You Can Negotiate Next time you go to borrow money, negotiate the lending terms before you sign. It is good practice no matter how badly you may need the money. Ask to see the papers in advance of the loan closing. Legitimate lenders are glad to cooperate. 183 Copyright © 2008 Reginald Ringgold

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Chances are that the lender may "give" some on the terms. Keep in mind also that, while you are mulling over the terms, you may want to get the advice of your associates and outside advisors. In short, try to get terms, which you know your company can live with. Remember, however that once the terms have been agreed upon and the loan is made you are bound by them. 6.) The Loan Application Now that you have read about the various aspects of the lending process and are ready to apply for a loan. Banks and other private lending institutions, require a loan application on which you list certain information about your business. Make sure your application is neatly typed. 7.) Evaluating the Application Once you have supplied the necessary information, the next step in the borrowing process is the evaluation of your application. The banker considers this when determining whether to grant or refuse the loan: • • • •

The borrower’s debt paying record to suppliers, banks, home mortgage holders, and other creditors. The ratio of the borrower's debt to net worth. The past earnings of the company. The value and conditions of the collateral, which the borrower offers for security.

8.) If you’re Application Is Not Approved If your loan is not approved, ask why. You are entitled by law to a written statement of the reasons for a loan denial, if you request it. Many banks automatically supply the reasons for denial in writing. Knowing the reasons for a loan denial can inform you of areas in your proposal that didn't meet the lender's standards. Since all lenders do not share identical standards, another lender may reach a different credit decision. Review your loan proposal in light of the lender's comments. See how you can use the resources or ideas presented in this booklet to strengthen your application. Go through the process of reviewing your technical and financial material again, and then review 184 Copyright © 2008 Reginald Ringgold

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your business plan. Find any areas that could be augmented further and lead to an approval on your next request. If you believe you have been denied credit unlawfully, you should contact the regulatory authority that supervises the institution. The Equal Credit Opportunity Act Federal Reserve Regulation B prohibits lenders from denying your application on the basis of race, color, religion, national origin, sex, marital status, or age, or from discouraging you from applying, or giving you less favorable terms than any other applicant, on such a basis. 9.) Conventional &Unconventional Financing Conventional Financing A Bank or Credit Union is a business, which provides financial services for profit. Conventional financing has the greatest flexibility when compared to Unconventional Financing. Unconventional Financing SBA & SBIC The U.S. Small Business Administration (SBA) was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns. An SBA loan, is a bank loan regardless of whether it is a direct loan from the SBA, or, as is more common, a bank loan guaranteed by the SBA. The benefit of it versus a traditional bank loan is the rate. SBA rates are typically much less than traditional business loan rates. In a guaranteed SBA bank loan, the SBA in most cases guarantees 90 percent of the loan will be repaid to the bank. This guarantee is up to $155,000, and 85% on larger loans. With this guarantee banks are at much less risk than in most other loans, and are a bit more flexible with regards to who they offer these loans. However, the SBA usually requires the officers of the corporation to personally guarantee the loans, which makes them risky should the venture collapse.

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About 98 percent of the companies in the United States qualify as small businesses and most of these businesses are eligible for U.S. Small Business Administration loans up to $750,000, available to build and expand their operations. Just like any business loan, the SBA and its associated lenders look at the applicant's personal credit, the businesses financial profile, the management experience, and the growth trends in the applicant's industry. The 7 (a) loan guarantee program is the SBA's standard program. It aids small businesses needing funds to buy fixed assets or for working capital. In the 8 (a) program, the SBA acts as prime contractor, contracting with other federal agencies to negotiate subcontracts with small businesses owned by socially or economically disadvantaged individuals. Disabled and Vietnam-era veterans who cannot secure business financing on reasonable terms from other sources can go to the SBA. Veterans can use these loans to start a small business, or to build an existing business. The SBA HAL-1 and HAL-2 programs help handicapped individuals and nonprofit workshops to establish, purchase or run a small business Small companies in the field of energy conservation can find financial support in the SBA's Small Business Solar Energy and Conservation Loan Program The SBA's Small Loan program encourages SBA-guaranteed loans of $50,000 or less. Applicants should ask for the SBA Form 4 short form to apply for the small loans. The recent micro loan program offering loans of $200 to $15,000 makes SBA funding available to even very small (mom and pop) businesses. The SBA's Certified Development Company (CDC) loan program offers credit for small and medium sized businesses that fall between the cracks of programs covered by traditional lenders. And the Export Revolving Line of Credit program helps small exporters to obtain an SBA guarantee on a loan or line of credit. 186 Copyright © 2008 Reginald Ringgold

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The SBA is open from 9 a.m. to 5 p.m. EST. Monday through Friday. Call 1-800827-5722 (1-800-U-ASK SBA) Small Business Investment Companies (SBIC's) are privately organized corporations that are licensed and regulated by the SBA. Small or emerging businesses, which qualify for assistance from the SBIC program, can receive equity capital and/or long-term loans from these companies. Essentially, Angle Investors/Private Investors An angel investor is an affluent individual that provides capital for a business start-up, usually in exchange for ownership equity. Angels typically invest their own funds, unlike venture capitalists, who manage the pooled money of others in a professionally-managed fund. Angel capital fills the gap in start-up financing between seed capital, and venture capital. While it is usually difficult to raise more than $100,000 - $200,000 from friends and family, most venture capital funds will not consider investments under $1 - 2 million. Thus, angel investment is a common second round of financing for high-growth start-ups. Angel investments bear extremely high risk, and thus require a very high return on investment. Because a large percentage of angel investments are lost completely when early stage companies fail, professional angel investors seek investments that have the potential to return at least 10 or more times their original investment within 5 years, through a defined exit strategy. Venture Capital Venture capital is a type of private equity capital typically provided by professional, institutionally-backed outside investors to new, growth businesses. Generally made as cash in exchange for shares in the company, venture capital investments are usually high risk, but offer the potential for above-average returns. A venture capitalist (VC) is a person who makes such investments. A venture capital fund is a pooled investment vehicle (often a partnership) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.

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These companies provide their own capital, which is supplemented by federal funds, to the companies they fund. VC’s often take control of a company, their ultimate goal is to make the company very profitable, and then sell it. The venture capitalist due diligence process is intense and can take weeks or months depending on the complexity of your company. It will be the most intensive look at your company that you have ever experienced. • The venture capitalists will want to know everything from your standard articles of incorporation, directors, and shareholder agreements up to the details of how your business processes are run. • The purpose of the initial meeting and draft term sheet is to get an approval in principle. From there the venture capitalist will carefully examine the details of your company before making an official offer. • An intermediary can be helpful in speeding up the process, especially when dealing with the lawyers on both sides. The intermediary is responsible for "cracking the whip" and ensuring the process is progressing. The faster you can make lawyers work, the lower your bill will be. Generally, if you give lawyers enough time, they will make sure to use it and bill you accordingly. Public Stock offerings (IPO) Going public (or participating in an "initial public offering" or IPO) is the process in which a corporation owned by one or several individuals is converted into a corporation that is owned by many. Going public involves the offering of part ownership of the corporation to the public through the sale of debt or more commonly, equity securities (shares of stock). In an IPO a corporation puts their stock on the open Stock Market for the first time. Putting your shares on the open stock market is another good way to raise large amounts of capital. You can sell ten million shares of stock at a par value of your choice (depending on the state in which you Incorporate) when creating the charter for the corporation. Here’s an example of how this will work. First, issue ten million shares of stock once you are authorized to do so. Keep 3,000,000 shares for yourself and reserve another 3,000,000 for future sales to the public. The remaining 4,000,000 shares should be issued for public sale at about $1 per share. If you sell 100,000 shares, you will have raised $80,000 after deducting a 20 188 Copyright © 2008 Reginald Ringgold

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percent broker's fee. In time, your stock may go up to $5 per share. Your stock that was worth $3,000,000 will then be worth $15 million. You will have quadrupled the worth of your stock. And this doesn't include the stock that you reserved for future sale. You can also issue and sell up to $300,000 worth of stock in your company without going through the Federal Trade Commission. You'll need the help of an attorney to do this, however, and of course a good tax accountant as well wouldn't hurt. Another option would be to promote amongst your friends and relatives the sale of "private stock" in your corporation. For instance, if 100 of your friends and relatives were to give you $1,000 each for 1,000 shares of stock, you'd have $100,000 to take advantage of whatever business opportunity that may arise. What are the Advantages and Disadvantages? Advantages

Disadvantages

Stronger capital base

Short-term growth pressure

Increases other financing prospects

Disclosure and confidentiality

Better situated for making acquisitions

Costs - initial and ongoing

Owner diversification

Restrictions on management

Executive compensation

Loss of personal benefits

Increase company and personal prestige Trading restrictions Mergers and Acquisitions Another advantage of going public is Mergers and Acquisitions. Once a company is public and the market for its stock is established, the stock can be considered as valuable as cash when acquiring other businesses. A public company usually increases a company's valuation leading to a variety of opportunities for mergers and acquisitions. A public company also has the advantage of using the market's valuation when exchanging stock in an acquisition.

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Securities and Exchange Commission disclosure requirements offer the public more confidence because in annual reports the company outlines its financial condition and corporate strategy which encourages corporate growth, development and merger activity. In addition to acquiring companies many other assets can be purchased with stock. Does my corporation qualify and will my public offering succeed? There are no guarantees in life or financing. In business, that’s why they call it "entrepreneuring". The atmosphere for making public offerings is always in flux. Talk with an underwriter, IPO consultant, accountant or attorney about the market prospects. Then ask yourself: • • • •

Can I show that my corporation can maintain consistent high growth? Is the public aware of our type of product or service? Do they think it’s in a "good" industry? Can our company perform as well as and preferably better than our competition? Can we meet the financial audit requirements?

Many underwriters require that your company is generating sales of $10 to $20 million annually with profits of $1 million. That your product is on the "leading edge" and that you have an experienced, proven top management team and can show future growth rates of at least 25% annually for the next five years. To obtain a NASDAQ listing, you need $4 million in tangible net assets. However, there are a lot of exceptions and smaller companies can also become publicly held. What do I need to go public? Audited financials, and a good management team. The creditability and experience of your management team is the most important factor in obtaining an underwriter and successfully completing a public offering. You also need a good outside team. These are your IPO consultants, accountants, attorneys, underwriters and PR specialists. Four questions you should ask yourself before going public: 1. Why do you want to take your corporation public?

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Your corporation must identify a use for the proceeds from the offering. 2. Is your current management team ready and qualified to operate a public corporation? Not all managers are fit for the public arena. Make sure your managers are prepared to answer to stock analysts and thousands of shareholders. 3. Is your corporation ready to “go public”? Companies that are in mature industries that have a large share of a small market, or that have a narrow range of products may not be candidates for the IPO market. 4. Is it worth the risk? If the offering is not successful, expenses can still range from $300,000 to $500,000 in legal, printing, and accounting fees alone. Careful evaluation beforehand is essential. What is the Registration Process? Going public requires a Registration Statement, which is a carefully crafted document that is prepared by your attorneys and accountants. It requires detailed discussions on information pertaining to: • • • • • • • •

Business product/service/markets Corporation Information Risk Factors Proceeds Use (How are you going to use the money) Officers and Directors Related party transactions Identification of your principal shareholders Audited financials

After your registration statement is prepared, it is submitted to the Securities and Exchange Commission and various other regulatory bodies for their detailed review. When this process is completed, you and your management team will do a "road show" to present your corporation to the stock brokers who will then sell your stock to the public investors. Assuming they can successfully sell your issue, 191 Copyright © 2008 Reginald Ringgold

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you’ll receive your money. Then it's simple, all you have to do is make a lot more money with the proceeds so as to increase the value of your, your teams and the public investors stock. How much does going public cost? Cost can vary considerably depending upon an individual corporation's history, size and complexity. The following figures are considered minimums and many larger offerings will have costs that greatly exceed these numbers. • • • • • • •

Legal - $50,000 to $150,000 Accounting - $20,000 - $75,000 Audit $30,000 - $200,000 Printing - $20,000 -$80,000 Fees $10,000 -$30,000 Investment Banker’s Fees-7% of the total public offering. Plus underwriter commissions and expenses as well as numerous expenses on the part of the corporation.

How long will it take? 3 -12 months (6-9 average - when well prepared) Government Grants The government gives away billions each year to start ups and expanding businesses. Most people never apply for a free grant because they somehow feel it isn't for them, they feel there's too much red-tape, or simply don't know who to contact. The fact is, that people from all walks of life receive free grant money and other benefits from the government, and you should too. If you are looking for grant money and foundation funds, write to each, briefly outlining your businesses situation and ask for application forms. But keep in mind that doing business with the government requires a Duns number. I recommend a grant writer if your company can afford it, a grant writer will greatly increase your chances of receiving grant money from the government.

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Sure-Fire Methods of Raising Instant Cash for your corporation Though I do not recommend tying personal asset to the business, but if it is the last resort and I mean absolute last resort to get the financing you need then so be it. The inability to come up with the necessary capital when suddenly presented with a great business opportunity can be very frustrating experience. Fortunately, there are several ways to raise unlimited amounts of capital in an hour or less! Most business owners are not aware of many of these cash-raising methods I am about to share with you. They are all legal and any one of them could be the answer to your businesses money needs the next time you have an opportunity to get in on the ground floor of a great business opportunity. The important thing is to be aware of the possibilities, and then to position yourself to use them when the need arises. Another source of money is your circle of friends and relatives. Therefore, it's always to your benefit to make friends, encourage them as necessary, and keep them believing in you. Like I said in the public offering section of this chapter one of the easiest of all money-raising ideas is to promote amongst your friends and relatives is the sale of "private stock" in your corporation. For instance, if 100 of your friends and relatives were to give you $250 each for 250 shares of stock, you'd have $25,000 with which to either jump into or launch a new venture. And by-the-way, it's always important to have at least 3 people you can count on to co-sign on a note or loan for you if the need should ever arise. Almost every business uses credit cards in place of money for the purchase of many of the things the business needs to operate. Most business owners aren't aware that in addition to merchandise and services, you can also buy money with your credit cards. The "Cash Advance" privilege on credit cards is actually the best and easiest way to raise cash - immediately and with no questions asked. Generally, most business owners can write themselves a check for at least a thousand dollars against these credit cards and with no questions or quibbling relative to the amount requested. With an American Express card, you can even write yourself a check for $2,500 without being questioned.

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Now let’s say you had 10 of these credit cards, and your business needed $10,000 all you'd have to do is write 10 different checks for $1,000 each - a $1,000 check against each of your credit cards with this cash advance privilege - present the checks at each of the banks sponsoring the credit cards, and you've got the $10,000 your business needs. Besides the no-fee credit cards such as MasterCard and Visa, there is a growing number of travel and entertainment cards such as American Express, Carte Blanche and Diners Club. Your annual income and credit rating has to be higher than average, and they charge you an annual service charge for the privilege of using them, but the amount of cash you can draw against them is much higher. For instance, with an American Express "Gold Card," you can draw up to $5,000 in instant cash, immediately with no questions asked. In addition to the "cash advance" privileges of most credit cards, most modern bank accounts include an automatic overdraft provision. This amounts to the privilege of your being able to write a check for more than the balance you have in your account, and the bank honoring your check by merely loaning you money to cover the amount of the check. In effect, this is an immediate and automatic loan to you - without questions. Most of these "check guarantee" accounts will cover you up to at least $1,000 and if you have 3-such accounts, you can write three $1,000 checks, and be on your way with whatever you need instant cash for. Loans against life insurance policies are another source of "no questions asked" instant cash. You simply borrow against the cash value of the policy, and in most cases, the interest you pay is much lower when compared to other loans. The best part is you don’t have to pay it back nor will your insurance policy lose value, so long as you keep the interest payments up to date. Still another avenue to explore is the feasibility of using your insurance policy as collateral when you don't seem to have enough unassigned collateral otherwise. If you own real estate, and there is no pre-payment penalty and your personal credit is good enough, you can do a cash-out refinance if you have enough equity. Generally speaking, you could borrow money against your equity. In these times of tight money, this is the most intelligent method of coming up with the cash you need to start a new business, but this method is not what you would call instant it could take anywhere from 3-4 weeks to close escrow.

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Don't forget all the money you've loaned out to friends, neighbors and/or relatives over the years - check your memory and get in touch with these people and ask them for repayment. Don't be afraid to take your business plan in and show the people at your nearest commercial bank. These banks -as opposed to regular savings banks are always on the lookout for new businesses to invest in, and are willing to take risks they'll welcome businesses with "open arms" and can really help your company. How to Raise Capital for a Business There are several ways to raise capital for a business from borrowing form a friend or relatives to selling stocks. Don't make the mistake of thinking that the only place you can find the money you need is through the bank or finance company. The task of raising money for a business is not as difficult as most business owners think. This is especially true when you have an idea that can make you and your backers rich. Actually, there's more money available for new business ventures than there are good business ideas. A very important rule of the game to learn: Anytime your business needs to raise capital, your first order of business should be to put together a proper prospectus. This prospectus should include a resume of your background, your education, training, experience and any other personal qualities that might be counted as an asset to your potential success. It's also a good idea to list the various loans you've had in the past, what they were for, and your history in paying them off. Remember to only include things in your prospectus that work towards your benefit You'll have to explain in detail what the purpose of the loan is. If it's for an existing business, you'll need a profit and loss record for at least the preceding six months, and a business plan showing how this additional money will produce greater profits. If it's a new business, you'll have to show your proposed business plan, your marketing research and projected costs, as well as anticipated income figures, with a summary for each year, over at least a three year period. It'll be advantageous for you to base your cost estimates high, and your income projections on minimal returns. This will enable you to "ride thru" those extreme 195 Copyright © 2008 Reginald Ringgold

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"ups and downs" inherent in any beginning business. You should also describe what makes your business unique - how it differs from your competition, and the opportunities for expansion or secondary products. This prospectus will have to state precisely what you're offering an investor in return for the use of his money. He'll want to know if your business is looking for Debt Financing. And if so what is the percentage of interest you're willing to pay, and whether monthly, quarterly or on an annual basis. Or are you looking for Equity Financing. If so are you offering a certain percentage of the profits? A percentage of the business? Or a seat on your board of directors? Investors use their money to make more money. They want to make as much as they can, regardless whether it's a short term or long term deal. In order to attract them, interest them, and persuade them to "put up" the money you need, you'll not only have to offer them an opportunity for big profits, but you'll have to spell it out in detail, and further, back up your claims with proof from your marketing research. Venture investors are usually quite familiar with "high risk" proposals, yet they all want to minimize that risk as much as possible. Therefore, your prospectus should include a listing of your business and personal assets with documentation - usually copies of your tax returns for the past three years or more. Your prospective investor may not know anything about you or your business, but if he wants to know, he can pick up his telephone and know everything there is to know within 24 hours. The point here is, don't ever try to "con" a potential investor. Be honest with him. Lay all the facts on the table for him. In most cases, if you've got a good idea and you've done your homework properly, an "interested investor" will understand your position and offer more help than you dared to ask. When you have your prospectus prepared, know how much money you want, exactly how it will be used, and how you intend to repay it. As simple as it seems, one of the easiest ways of raising money is by advertising in a newspaper or a national publication featuring such ads. Your ad should state the amount of money you want - always ask for more money than you need so you have room for negotiating. Your ad should also state the type of business involved (to separate the curious from the truly interested), and the kind of return you're promising on the investment.

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Take a page from the party plan merchandisers. Set up a party and invite your friends over. Explain your business plan, the profit potentials, and how much you need. Give them each a copy of your prospectus and ask that they pledge a thousand dollars as a non-participating partner in your business. Check with the current tax regulations. You may be allowed up to 25 partners in Sub Chapter 5 enterprises, opening the door for anyone to gather a group of friends around himself with something to offer them in return for their assistance in capitalizing his business. It's always a good idea to have an attorney and an accountant help you make up your business prospectus. As you explain your business plan to them, and ask for their advice, casually ask them if they'd mind letting you know of, or steer your way any potential investors they might happen to meet. Do the same with your banker. Give him a copy of your prospectus and ask him if he'd look it over and offer any suggestions for improving it, and of course, let you know of any potential investors. In either case, it's always a good idea to let them know you're willing to pay a "finder's fee" if you can be directed to the right investor. Professional people such as doctors and dentists are known to have a tendency to join occupational investment groups. The next time you talk with your doctor or dentist, give him your business prospectus and explain your plan. He may want to invest on his own or perhaps set up an appointment for you to talk with the manager of his investment group. Either way, you win because when you're looking for money, it's essential that you get the word out to as many potential investors as possible. Don't overlook the possibilities of the Small Business Investment Companies in your area. Look them up in your telephone book under "Investment Services." These companies exist for the sole purpose of lending money to businesses, which they feel have a good chance of making money. In many instances, they trade their help for a small interest in your company. Many states have Business Development Commissions whose goal is to assist in the establishment and growth of new businesses. Not only do they offer favorable taxes and business expertise, most also offer money or facilities to help a new business get started. Your Chamber of Commerce is the place to check for further information on this idea.

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Industrial banks are usually much more amenable to making business loans than regular banks, so be sure to check out these institutions in your area. Insurance companies are prime sources of long term business capital, but each company varies its policies regarding the type of business it will consider. Check your local agent for the name and address of the person to contact. It's also quite possible to get the directors of another company to invest in your business. Look for a company that can benefit from your product or service. Also, be sure to check at your public library for available foundation grants. These can be the final answer to all your money needs if your business is perceived to be related to the objectives and activities of the foundation. Finally, there's the Money Broker or Finder. These are the people who take your business prospectus and circulate it with various known lenders or investors. The downsides to money brokers are, they always require an up-front or retainer fee, and there's no way they can guarantee to get you the loan or the money you want. There are many very good money brokers, and there are some that are not so good. They all take a percentage of the gross amount that's finally procured for your needs. The important thing is to check them out fully; find out about the successful loans or investment plans they've arranged, and what kind of investor contacts they have all of this before you put up any front money or pay any retainer fees. Start thinking about the idea of inviting investors to share in your business as silent partners. Think about the idea of obtaining financing for a primary business by arranging financing for another business that will support the start-up, establishment and development of the primary business. Consider the feasibility of merging with a company that's already organized, and with facilities that are compatible or related to your needs. Give some thought to the possibilities of getting the people supplying your production equipment to co-sign the loan you need for start-up capital. Remember, there are thousands upon thousands of ways to obtain business start-up capital. This is truly the age of creative financing. Disregard the stories you hear of "tight money," and start making phone calls, talking to people, and making appointments to discuss your plans with the people who have money to invest. There's more money now than there's ever been for new business investment. The problem is that most beginning "business owners" don't know what to believe or which way to turn for help. They tend to believe the 198 Copyright © 2008 Reginald Ringgold

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stories of "tight money," and they set aside their plans for a business of their own until a time when start-up money might be easier to find. So don’t wait now is the time to make your move. Now is the time to act. The person with a truly viable business plan, and determination to succeed, will make use of every possible idea that can be imagined. And the ideas I've suggested here should serve as just a few of the unlimited sources of monetary help available and waiting for you and your business!

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Chapter 12 Think look and act like a Billionaire “Success is not to be pursued; it is to be attracted by the person you become.” Jim Rohn

By now if you followed the steps correctly you should have an Office, have been in business for 2-5 years, a bank reference with an eight figure balance, Tax returns, Audited Financials, and a credit worthy officer etc. I even shared my LBO/Strategic Alliance with all these tools you should have enough to appease the bank, they will practically give you a key to the vault. I Think I Can, I Know I Can In this chapter I am going to touch on something I know most of you have gotten wind of “The Law of Attraction” (The Secret). I am a firm believer in the law of attraction, in fact I have been applying it all my life I just did not know it until I seen The Secret. If you have not seen The Secret I strongly recommend that you buy the DVD, the book, and the audio C.D. for your car. Now if you envision yourself with all the funding you need, and a high Paydex. That is what you will attract. If you don’t believe you will receive the financing you need then often times you will be turned down. You will not give off any confidence etc. In some cases business owners get so discouraged that they do not even apply to one lender because they fear rejection. What is the worst that can happen? They say no. If you do not quit the process of establishing Corporate Credit you cannot fail. On the other hand if you do not establish Corporate Credit to get the funding you need your business could fail from under capitalization. 97% of all businesses fail within the first 5 years. If you want to become one of the 3% to get the funding you need, you’ve got to stop wanting to be trained by the numbers. There is no magic formula on “How to obtain financing for your business.” You’ve got to put aside this literal way of thinking, and start thinking in a few abstracts. Abstract thinking means that you start to deal in concepts. You start to understand concepts instead of just methods 1-2-3. There is no absolute formula for getting loans from the bank. There are some techniques that I will teach you. But understand that these techniques work 201 Copyright © 2008 Reginald Ringgold

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only in the hands of a creative practitioner. That magic grows out of what you know about the bank, their lending criteria, and what you know about your business. This is a key part of the process because your success is going to be in direct relationship to the impression that you make. Dealing with Bankers A true banking relationship will give you the key to the vault. It is this type of banking relationship this manual will help you establish. Now one must remember when dealing with bankers, or a potential investor, that they are humans just like me and you. They eat, sleep, and make mistakes just like me and you. They put their pants on one leg at a time just like everyone else. Bankers are paid to put on an aloof act. Their job is make loans if they don’t make loans they won’t have a job. If they make too many bad loans they get fired. Now on top of all this stress they do not get paid very well, in fact their paid very poorly. This is called the bankers tightrope. You can imagine the stress. Now look at it from another view this banker who probably couldn’t finance a piece of candy is casting judgment on you. So with that being said what makes a bank open the vault? Bankers like businesses because businesses take out much larger loans then consumers. How often does a consumer come in for a Million dollar loan with audited financials, and low debt ratios? Hardly ever because anyone in the position to acquire a million dollar loan on their signature without any collateral would be smart enough to know to apply for a loan under their business because of the tax benefits. Bankers only deal with consumers because they have to. Commercial banks are the only lending institutions that do not do business with consumers. Bankers are paid a small salary and commissions, so the larger the loan is the more they are paid. So how excited do you think they get when a consumer walks in requesting a $5,000 dollars loan to catch up on some bills? They will probably say oh so & so handles those types of loans and then push you off to some rookie. In order to appeal to bankers, you have to understand their thought process. It’s a banker’s job to judge people; they are paid to be conservative, 202 Copyright © 2008 Reginald Ringgold

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because they have to make conservative judgments. Because of this they have a tendency to like certain types of people. Basically, bankers like rich people. Because the average consumer begs for money calling every day to see if they have been approved, while rich people business owners would inform a banker what their plans are for the money requesting a commercial loan with annual payments, or a 12 month note with no payments until the note is due. Now do you see why bankers don’t like people, who aren’t rich, again the only reason they deal with common folk is because they are required to. The banker’s thought process is not at all what you think it is. You may think the banker is saying to himself, “Is this a loan in the best interests of the bank? Is this going to make money for the bank? Is this wise for the bank? Is this fair treatment for the consumer?” But he isn’t thinking any of these things. He is thinking, “Is this loan going to come back and blow up in my face? And if somebody in upper management comes in and looks at this loan and asks me why I made it, do I have all the documentation in the file that makes it look good? I don’t even care if it is good. Well, I mean, I’d like it to be good, but I’m not trying to shoot myself in the foot. Because for the most part, what is good for the bank is good for me, I mean, if I make a loan to a business and it transfers a big deposit over here as a result, and then the loan is paid back as agreed, I get lots of rewards and pats on the back. So yeah, I want the loan to be good. But if it isn’t good (remember, most bankers assume that every loan could be bad), I don’t want anybody to be able to come back and say that I made a bad judgment. Because how could anyone have known? As long as I do everything I am supposed to. And all the documentation is in the file. If the loan turns out bad how could I have known?” A banker’s foremost thought is always whether a decision will make him look good. No matter what deal or interaction he is involved in, the banker is always most interested in doing the safest thing. He is only interested in a good looking file, a file that has everything in it, and if a file is missing something there is something in its place to make up for it. Now a question that is always going to come up is “were you have been banking before and why are you now choosing to bank with us”. The best explanation for this is the service. “I didn’t like the service” with this answer they will not question 203 Copyright © 2008 Reginald Ringgold

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you any further. Remember a banker is a human just like us with all the same doubts and fears that we have. So I am going to start out by laying a foundation to establish an understanding of what makes a banker tick and what controls him so that you understand when you are dealing with them. There are two types of loans: consumer loans and commercial loans. A consumer loan is a small loan. A consumer borrower is someone who comes in and says, “I want to buy a car,” or “I want a loan for a boat”. It’s even a person who says, “I want a personal loan to take a vacation”. Consumer borrowers are talking about small numbers and financing for two, three, four, or five years, during which time they repay in small amounts every month. Now there is nothing wrong with this, except that bankers feel indifferent toward consumer loans. Because they are pennies compared to commercial loans, and the probability of a default is much greater than a commercial loan. When you apply for a consumer loan you put yourself under a real handicap and in a position to where the banker has to judge you based on your personal credit. Which equals personal liability in the event of a lawsuit, and this does not sit well with most bankers. Bankers like to see corporations because when a business is incorporated it has personal liability protection and the proper asset protection strategies in place in the event of a lawsuit. To avoid the disadvantages of consumer loans, a banker is much more comfortable making commercial loans for commercial purposes. Bankers feel that commercial loans are safe, whereas consumer loans are risky. Businesses have offsetting balances on deposit. Businesses generate cash flow and don’t have to depend on a single “job” or the source of repayment. Plus businesses usually have a secondary source of repayment. Businesses use the borrowed money to make more money, not to buy luxuries. So now that we know a little bit about dealing with bankers, how they think, how to appeal to them, and their fear of making bad loans arises most when assessing a consumer loan. The purpose of this manual is to show you how to make the transition from the consumer loan mentality to the commercial loan mentality.

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Now you are probably thinking to yourself Reginald, this is good information but I’m not rich. Well no worries you don’t have to have deep pockets you just have to look like you do. I have a story that is going to help explain the next section. Image is everything. I first got into real estate when I was 18 years old. I did not have the best business attire in fact I had one pair of beat up moccasins two dress shirts with one pair of dress pants. And since I was so young I got a lot of people that were skeptic to do business with me. They would always ask me how long I have been doing real estate, and how old was I? To make a long story short I closed a few loans and I bought myself a few suits, dress socks, dress shoes, a briefcase, and a nice pen with my initials etc. After this was done I was getting double the loans but people were still asking how business was for me, because I still drove a beat up Honda SUV. After a few months I was able to buy a BMW 328I something I had wanted for a long time. After this I was getting more loans then I knew what to do with, and I noticed I was not getting questioned anymore about how business was. And people often would refer more people to me. I often would get a lot of people in public who would ask me what I did for a living. This got me more business as well. A lot of my fellow account executives would tell me they did not think it was a good idea they I bought the car because most people don’t like taking risks, but those same people were not the best dressed, and did not drive the car they wanted to drive. They also did not have as, many loans as I did either. I was the top loan officer in the region and I had only been working for the company for a few short months while they were there for years. But from the outside looking in you would think I was a seasoned veteran. Shortly after the dress code changed and the mangers encouraged account executives to go out and by their dream car. This doubled the regions business because account executives were more confident and felt like they had something to work for. The moral of the story is look the part even though I had not been at the company as long as the rest of the account executives I knew what I wanted and I went and got it. I set a goal and I achieved it. I knew that if I thought, looked, and acted like a successful business man I would soon become on. Although there was not much in my pocket but lent at the time my clients thought I was a very successful young business man. And after a short period of time this became true.

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In order to become a successful business owner one must develop the mindset of a successful business owner. See a person who gives the appearance of a failure tends to become a failure. You have to use the image of money to attract money. While it is not true that clothes make the man, they can unmake him. Bankers favor dark conservative clothing preferably a suit. The rule is: Spend as much as you can afford on a superbly tailored suit, make sure it is gray flannel, dark wool, or subtle pinstripes with some nice dress socks and dress shoes to match your suit. If you do not have business cards I suggest you get some before you approach any bank, lender, V.C. etc. you can go to www.vistaprint.com and get free business cards if you cannot afford expensive cards, also purchase a nice briefcase and a nice pen if possible one with your initials. Billionaires Don’t In this section I am going to go over a few things Billionaires just don’t do. Now you are probably thinking to yourself Reginald Billionaires don’t need to borrow money. This is true and not true, do you think Donald Trump uses his own money to finance his real estate deals? The answer is no he leverages his Corporate Credit. 1. Billionaires don’t put all their eggs in one basket: Those skilled at the art and science of borrowing know that the best way to obtain substantial sums is to make rounds at about 5-10 different types of loan and equity sources, taking the maximum available from each and combine them to reach the highest possible total. This technique is called stacking. Draw up a list of target lenders. Plan a search schedule plotting out on a calendar, exactly how many lenders you will visit on each day. It is important to have your “secretary” make appointments with them well in advance. This makes one look professional and it also helps when the rejections start coming in left and right, the frustration may prompt you to give up before the list is checked off. But with an appointment schedule marked on the calendar with all the dates set and confirmed, inertia will carry you through the toughest periods. And with persistence all things are possible like millions in funding. 2. Billionaires don’t make their own appointments: If you don’t have a secretary to book your appointments then I suggest you have a friend or a relative do it for you. This gives off the image of a successful business man. Because anyone successful would not book their own appointments. Besides anyone who is very busy and of importance has a secretary or someone to 206 Copyright © 2008 Reginald Ringgold

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help them in areas where they need assistance. Another good idea is the third party introduction this helps to break the ice. Or you can ask around and see if a friend or associate knows the president of the bank, the old so and so referred me works as well. Remember you want to give off the image of a successful business owner because that is who bankers are looking to make loans to. 3. Billionaires don’t fill out applications: Consumers fill out forms you are not trying to do what consumers do, you want to do what Billionaires do. Billionaires have a third party introduce them or they have their secretary call to make an appointment at a neutral zone that means not in his office and not in your office unless your office is nice and you don’t mind the banker coming to your office. Just as long as you are not in their office this gives you an edge. Do not I repeat do not bring your financials or any paperwork for that matter. This appointment is strictly just for the banker to get to know you and feel comfortable with you, it is o.k. to briefly go over this big deal you are going to be able to close as a result of the loan and how you will be making a nice deposit in the business account if things go smooth. Let the banker know you are going to have your secretary send in your financials. (More on The Dinner with the Banker later in this chapter). 4. Billionaires don’t talk to Underlings: Billionaires only talk to the boss. Spending time and energy trying to convince someone who does not make the final decision is a waste of time. They may like the proposal in fact they may love it, but if you don’t get the big dog to agree it does not mean a thing. Only talk to the person who makes the final decision. 5. Billionaires don’t beg: They never ask for anything, they simply let the banker know what they are planning to do and how much money they need. They usually double the amount needed so they are not turned down for asking for too little. They inform each funding source that they are shopping for the best terms. And they have their secretary call to follow up, but only if a few days have passed. But make sure not to call too much, it makes you seem desperate.

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Assessing a Bankers Needs Instead of Wants Those skilled in the art and science of borrowing large sums of money not only listen to what the banker says he wants. They listen for what the banker needs and why he needs it. They read between the lines. Now when a banker asks you for a particular item don’t take him literally. Don’t believe that he really has to have what he is asking for. If he asks you for something that you don’t have, don’t say you don’t have it! Create something to offer him in its place. You have to give him something so he doesn’t have a blank space in his file. The way to get the banker to say “yes” to you is to help him cover himself, to make sure he feels safe. For example if you do not have your businesses tax returns yet because you filed for an extension you can provide 12 month bank statements for that year in place of the tax returns. Go over your loan proposal, business plan, tax returns, financials etc. to anticipate any questions you might be asked. Then, have short, intelligent answers ready. Make sure that there are no blanks, if so then put something in place to make up for it. If you have nothing to put in place of the missing item then prepare a letter of explanation and give it to them only if they ask for it. I say this because you only want to give them what they ask for. You don’t want a messy file as thick as a phone book because this make underwriters gravitate towards much cleaner thinner files. And you don’t want to open up a can of worms, because who knows they might not notice. So again ONLY GIVE THE LENDER WHAT THEY ASK FOR. And assess their needs instead of wants. The Bankers Response A banker should be friendly and interested in your business. This is the banker you want to meet and deal with. Look for the banker to sound anxious for your business. He should be more concerned with setting up an appointment than with asking detailed questions. If you don’t like the response you get from that initial overture, STOP! Scratch that one. If you start right out with somebody who’s got a bad attitude, you will not change it. It’s not worth it. The response you’re looking for is for them to say, “Sure, I’d be happy to do that.”

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The Luncheon with the banker It is important to not appear nerves or intimidated, Invite banker to lunch at a giltedged restaurant, or any nice restaurant of your choice as long as its outside of the bankers office, this shifts the meeting from the bankers office, where he has the edge, to a neutral ground. Now it is important to be on time. Remember the banker is still judging you on how well you manage your time, how well you manage your time is a reflection of how well you manage your money. Every signal that you can send that says you’re a good manager of money is one step in the direction of getting the funding your business needs, so be punctual. Do not start out the appointment begging for money this makes you look like an amateur, a consumer and you are trying to avoid looking like a consumer. Try to break the ice first, find something that you both have in common it could a local sports team, or a recent game that was on T.V. golfing, Skiing etc. whatever it is you have in common use this to build rapport, the right banking relationship will practically give you the key to the vault. So build rapport before you bring up money. If possible prearrange for someone (business partner, spouse, or friend etc.) to call you a few times during the course of the luncheon. Wait a few times for the phone to ring don’t answer the first or second call, wait for the third call then answer and tell the caller that you are too busy to speak at the moment and you are going to have to return the call because you are in an important meeting. This move will make you appear to be successful, decisive, and accustomed to giving orders; in addition you have balanced the demands on your time and have proven to be a courteous luncheon host. Now after you have broken the ice you can start out by saying “I am going to be opening a trust account because I am going to be making some large deposits (if you do not have the money to deposit you can borrow it from a relative or apply the strategies in the seven steps chapter)., and depending on the terms and conditions of the line, I am going to be opening a line of credit for x number of dollars. And I will need this line to use as I need it. Imply to him that you are planning to do a good deal of business. And in order for this to take place, certain services are going to be important. Let the banker know that you have to be able to operate without any red tape procrastination. Make sure you get him to agree with you, a simple I understand will due. Any reaction other than enthusiasm, any hesitation on his part, is bad. If the banker says something like, “Well, of course, I couldn’t promise that in advance of seeing your financial statement,” beware. He is not the banker for you he is not open minded you want a banker that thinks outside the box. Now you have gotten through the lunch in, broken the ice, and gotten a verbal commitment, now what? That is it for now let the banker know you are going to have your secretary drop your financials of in the morning. Now make 209 Copyright © 2008 Reginald Ringgold

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sure you get the commitment from the banker “So you don’t have any issues with that right? Right well let’s get the ball rolling. Now remember not to pay for the lunch, who ever pays for the lunch has the most to gain so do not pay for the lunch no matter what you do. Besides bankers have a special account for lunches with big clients. You can only make one first impression. One thing that one must keep in mind is that trying to impress a banker is the same as trying to impress a girl/boy that you like. You dress your best, put on the charm and try to appear like you have more than really do. I know you might not want to but you are going to have to do a little acting, so put on that old charm even if has been a while. Add $10,000,000 to your Business Balance Sheet for less than $50.00 You can add $10,000,000 or more to your balance sheet. It is important to form your corporation in a state (Nevada or Wyoming) where the state law allows you to assign any "par-value" to your stock as you like, even though there are no assets to back up your valuation. Thus, it is possible to assign a par value of $1 each to 10,000,000 shares of stock and list it in your book as "assets." You can then take the $10,000,000 in shares of stock and add the corporate stock as assets to the businesses balance sheet. Now this again as I stated earlier will give the corporation an image of a big fortune 500 companies, and you the image of a multimillion dollar business owner.

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Chapter 13 Establishing Corporate Credit “When establishing trade references you must register your trades with D&B and Experian. Make sure all your trade references are reporting to D&B and Experian.” Reginald Ringgold

Passively Establishing Corporate Credit From day to day, week to week, month to month and year to year, as your business continues to operate and grow, you are directly impacting your business credit profile, whether you know it or not. You can do nothing and as the years progress you are building your corporate credit profile. Because many large companies (including financial institutions, credit card companies, utility companies, and some government agencies) report your payment history to the business credit bureaus, you are building your business credit profile just by paying your businesses monthly obligations. The information in your business credit profile cannot be kept hidden, and other companies may access the information in your business credit profile by paying a fee to the business credit reporting agencies, that is why it is so important to keep a good business credit profile. Actively Establishing Corporate Credit By utilizing proven strategies there are ways to improve your business credit profile. Many people try to build corporate credit on their own, and many fail in the process because they do not know the proper steps to establish a good business credit profile. Establishing corporate credit is not a get rich quick scheme, or a way to cover personal expenses that you just cannot afford to pay, or do not wish to pay. So be careful because you could find yourself in debt faster than you know it. This is why you must have a plan for the money In order to ensure that you are properly building a positive business credit profile, it is extremely important to maintain on-time payments for business loans and lines of credit, credit cards, payments to suppliers, utility bills, leases, rent, vehicle payments, all other bills, to maintain an accurate balance sheet, an accurate income statement, and to avoid legal action against you at all cost. 211 Copyright © 2008 Reginald Ringgold

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Each of these factors are a direct reflection on your overall business credit rating. The Four Factors of Establishing Corporate Credit No single factor is used to determine a company’s creditworthiness. In the same breath no single factor will undermine its creditworthiness. Your businesses corporate credit profile depends on several factors, these factors include: 1. Paying your bills on time: paying your bills when they fall due is

probably the single most important factor in determining a business’s creditworthiness and has a direct impact on your paydex. A good way to avoid late payments is to set up all the bills that are set and due on a regular basis on automated payment. (For more information on paydex refer to the business credit reporting agencies chapter.) 2. Having a strong balance sheet: when you apply for a business loan, the lender will usually look at your company’s Financials which includes your company’s balance sheet. A solid balance sheet with assets exceeding liabilities is important to be viewed as a low credit risk by commercial lenders. Here are a few ways to keep a good balance sheet, retain cash, wait to write-off bad receivables, manage inventory, lease rather than purchase equipment. Your balance sheet is a direct reflection of your Duns Rating. Because your Duns Rating is based on net worth (Financial Strength), and your balance sheet is a snap shot of your company’s net worth. 3. Creating and maintaining a strong business image and presence: that means follow all the seven steps in chapter 7 and be in compliance with the lending market, and organized. 4. Staying out of legal trouble: avoiding lawsuits and fraudulent activity. Work with a good legal team, work with good insurance agents and make sure you follow all formalities to avoid the piercing of the corporate veil. Lenders focus on one or more of these factors when looking into your business credit history and determining your businesses creditworthiness. For example a commercial lender determining to grant your business a loan may focus heavily on your Duns Rating and your balance sheet, whereas a vendor can careless about a balance sheet, they would be more concerned with your paydex and whether or not you pay your bills on time or not. Insurance companies on the other hand may not put heavy emphasis on your Paydex or Duns Rating, but they will factor in your 212 Copyright © 2008 Reginald Ringgold

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litigation history. That is why it is important to focus on these four factors when establishing corporate credit. These factors are also taken into consideration by other service providers, such as insurance companies to set premiums. More than ever, companies are using automated decision, which means they input scores and ratings that summarize the 5 Cs into a financial model to determine the risk of doing business with you.

Trade References Trade information Whenever possible, try to establish credit lines that will grow along with the business. For example, in setting up a credit line with your bank, try to get a credit line based on a percentage of your receivables, rather than constant, static amounts. Chances are your credit line will be reviewed by your bank annually and will be subject to ceilings and restrictions, but try to build as much flexibility into your borrowing relationships as you can. This will leave you better equipped to finance fast growth. The process for establishing business credit should be started before the company needs it. No lending institution wants to lend money to a business in need of cash flow. The corporation can start out using the owner's or officer's credit to gain approvals under the business name, but as the business grows it should start to establish its own credit history and credit profile in order to take on business credit of its own. This is possible with a C Corporation using the corporate tax identification number When officers and owners use their own personal credit profiles to obtain credit for the business, they risk the chance of lowering their own personal credit scores. There are two reasons business owners should try not to use their personal guarantee on business credit. First, the individual signer is liable if the business cannot make the payments and second the credit obtained for the business can affect the person's personal credit score and debt ratio. Keep in mind, your personal credit score is based on several factors, including available credit, the amounts of available credit used, late payments, and much more. 213 Copyright © 2008 Reginald Ringgold

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Obtaining credit for a business is a process that should be established over time. The older the business the more options the business will have to build credit and obtain loans and leases without the use of personal guarantees. It is not easy to do this, but yet it is not impossible. The first step to start building the business credit is to get educated, then apply the knowledge. A credit score is built by having lines of credit, credit accounts and trade references that report to the business credit bureaus. For most businesses it's very difficult to find a business willing to grant credit with no personal guarantee and without any previous credit history. If your business already has trade references, you should work with them to build your paydex score. However, most businesses need additional trade references that will grant credit and report to the credit agencies. When you have obtained your minimum 5 trade references and 5 cash credit references in order to obtain a paydex score and Intelliscore, you must make purchases to establish some payment experiences. Make small purchases from $50$500 from each vendor/creditors. Do not make all of your purchases on the same day. Space out your purchases over a few days or weeks. You must pay your trade references before or within terms in order to establish an 80 paydex. That means paying your trades 10 days sooner that the due date or on the day it’s due. To avoid having to worry about getting your payments in on time set up your trade references on automatic bill pay. Once you have created positive payment experiences if your trade references are not reporting to D&B then your corporation can go through the D&B Business Credit Builder Program. D&B has two options for its Business Credit Builder Program the first option gives you 30 days to report 6 trade references this option cost $549. The next option gives you 12 months to report unlimited trade references this option costs $799. For more information on the D&B Business Credit Builder Program call us toll free at (888)817-8222. Unfortunately if your trade lines are not reporting to Experian the only option that you have available is to call the creditor and request that report the trade. Most vendors you will encounter NEVER report good credit to anybody. On the other hand if you don't pay on-time you will definitely be reported negatively.

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Applying For Corporate Credit Here are the documents that are needed (but not required) to be provided to the creditor when applying for Corporate Credit. • Articles of Incorporation or Certificate of Incorporation (for corporations only) • Articles of Organization (for LLC’s only) • Current Business License (If applicable) • Proof the business has been in business for at least 2 years (Unless you are applying for start up financing.) • Most recent business bank statement, or a reference letter from the bank. • Fictitious Business Name Statement • Proof of Publication of Fictitious Business Name • Utility Bill, and or lease agreement • 2 years of business financials and tax returns. (For full doc submissions only) Here are the documents that are needed from the Personal Guarantor for the business. • • • • •

Copy of Driver License Copy of social security card Utility bill (For proof of residency) 2 years of personal financials & tax returns Bio’s on all the officers on the corporation’s officer’s list.

The 5 Ways to Apply For Corporate Credit There are five different ways to apply for Corporate Credit 1. 2. 3. 4. 5.

Walking in By Phone By Fax By Internet By Mail

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By submitting your application to a creditor in multiple ways will increase your chances of being approved. One department may say no and another may say yes. Just make sure that your application is not going to the same location. Ultimately the best way to apply would be to walk directly into a bank or lending institution. This approach allows you to establish some rapport with the bank. Unlike personal loans, with business loans no corporate or personal financials are required when requesting under $100,000 for some banks and $50,000 for others, the business just has to be in business for at least two years, and at least one of the officers of the corp. must have at least a 680 fico with no late payments within the Last twelve months. With this in mind one can form several corporations with divisions and sub-divisions, each corporation can apply for $100,000 without having to provide any proof of income. As long as you have a credit worthy officer with at least a 680 fico score for the parent corporation and each division you’ve got the green light. This strategy can be applied with 10, 20, 40, or how ever many corporations as you can handle and provide a credit worthy officer for.

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The Following is an example of the Corporation Stacking Strategy:

The Parent Corporation is the corporation that has the history and corporate credit established, by setting up the DBA under the parent corporation corporation,, you are now in a position to establish corporate credit under each division that you daisy chain under the parent ent corporation. When dealing with Subsidiaries (entities that are already incorporated) inn order to make this strategy work you must give at least 10%-50% 50% shares of stock in each division to the parent corporation. Establishing Corporate Credit with Divisions You are able to open multiple DBA’s (Doing Business As divisions) under the corporation. This allows you to reference the credit from the parent corporation to each division or subsidiary,, and adds more levels of protection. Each DBA acts as a shield and a line of defense like the chess board theory theory. The divisions are like the pawns protecting the King and Queen which is the parent corporation. Each DBA 217 Copyright © 2008 Reginald Ringgold

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will be an individual business for the corporation. In the event of a lawsuit, or bankruptcy, you will have the ability to dissolve the DBA without jeopardizing the corporation. The divisions can use the same tax id as the parent corporation and can also be added as a division to the parent corporation’s bank account, but eventually each DBA will have its own federal tax id number, separate bank account and business license. Here is how it works: Go to the county recorder’s office and file a D.B.A Fictitious Business name statement under the parent corporation. Then complete steps 2-7 with the exception of 4 & 5 in the 7 steps in chapter 7. The reason you are going to skip step 1 is because since you are setting up a division you can use the parent corporation’s EIN thus eliminating the need to file a separate tax return, and eliminating the implementation of step 5 in the 7 steps. You also can use the history and corporate status of the parent corporation without having to pay extra franchise tax fees. Repeat step 2 with the exception of the physical address unless you have a separate address for the division. The reason you want to repeat step 2 is because a division that serves another business purpose separate from the parent corporation would not fail to have a separate web address and email address with matching domain name. Once you have completed step 6 which is apply for Duns Number then you can move on to step 7 which is apply for trades. This means that with the corporate credit that you have established with the parent corporation if the creditors allow it, request additional cards for your divisions and sub divisions etc. then apply for new corporate credit. Most trade creditors will extend additional credit to divisions. Cash Creditors do not extend credit to divisions. In order to obtain cash credit and an Experian Smart Business report with a division you must transform it into an entity by completing step one with the exception of the D.B.A. This means incorporate the division and apply for an EIN. This must be done because cash lines and credit cards only report to Experian and unlike D&B who issues a Duns number to each location of the business Experian uses your businesses Tax ID. The reason you are going to skip step 4 in the 7 steps is because you can add divisions to your business bank account thus avoiding opening a new account for the division that would lack the history needed to obtain larger lines of corporate credit. (Warning divisions that are sued while connected to your parent corporation can jeopardize the parent corporation’s assets. To avoid this from happing when facing a lawsuit you can separate and isolate the division away from the 218 Copyright © 2008 Reginald Ringgold

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parent corporation by incorporating the division. If it is a subsidiary then you can isolate it from the parent corporation by issuing the stock back to the subsidiary.) Business Loan Stacking Strategy Another good strategy would be to use the same corporation to apply for several loans in $100,000-$250,000 increments. In my opinion I feel using the same corporation is the least expensive, as opposed to paying too form several corporations. Both strategies are effective as long as you have a credit worthy officer. If you don’t have a fico score of 680 or better you can advertise for a credit worthy officer. (For more on Credit worthy officers refer to chapter 9). When the business loan stacking strategy is applied correctly a corporation can generate millions on demand for any business purpose. It is possible to leverage your corporate credit by applying for a line of credit, then take the money from your first line of credit and open a business bank account with the funds from the line of credit as the opening deposit. Having a banking relationship with the bank and funds in your business account will increase your chances of being approved. The more funds you have in the bank the higher the line of credit. Repeat this process at several banks until you have reached $1,000,000 in corporate credit but remember whatever you use must be paid back so use the money wisely.

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Following is an example of the Business Loan Stacking Strategy:

btaining a bank loan, unfortunately there is no easy way to obtain a bank When obtaining loan. The bottom line is in most cases the bank is going to require a personal guarantee or at least want to review the ppersonal credit off anyone who owns own at least 20% of the corporation. So, if your personal credit is poor without a credit worthy officer, you will have a difficult time obtaining a loan from the bank for the corporation.

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How to obtain higher limits on Corporate Credit cards Every time you apply for a Credit Card you are asked if you want to transfer any balances that you may have on other cards. Most people when asked if they want to transfer balances from other cards are reluctant, but transferring balances from other cards can increase the limit that you receive on the card you are applying for. For example when you are asked if you want to transfer a balance, ask what is the most that can be transferred, if you have the balance available to transfer then transfer it. The reason is if you can transfer $25,000 and you transfer $25,000 this will improve your chances of being approved for no less than the amount you have transferred. Do not be hesitant to transfer a balance to another card, because not only can the balance be transferred to another card in the future, but the balance that you transferred from the existing cards will free up the available credit on the existing cards. If the limit on the existing card is below $20,000, with the balance being freed up on the existing card you can reapply and transfer the $20,000 balance from the card you were just approved for to the existing card. This will increase the limit on the existing card and free up the balance from the previous card. Here are the requirements for obtaining a loan for your corporation through Bank of America (This is for a loan up to $50,000). 1. The corporation must have been in business for 2 years and profitable. 2. Must give a personal guarantee. 3. Give them the gross sales of the corporation. 4. No Corporate or personal financials are required (if you are asking for over $50,000 for the corporation then financial statements will be required). 5. If the corporation has been in business less than 2 years or not profitable, then you can still apply for a corporate loan, but the bank will heavily rely on personal guarantees. 6. Many of the other options require your corporation to have been in business for over a year, i.e., Office Max or Office Depot. With a new corporation this is impossible, unless you had a shelf corporation that has been in existence for over a year. 221 Copyright © 2008 Reginald Ringgold

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Here is a step by step guide on how to apply for American Express Corporate Credit card Obtain an American Express corporate credit card. Here is the telephone number to apply over the telephone 1-800-433-3550. You can also have them mail you an application. You can fax in an application, since they require an original signature on the application, they will send you a signature card (similar to a bank account) to mail in also. The fee is $55 per card for the American Express card or you can obtain the Optima card, which works like a regular Visa/Master card and has an interest rate and the corporation is not required to pay the balance off each month. There is no fee for the Optima Corporate Card, although it doesn't have some of the corporate benefits that the regular corporate credit card offers. Obviously, the corporation will establish a higher credit rating faster with the regular American Express card over the Optima card. You must be the owner or an officer of the corporation to apply. Here are the questions they will ask: 1. The physical address of the corporation. 2. The phone number of the corporation. 3. The name of the individual responsible personally for the account. Yes, you have to give your SSN. Basically, this is a personal guarantee to American Express. 4. Credit references. This means the corporate bank account; any corporate trade references. If the corporation is brand new and has none of these you will have to give personal credit references. If that is no good, then you will have to wait a few months until you establish some corporate references. The credit limit will be based on the credit history of the company or individual. Usually, American Express will start you out at $1,000 limit. Each month that you pay off your balance on time you will get up to a 10% increase in the amount of credit. It will take about 10-15 days to receive the card. How to Increase Your Increase Your American Express to $100,000 Request $100,000 in travelers’ checks but don’t use them, wait and return them to 222 Copyright © 2008 Reginald Ringgold

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the bank and say you did not need them this will increase your limit. They may request financials so be prepared to provide them if you are asked to. How to Lower Your Interest Rate while improving your Corporate Credit Profile Did you know that you have power to decrease your credit card interest rate, eliminate fees, and get a bigger credit line for your corporation? You do! In fact, you have more power over creditors than you may think. Why would you want this power? I will explain why it is important for you to have control, and give you a guideline of what to say to get things your way when talking to your credit card company. It is your responsibility to put your knowledge into action. Unless you pay off your credit card every month (which I highly suggest you do), you are probably overpaying on interest. It is very common for credit card companies to give you higher than required interest rates. You may have an interest rate equal to prime rate plus 4%. When you put the following information into action, you may be able to lower your rate by a couple of percentage points. Credit card companies love charging fees for any administrative thing they can. Other people have eliminated these fees, and so can you. After you have completed this assignment, you may have saved yourself hundreds of dollars in fees. Why would a bigger credit line be important for you? It allows you to respond quickly to time-sensitive requirements, without halting or compromising the businesses operations. Now for the assignment: In order to make this work for you, you need to complete this telephone assignment. It is not hard. I will give you an outline to follow. Follow this outline and you will have a high chance for success in this exercise! Decide which credit card company you are going to call first. Pull out your card. The phone number for the company should be on the back of the card. Call it. Here is the guideline on what you say… The words in bold are what you should 223 Copyright © 2008 Reginald Ringgold

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say. Those in italics are side notes and explanations. (your company name). To Operator: Hi, my name is ________ from What is your name please? (Operator answers) Write down his or her name. Knowing and using someone’s name can give you control over the conversation and make you seem very confident, even if you are not. Thank you. Well, (operator’s name) we are thinking about making a large purchase in the near future, and I called to find out our credit limit. What is our limit? (Operator answers). Hmm… (As if you are not happy). What is the maximum amount of credit you can give me today? Operator: How much do you want? I would like a limit of _______. (Ask for $100,000). In most cases you will not be able to get that high of a limit without proving your companies income with documents (which you don’t want to do with this exercise), but it opens up the opportunity. Operator: Well we are going to have to pull your Duns report do we have permission to pull your personal credit report? Yes. Operator: How much money did your company make? (You must state at least double the amount of credit you We made are requesting) Operator: How much do you expect to make. We expect to make ________. (Don’t put your last year’s income. Give them an ESTIMATE of what you EXPECT to make with your corporation and all side businesses you have keep in mind it should be at least 25% more than what you made the year prior). How much of an increase can you give me today? I would like to make a large purchase for my business in the near future. He or she will be able to adjust your credit limit. When I did this exercise I was able to increase my credit card limit to $25,000 on one of my company cards. I don’t EVER use the whole limit, but it’s great just having it available. You may use your new credit limit for purchases for your fixer-upper, your website, your book, 224 Copyright © 2008 Reginald Ringgold

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or anything else for your business. Okay, now that we have adjusted my limit, it occurs to me I should check my interest rate. What is my current rate? (Operator answers). Hmm… What is the interest rate for new credit card applicants? (Often, it's 0% for a year. If so, ask for it). May I get that rate? If they absolutely won't give you a 0% interest rate, use this: we would like to use this card for our purchase, but that rate seems high. What is the lowest rate you can give me today? The operator will then lower your rate to the lowest rate possible. In addition, can you give me access to credit card checks at the lowest interest rate you offer? You can use these checks on purchases that won’t take your credit card. They will be used as checks. While we’re at it, would you check and see if I have any annual fees? (Operator Answers). Hmm… I don’t think any of my other credit cards have those fees. Could you have them removed? The fees can be removed. If the operator says “No,” ask to speak to a supervisor. If the supervisor says “No,” ask if the fees have EVER been removed for ANYONE in the past. Of course they have. The credit card companies are not legally allowed to discriminate. If they have removed the fees for someone else, they can do it for you. Make that your point, if necessary. Script Success Notes: 1. 2. 3. 4. 5. 6.

Own the conversation, be confident and powerful. Be friendly but detached. They want your business. Be friendly and firm. More bees come to honey than vinegar. PRETEND – If this is hard and scary for you, be an actor!!! Don’t take “no” for an answer. Ask for supervisors, if needed. Assume your success, and you will succeed.

Back Door financing See who owns who by pulling your creditor and suppliers business credit reports. Cut out the middle man. For example if we have a supplier who sells widgets at 225 Copyright © 2008 Reginald Ringgold

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$100 and we know that they are not manufacturing them, but purchasing them from the manufacturer at $40 a widget we can cut out the middle man by pulling their D&B and seeing who their suppliers are. We can also look at their purchasing orders to find out who they are purchasing from. 6 Steps to Effective Business Credit Card Management 1. Apply at Home: Always consider applying for your small business credit card at your existing financial institution. Your banking relationship can aid with the approval process. When you need a line of credit or loan you will have a relationship established with your lender helping with credit applications over $100,000 not using automated scoring systems. 2. Limit Card Hopping: Signing up for multiple cards to take advantage of deals can have a negative impact on your credit rating and make managing your cards more difficult. 3. Use Grace: The majority of small business credit cards offers a 21-day grace period before you have to make payment on your purchases. Improve your cash flow using a credit card instead of checks since the new Check 21 act creates quicker clearing of checks. 4. Pay Online: Save time and extra costs by paying your small business credit card online versus paying by teller at your local branch or mailing in your payment.

5. No Cash Advance: Reduce credit card fees and interest costs by not using the cash advance feature on your card. Cash advances incur more fees and costs. Use your business account debit when you need immediate funds. 6. Avoid Late Payments: Late fees and high interest rates quickly erode the merits of using your small business credit card. Be responsible by paying off your business credit each month.

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How to raise $200,000 in 24 hours (The Banking Round Robin) Many people have had opportunities presented to them where quick cash was necessary. Most people are unable to take advantage of these great opportunities because of a lack of cash. A simple procedure is available whereby you can generate quick cash within 24 hours. The process is easy and quick but requires that you first make the preparation and lay the groundwork for the plan. You can call this plan the banking round robin. Go to ten banks and tell the loan officer at each that you want to borrow $1000 for 30 days. Upon paying off your loans, wait 30 days and go back to each bank from which you borrowed the original $1000. This time request a larger amount depending on what you think the bank will loan, say $5000. If each bank approves a $5000 loan you will be able to raise $50,000 the second time. Continue this stepby-step process. Each time you go to the bank, ask for a larger amount and a longer pay-back period. What you are doing, of course, is establishing a millionaire’s credit rating by the process of repetition. That is, you always pay back the money when it is due, and by being prompt combined with the number of loans you've made and PAID, you will have established a very powerful credit rating and relationship with the institutions. In about one year after using this process, you should be able to borrow $20,000 from each bank on your signature. Using ten banks in this plan, you will be able to borrow up to $200,000 on your signature in as little as 24 hours. This strategy can be applied with a corporation as well. If you’re personal credit is challenged or you are not able to get approved for the $1,000 to start this process you can also apply this strategy with your own funds. But remember the whole point of this process is to build trust with the bank, so as soon and you have made a few timely payments request to have the loan be changed from secured to unsecured. Establish AAA Corporate Credit in 30 Days To work this plan you need at least $5,000 to begin. You should borrow this from your friends if necessary. Now go to a bank of your choice, but they must report to Dun & Bradstreet, and deposit the $5,000 into a C.D. or Money Market account (we will call this bank A). 227 Copyright © 2008 Reginald Ringgold

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Wait a few days for the account to be posted and return to Bank A to ask for a $5,000 Business loan – you will offer the C.D. as collateral since the bank is already holding your $5,000. Go to another bank (We will call this Bank B) and open a business savings account and deposit the $5,000 loan from Bank A. Wait a few days for the account to be posted and return to Bank B to ask for a $5,000 Business loan, repeating the previous process, they won't even make a credit check. Then, with your borrowed $5,000 from Bank B, you go to another bank,(Bank C) open a business savings account, return a few days later, borrow $5,000 from Bank C using your Savings as collateral. Then repeat the process at a Fourth bank (Bank D) with your borrowed $5,000 from Bank C. Wait a few days to go to a fifth (Bank E) where you open this time a BUSINESS CHECKING account. Wait a few days and make a payment on each of the other four loans. A week later, make the payments again on the four loans, and continue paying each week. By making the first 3 payments you have unfrozen equal amounts of cash in your C.D. account. You can now withdraw enough money from your C.D. account to make your upcoming payments. Continue In this manner until the loan is paid off. You'll still retain most of your original $5,000 because it continues to draw interest while used as collateral. This helps offset the interest charges you pay. An Experian report at this point will show you with four active bank loans (which are considered hard to get), a C.D. that carries the incentive of a major credit card a checking account, and a paying history for the four bank loans - with you having paid up in advance. Thus, you have a High Intelliscore in as little as 30 days. Now you can go on to apply for Business loans, Business credit cards, and other items on Corporate Credit. How to Borrow Money Interest Free There are a number of ways to borrow money interest-free if you take the time to operate the methods. However, one of the simplest ways is to borrow it from a bank, which offers "overdraft protection." You've seen those offers by banks, which extend to you a loan for the amount you overdraw your checking account. By setting up two or more (and the credit limits can go up to $5000 each) you can write yourself a "loan" from one bank, cover the loan with a deposit from another bank where you have overdraft checking, and then repeat the process over a day or two. 228 Copyright © 2008 Reginald Ringgold

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By covering each withdrawal with another deposit, you will not be charged interest since it would take two or three days for the records to catch up - by that time, you've made another deposit, which covered the original loan. Operated thusly, you can keep the money interest-free for quite some time if you have overdraft checking.

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Chapter 14 Protecting Your Assets from Uncle Sam & Sue Happy Suzy “There is nothing sinister in arranging one’s affairs as to keep taxes as low as possible… for nobody owes any public duty to pay more than the law demands.” Judge Lenard Hand

A corporation is a very powerful means of protecting ones personal and business assets. The biggest misconception that most business owners have is that a corporation is solely for business proposes. A corporation when structured properly is a great tool for asset protection, estate planning, and lowering ones tax liability. But anytime a corporation applies for a loan or fills out an application, a certain amount of corporate privacy will be lost. Meaning, if the corporation has enough money and access to money, and privacy is important to the corporation, then there is probably no reason to go through the process to establish corporate credit. What if you are in a position where you need corporate privacy and a credit rating to borrow money, what do you do? The answer is to have one corporation that goes through the credit process. It does everything to obtain the highest credit rating possible so that when it needs to borrow $250,000, it can. But that corporation will lose some of its privacy in the process. Now, a Limited Liability Company and several other entities, are involved in transactions and keeping your business affairs as private as possible. They can even borrow money from the main corporation that has gone through the process to establish an excellent credit rating. This will accomplish the best of both worlds.

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Here is an example below:

Why Parent Corporation • • • • • •

Minimize taxes Establish Corporate Credit Purchase cars at fleet price Purchase goods and services at ccorporate rates Invest in real estate,, and other corporations Establish divisions

Why Divisions (D.B.A’s) • • • • • • •

No Franchise tax free with the exception of subsidiaries Establish Divisional corporate credit Minimal cost Line of defense Separate liability if needed Buy at wholesale cost Multiple corporate credit reports

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Why Holding Company • • • • • • •

Protect Assets File UCC-1 lien on all assets with equity Deeds of trust for properties Titles (Pink slips) for vehicles and boats etc. UCC-1 for other corporate assets, and loans (promissory notes) Lease & loan management agreements Trade name and Copyrights Holds Parent corporations stock after establishing lines of credit, a duns rating, an 80+ paydex & an Intelliscore.

Why Replacement Corporation • • •

Replacement for parent corporation Reference Credit from parent corporation Ageing

Why LLC • • •

Tie the pieces together with other entities Limited Partnership with Holding Company Accept Money from holding company

Why L.P. • Ties the pieces together between the holding company and the LLC Why Non-Profits & Foundations? • • •

Give back to the community Offset taxable Corporate Income Create jobs for the community

Better Safe than Sorry Unlike a sole proprietorship or a general partnership, a corporation can accumulate debt without ever making its officers responsible for the repayment of that debt. If for any reason a corporation looses a lawsuit the officers of the corporation cannot be personally held liable unless corporate formalities have not been maintained or the corporation commits a fraudulent act. When it comes to the area of asset protection, it is extremely important for you to understand what a litigious society we live in. Studies show that a new lawsuit is filed in this country every 30 seconds. 94% of which are filed in this U.S.A. One out of four people will be sued 233 Copyright © 2008 Reginald Ringgold

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this year alone and that’s just in this country. The average number of lawsuits over an individual’s lifetime is five, and at least one out of those five lawsuits will be what is known as a “Devastating” lawsuit. As you begin to see, how much of a problem litigation is in this country. You see how every individual should take advantage of a corporation to protect their personal assets from Litigation. With only 6% of all lawsuits being filed outside of the U.S. keeping ones assets offshore is the best way to protect ones personal assets from litigation. Unfortunately in America it does not matter whether you win or lose a lawsuit you are responsible for your own legal fees, and the legal fees alone are enough to wipe out the average family or small business. In other tax haven countries the looser of a lawsuit pays for the legal fees of both parties. So that means if you sue me, and I win, not only do you have to pay your legal fees, you have to pay for my legal fees that I incurred because of the lawsuit as well. Because of this most individuals in countries offshore think twice about suing other individuals. The reality of our legal system is that people are named as defendants in lawsuits not because of their degree of fault but because of their ability to pay. Now more than ever asset protection needs to become a main concern in your Financial Planning. And a Corporation, LLC, FLP, or Trust when structured properly is a great tool for one to protect their personal assets from litigation. Estate Planning A corporation is a great tool for estate planning, they provide a convenient transfer of wealth and assets to ones heirs, Assets that otherwise would be hard to transfer or split evenly without being hit with heavy estate tax. Some people consider estate planning to be the act of preparing for death, but it is not. It is the act of preparing for life for your assets after you are gone. Unfortunately people spend more time planning for their vacations then they do their estates. A corporation can be used for disposing of property. One can transfer selected assets to your newly organized corporation in exchange for the corporation’s shares of stock. One can then bequeath or transfer the desired amount of shares to your designated beneficiaries. The shares can be distributed all at once, or to take advantage of the annual gift tax exclusions they can be distributed over a period of years. A corporation can help one leave their assets to their heirs without having to worry about probate or estate tax. One can have how much, when, and how often they want the assets to be distributed to their heirs. When planning Your Corporate Estate, it is wise to divide up your corporation among family members.

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For example: By giving 20% to each of your 3 children, 20% to your spouse, and the other 20% to yourself, you have literally "wiped out" any ESTATE TAXES that the government will ask your family for upon your death. Since the corporation's ownership is held by other members of your family, and since your spouse receives his or her portion of the corporation tax-free, the government legally cannot collect any estate taxes. This method alone can save your family and or spouse thousands and even millions of dollars! Long-term Estate Planning First you must establish a shelf corporation the reason you will form a shelf corporation is because it sits on the shelf, it has no assets or liabilities so the stock has no value. Since the corporation has no assets yet, the stock from the corporation can be sold to your heirs at one cent per share, in whatever prorated amounts you choose for how you want to have things divided among them. Since the shares of stock have been sold to your heirs at one cent per share they cannot be considered a gift. Now this stock, just like the stock traded on Wall Street it goes up in value. Now when assets are put into the corporation it will increase the value of your corporation and the net worth of you and your heirs. Next, you take a proxy from your heirs this allows you to hold the stock even though you don’t own it. Now make the proxy irrevocable so that your right to vote is guaranteed. The proxy must be renewed every seven years in most states to ensure this have your heir’s give you an option to buy the shares back at the initial price of one cent per share. This option can be worded in such a way as to expire upon your death so it will not go through probate. If you do not want to go through the trouble of renewing the proxy you can form your corporation in Wyoming. Wyoming has Lifetime proxy’s unlike other states that require you to renew proxy’s every 7 seven years. Now it’s time to commence capital infusions and all other assets into the corporation in exchange for a promissory note, with interest payments only for ten years and larger installments for principal and interest after ten years. The note will expire upon death. Putting your assets into the corporation will immediately increase the value of the stock your heirs purchased. An added bonus is there are no taxes until the corporation pays dividends or the stock is resold. So again, you put your assets in

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the corporation, get a return on them, then eventually when you past on, the note expires and the assets end up with your heirs. This strategy allows you to still control all of your assets because of the proxy. Yet your heirs own the assets before your demise, which means no estate taxes, inheritance taxes, or probate drama. You still keep and retain complete control of all the assets and legally reduce or eliminate all inheritance taxes. Another option to selling regular shares of stock to your heirs and taking a proxy would be to sell them non-voting common stock of the corporation so you control all the voting shares. Their stock will remain in non-voting shares until your death at which time their shares would then turn to voting shares and whatever percentage you have left would then be passed on to your heirs. The benefit of this would be you could give the assets to your heirs for future benefit without their interference until your percentages of the assets are released at the time of your demise. Most individuals are Leary about handing over their assets to their heirs because they are afraid that when they become old enough they will lose control over their assets, or their concerned as to how their children are going to manage the assets. But with these strategies in place you do not have to worry about losing control over your assets or your children mismanaging the money. However it will not stop your heirs from mismanaging the assets after you are gone. You must put in the Bylaws of the corporation when and how you want the assets to be dispersed. This keeps your heirs form blowing all the money on a weekend of gambling in Vegas! Trust me it can happen. Family Limited Partnerships The Family Limited Partnership (FLP) has become known in recent years as one of the most effective tools for asset protection. According to a Forbes article titled “Cut Your Taxes in Half,” not a few individuals have used this technique to cut down on estate tax by as much as 90 percent. Family Limited Partnerships, with other strategies, offer excellent advantages and opportunities for estate planning. The Family Limited Partnership (FLP) is a type of limited partnership designed to protect individual and family assets. It consists of at least one or more limited partners, and one or more General partners. The general partner manages all the day-to-day business affairs of the partnership and directly influences business decisions. He also has control over the assets of the partnership. The limited partner is more like a stockholder – he can invest in the company and earn income 236 Copyright © 2008 Reginald Ringgold

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from it, but his control is limited to voting on certain corporate matters. One person or corporation can play both general and limited partner, as long as there are two or more persons involved in the partnership (married couples are considered one person). The Family Limited Partnership (FLP) is a vital part of any asset protection plan. It is especially useful for reducing income and estate taxes for individual members, as well as protecting family wealth and estate privacy. Not to mention it allows complete control over family assets while protecting it from unfair claims and lawsuits. A family can use an FLP to hold personal assets and protect them from liabilities, especially in case of a lawsuit. By placing one’s assets in the name of the FLP, one can get rid of personal liabilities while still enjoying full control over their assets. This way, even when you face lawsuits outside of the partnership’s affairs, creditors cannot claim your assets or gain any control over the company. This is made possible by the Uniform Partnership Act. The law is based on the principle that a partner should not have to pay for the debt of another. Under the Act, creditors of an individual partner cannot access the assets of the partnership to pay off individual debts. Since the asset is legally owned by the partnership, it is safely out of reach of the creditor. FLP’s are considered a “pass through” entity, which means the income is directly passed on from the company to the individuals. Because it technically doesn’t have income of its own, it is completely exempt from income tax. The owners file an informational tax return every year stating their income and expenses, but do not pay taxes on the net income. The taxes are assumed by the individual partners, who can then structure their finances in a way that is most profitable to them. This is why many people use limited partnerships for the tax deductions for real estate and tax shelter investments. “Nominee” Corporations Since the general partner is the one with more corporate control, he has the right to decide whether or not to distribute income to a given limited partner. To protect their interests, many Family Limited Partnerships opt to form a Nevada Corporation that allows Nominee officers. The Nominee Corporation would assume the role of the general partner. This offers the following advantages: 237 Copyright © 2008 Reginald Ringgold

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Privacy of ownership: A Nominee Corporation can provide a great deal of privacy, and more importantly, it makes it difficult to prove the nature of the arrangement. The reason the corporation has to be formed in Nevada is that Nevada law is notably pro-business, allowing the use of nominee officers as official representatives of the company. Protection from lawsuits: It is hard for creditors to claim stocks from a general partner Nominee Corporation, unless the client himself owns it. The corporation will have to distribute the stocks to the limited partnership interests, which will require a separate, but inherently weak lawsuit from the creditor. Management income: As a general partner, the corporation can charge management fees and distribute funds in any way – use it to pay employees, buy insurance, provide benefits, or purchase retirement plans. Transferability of ownership: Since a corporation’s shares can be sold, a general partnership corporation can easily be transferred from one owner to another. No fraudulent transfers: In most cases, the general partnership corporation owns only a 1% interest in the Family Limited Partnership, which can be transferred for value. For-value transactions are hard to prove as fraudulent, providing further protection against lawsuits. The first step in forming a FLP is filing a Certificate of Limited Partnership with the Secretary of State. The owners will be required to fill out a form with the names and addresses of all general partners, but not the limited partners. Again it is wise to form a Nominee Corporation in Nevada to take advantage of Nevada’s privacy laws; otherwise the information will be available to the public. Along with the Certificate of Limited Partnership, the partners must also submit a written partnership agreement. This agreement states, among other things, the purpose of the partnership, the profit and capital shares, roles of the general partners, and the degree of influence held by the limited partners. If the Family Limited Partnership is created for asset protection and estate planning, the agreement must also outline the key provisions leading towards the objective. These provisions should be designed so that creditors cannot influence the affairs of the partnership, and that the general partners (usually the husband and wife) always have complete control of the assets until they are deceased. At which 238 Copyright © 2008 Reginald Ringgold

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point the control over the assets will be transferred to the limited partners (your heirs). The next step is to plan out the funding of the partnership by deciding which assets can be transferred and how it can be done. To do this, it is important to distinguish between safe and dangerous assets. Dangerous assets are those that carry a high risk of lawsuits, while safe assets do not. Stocks and bonds are generally considered safe assets, while business assets such as corporations and LLCs are dangerous. The difference is significant because you don’t want dangerous assets as part of your Family Limited Partnership. Dangerous assets: Dangerous assets should also be separated from each other and from safe assets, especially if they include real estate holdings. The best way to do so is to treat them as separate entities, usually by holding them in a real estate privacy trust or a limited liability company (LLC). This is because the liabilities associated with them can be isolated in the trust or LLC, rather than held by any one of the members. Safe assets: In most cases, safe assets can be contained together in a single Family Limited Partnership. Family homes are considered safe assets because liabilities are usually covered by insurance, but there are also tax issues involved when transferring them to the Family Limited Partnership. According to Section 163 of the Internal Revenue Code, one can get deductions for “qualified residence interest,” or the taxpayer’s primary residence. This means that the mortgage interest deductions will not be affected in any way by transferring to the FLP. Other assets you can transfer to a Family Limited Partnership include: Bank and brokerage accounts: These are considered safe assets because they have no potential liability. Bank and brokerage accounts can be created in the name of the Family Limited Partnership by simply presenting a copy of the Certificate of Limited Partnership and the company’s taxpayer identification number. Other interests: Family Limited Partnerships are great for holding interests in other entities, such as businesses, real estate LLCs, and real estate privacy trusts. However, note that the Family Limited Partnership can only hold interest in the entity, but take part in the business. Otherwise, the Family Limited Partnership can face a lawsuit and lose all its assets.

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Family Living Trust ownership: Usually, the role of the Family Living Trust is to hold 99% of the ownership of the Family Limited Partnership, with the general partner holding the remaining 1%. It can also hold interest in other safe assets, which provides excellent opportunities for tax savings, estate planning, and asset protection. Other advantages of Family Limited Partnerships: Centralized control: In a Family Limited Partnership, all family assets are controlled from a single entity. This makes transferring to children much easier, because it only involves changing directors rather then the whole re-titling process. Privacy: As a limited partnership, the Family Limited Partnership is not required to disclose who controls the general partner corporation. To transfer control, the old manager only has to resign and make way for the new one. Use as a prenuptial agreement: Because the two parties’ rights can be outlined in the partnership agreement, each spouse can manage their own single-member LLCs as part of the Family Limited Partnership while retaining joint ownership. Easy liquidation: When the partners wish to terminate the Family Limited Partnership, the process is much easier than that of trusts, corporations, or other organizational structures. Tax Savings Nevada is a tax free state; there are no corporate or personal income taxes. This why more corporations are choosing Nevada as their domicile over other states like California that has a 9.3% tax on anything over $39,133 of personal income. With the proper strategies applied any income over $7,000 on $100,000 of income can remain in your corporation. To accomplish this first you must establish a Nevada Limited Liability Company (Your Private LLC no one knows you own this Corp except you and your lawyer) to work in conjunction with your Current Home Corporation (Your Public Corporation everyone knows you own this Corp). Set the Nevada LLC in place to where it will be providing Consulting and leasing equipment or property to your non-Nevada corporation. Your Nevada LLC (Your Private LLC) can act as a consultant, supplier, marketing & advertising service, and or financier to your Home Corporation (Public Corp). Your Home Corp. can

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then divert the profits that would be taxed and direct them to your Nevada LLC where there is no state tax. Multiple Corporation strategy Although a corporation provides numerous tax benefits and protects its shareholders from litigation. However a corporation alone is not the best shield against litigation. But with the right structure in place one can protect their personal assets and lessen their tax liability. The following is an example of how the Multiple Corporation strategy works to protect assets form litigation and save money on taxes: The main premise to the Multiple Corporation strategy is, “you cannot squeeze blood out of a dry turnip!” if you have no profits there is nothing to tax, and if you have no assets you cannot pay any liens, or judgments. It is perfectly legal to use one of your corporations to do business with another one of your corporations to reduce the corporations’ profits and assets to near zero. For the Multiple Corporation Strategy, to work it requires two corporations, one in your home state we will call it public corp. & one in another state we will call this one Private LLC this is your holding company. I recommend Nevada because there is no state tax or usury laws, which means your Private LLC can charge whatever interest it wants to your home corp. Public corp. is the Corporation that you use to interact with the public. Everyone knows that you own this business so it would be pretty hard to prove otherwise in front of a judge. Since this is the Corporation that deals with your clients, patients, customers, suppliers etc. your business or practice is always at risk of being sued. Private LLC is the corp. that owns all the most valuable assets. Only you and your attorney will know you own this LLC. Private LLC. does not interact with the public. It only does business with the public corp. and any other corporations that you own. It protects public corps assets from litigation, and minimizes taxes.

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Public Corp. eliminated a high tax profit by paying consulting fees to Private LLC leaving very little net profit to be taxed on. It also protected its assets from litigation by moving them over to Private LLC.

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Multiple Corporation Structure:

Note in order to keep the private LLC private you must reassign any money due to another entity because if the private LLC receives any money it will be required to obtain an EIN. And since the LLC is not planning on hiring employees, establishing credit, or opening a bank account there is no need for an EIN. The only purposes for the Private LLC is to protect assets by filing UCC UCC--1 liens on all personal assets with equity, File UCC UCC-11 on other corporate assets with equity,

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holds deeds, pink slips, and titl titles, es, own trademarks and copyrights and hold the public corps stock. Here is another example of the multiple corporation strategy. Let’s say your Public Corp is a car dealership. You could have your Nevada LLC (Your Private Limited Liability Company) purchase ase the vehicles from your current supplier then mark them up to near retail value, and sell them to your Public Corp so they can be resold at full retail value. What you have just done is left all of the profit from the sale of the vehicles in tax free Ne Nevada vada and reduced or eliminated any state tax that your company would have had to pay had you left the profit in your Home Corp. When this strategy is implemented in a high tax state like California, your overall tax savings can be substantial.

Becoming Debt Free With Your C Corporation Here is one of the techniques that many wealthy individuals use to purchase real estate, protect their assets and stay personally debt free: Let’s say you build your corporations corporate credit to the point where you have obtained various lines of credit with no limits. This means you can generate capital on demand for any purpose, purchase, product, or project/business venture within 24 hours. s. Now let’s say you purchase a new home with one of your lines of credit, once the property is purchased outright (paid in full with the line of credit), the ownership can be transferred or sold to any person, entity, company, trust, etc. once the instrument(s) ent(s) that is burdened with the initial debt has been satisfied. This means if your home, boat, car etc. is now free and clear of debt, and the ownership is transferred to another entity or trust etc. in the event the corporation that is burdened with the initial debt form the instrument looses a lawsuit or files bankrupt for any reason. You and any of your other corporations or trusts will not be held liable for the corporation’s debt, thus protecting you and any of your entities 244 Copyright © 2008 Reginald Ringgold

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personal assets. Not only can you use these strategies to protect your assets, you can use these strategies to finance and/or facilitate a means to your financial independence. Investing in Real Estate with Your Corporation Now let’s say that you go out and purchase an office building since you have built up the lines of credit high enough on Credit Corp (Your Public Corp) to the point where you can purchase an office building outright. With the office building being paid off free and clear you can transfer the ownership of the office building to Private LLC. (Your Nevada LLC) Now in the event that Credit Corp, (the corporation that is burdened with the initial debt from the office building) is hit with a lawsuit or forced into bankruptcy, Private LLC and any of its other corporations or trusts will not be held liable for Credit Corps debt, thus protecting Private LLC’S, you and any of your other entities personal assets. Private LLC is free to transfer their assets offshore to a International Business Corporation (IBC), trust, land trust, Family Limited Partnership etc. (preferably a Land Trust when dealing with real estate)

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Homestead Declaration A homestead law helps to protect you from losing your home to creditors. If you are sued for money in court and lose, the person who sued you will receive a judgment from the court. If you do not pay the judgment, they can then try to collect the judgment by garnishing your wages, having your automobile sold or by having you home sold. The homestead law protects a certain amount of your equity (the amount of equity depends on the state) in your home from being taken to pay the judgment. UCC-1 Liens Just like a mortgage lender would file a lien on your property for the amount that was loaned out on the house to protect their investment. You can apply the same strategy to protect your equity in any given asset, especially a real estate property. For example when you buy a house with no money down for $1,000,000 that is worth a million dollars, there is no equity because there is a lien on the property for a million dollars and like the saying goes you can’t squeeze blood out of a dry turnip. Misconceptions about Protecting Your Property Most people believe that when they put their property under a Trust, LLC or any other entity structure for that matter, they believe that there property and the equity in it are protected from a lawsuit. Now it is true that you and your other personal assets are protected from anything that may go wrong with the property, and the property is protected from anything that may go wrong in your personal life. But if the property is at fault and there is equity in the property then that equity would be at risk of being taken to pay the judgment. By filing UCC-1 liens and a Homestead Declaration on the property you can avoid this common nightmare.

Remember putting a property or any other asset with value in an entity structure will protect you from anything that may go wrong the asset and the asset from anything that may go wrong with you. And filing a UCC-1 Lien with the secretary of state allows you to protect the equity. Asset protection does not equal equity protection.

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How to Stop Paying Property Taxes on Your Home or Office Building The way to do this is to sign over the title of your home or office building to your non-profit organization that you form. You can form your own church or organization and apply for the tax-exempt status at your county courthouse. Or, you can sign over the title of your home or office building to your local church or other non-profit organization if you do not wish for it to go to your heirs. Under this arrangement, you retain lifetime habitation rights although the property belongs to the local non-profit organization. Land Trusts The simple title holding trusts was originally started in Illinois, so they are often called Illinois Land Trusts. A land trust is an arrangement in which real property is entrusted to a person or entity, known as a trustee, to eliminate the legal burdens of owning or selling real estate. In effect, the owner’s real property (the land itself) is converted to personal property (beneficial ownership of the land). That way, it is treated like any other personal property, making it easier to handle. A land trust is created by a person or legal entity capable of entering a contract. In a land trust, the trustee holds the title to the property, but the owner (known as the beneficiary, since the legal owner is the trustee) has full control and enjoys all the benefits from the property. For additional anonymity, it is possible to provide the land trust Trustee with you still having full signing authority for any and all changes to the land trust. The beneficiary can do as he likes with the trust – add more property, terminate, transfer ownership – as if it were still in his name. This is because under the contract, they are still considered the owners. The trustee simply takes care of the legal processes, such as executing the deeds and mortgages. The trustee only acts as directed in writing by the beneficiary. That way, the trustee’s “ownership” of the property is strictly limited to the legal sense. Many cities and counties charge hefty transfer taxes when someone sells property to another person. They often reassess the property taxes and the taxes may be increased considerably. In California, it is possible that the property taxes could increase by several times. With a land trust, it is possible to privately transfer the beneficial interest in the trust (the actual ownership) without reporting to any 249 Copyright © 2008 Reginald Ringgold

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governmental agency. This is because a person's interest as a beneficiary of a land trust is considered personal property under the law. This can be extremely beneficial when buying out a partner or spouses interest in a property, or if you wish to deed the property as a gift to children or grandchildren. If the beneficiary wishes to transfer ownership, he or she only has to assign the interest and the trustee will take care of the rest. This is especially useful in transferring the property to the owner’s heirs. If the property is transferred after the owner’s death, re-titling is often a long and costly process. By entering a land trust, the trustee only has to transfer the property to the heir’s name as necessary. Property held in a land trust can be designated for transfer of ownership whenever you desire. Your spouse, children or other successors can bypass costly and time consuming probate proceedings and can sell or refinance the property without delay. Probates often take years to settle. With a land trust your heirs could sell immediately and avoiding making payments on the property they inherit but don't wish to keep. The Legal ownership of all property is listed with the county recorder's office in all counties. That means your ownership information is available to anyone who wants it. That is why property owners are constantly solicited by mortgage brokers to apply for new loans. With a land trust, your interest in the property remains confidential. A land trust offers a way to maintain privacy regarding real estate ownership. Many people advise real estate investors to place their property in LLC's and corporations. While this does provide protection for some investors, it does not provide much more protection than a land trust alone provides. In fact in some cases it makes it worse since LLC's are public information. Also there are considerable costs involved with LLC's. There are annual filing obligations, taxes (minimum $800 per year in California) and accounting costs. None of which is necessary. With a Land Trust it is possible to protect your credit report. Public recordings related to your property will show up on your personal credit report, thereby lowering your fico, and hindering your ability to receive more credit. When the title to property is held in a land trust, any liens relating to your property will not report to your personal credit report. This allows you time to work out the problem more favorably since it does not appear on your reports.

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Liens, judgments, and claims by city and county government usually attach to property held by an individual in his or her name, or as a co-owner with others. This can make the property more difficult to sell or refinance. Where the same property is held in a land trust, legal matters affecting the beneficiaries do not pass through to the subject property. Bottom line if you’re tired of being hounded by telephone solicitors, such as mortgage brokers calling you constantly, simply because they know you own property or if you want to minimize your risk of being a target of an overzealous lawyer simply because he knows that you own real estate then put all of your Real Property in a Land Trust. Living Trusts A trust is an arrangement under which one person, called a trustee, holds legal title to property for another person, called a beneficiary. You can be the trustee of your own living trust, keeping full control over all property held in trust. A "living trust" (also called an "inter vivos" trust by lawyers who can't give up Latin) is simply a trust you create while you're alive, rather than one that is created at your death under the terms of your will. Different kinds of living trusts can help you avoid probate, reduce estate taxes or set up long-term property management. The Inside Secrets to Trusts & Personal Tax Shelters Everybody wants to keep as much of the money they earn as possible. Those people in the higher income brackets are forever looking for a way to protect their money from Uncle Sam. Thus the idea of personal tax shelters, the thing is, how can you tell which ones are the good ones, and which ones are the bad ones. Tax shelters can certainly "keep your money out of the hands of the IRS" - but some of them can cost you dearly as well. Generally, all real estate purchases have definite tax advantage. In even the simplest kind of transaction such as buying a better home for your family, you'll be able to deduct from your gross income the amount you pay in mortgage interest and property taxes. If you rent out your old house, or buy a house as a rental property, you'll be allowed to deduct all your expenses from the rent you receive. You can also deduct the depreciation on the house, based on 251 Copyright © 2008 Reginald Ringgold

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the cost or on the market value at the time the house was converted to a rental property, whichever is lower. You also have the option to compute your depreciation over 15-years, which would probably give you a tax loss even though the property is producing a cash income for you. Remember, you cannot claim depreciation on the value of the land, only for the cost of the house. Until 1981, you could not deduct losses on a property rented to relatives - however that rule has been repealed and now makes family tax savings available in certain situations when you rent to relatives. Be sure to check with your local IRS Office for complete details. So-called Clifford Trusts are tax shelters that shift the gross income of a company or family bread-winner to other family members in lower tax brackets. An income-producing property is transferred to a trust, which must be set up to last 10 years and a day. The beneficiary receives the income during this period, and then the property reverts back to the grantor. This type of trust is often used to accumulate money for children, who can use it for higher education or for a start in a career or business of their own. You should bear in mind when setting up such a trust however, that parents have a legal duty to support their minor children and thus, a trust cannot be set up to be used for that purpose. Equipment Leasing Programs are another common income-sheltering method. Most of these programs can be combined with a trust. Here's how they work: The owner of a business sets up a trust for a family member. Business property or equipment is transferred to the trust, and then leased back to the business. The trust gets the income, and the business gets a deduction for the rental fees it pays. From another angle, the trust could buy equipment for lease to the business and get deductions for interest and other expenses involved. Investment tax credit can also sometimes be claimed in non-net-lease situations. Making interest-free loans is another method of sheltering one's income. Say you lend several thousand dollars to a son or daughter who invests the money. The borrower gets the income, and you eventually get your money back. If you're in the 50% tax bracket and the borrower is in the 25% bracket, your tax savings can be considerable. Investing in Municipal Bonds is definitely a means of sheltering your income. Income from these bonds is tax free, but it's generally lower than from other types of investments. Municipal Bonds pay at a fixed rate of interest. Relative to other

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kinds of investments you could make, you'll lose on Municipals if interest rates go up, and win only if the interest rates on other investments go down. By now, everyone knows about IRA's and Keogh plans for the self-employed. You put money into a personal retirement trust and pay no taxes on it until you actually withdraw from it. Some companies give their employees a chance to set up their own retirement accounts, thereby deferring part of their gross incomes until after they retire. However, deferring income until after one retires is no longer as attractive as it used to be, particularly if your tax rate is not expected to change after retirement. If you don't anticipate a lower tax bracket after you retire, it's generally better to take all your income now and invest it in high yield growth funds that will mean more money for you in your retirement years. There are innumerable ways and methods to shelter your gross income from the tax collectors, all of them legal. The important thing is to check them out with your tax preparer and decide which would be best for you. You Can’t Squeeze Blood Out of A Dry Turnip If we control IT but not own IT they cannot take IT, because they cannot take from you that which you do not own. That’s why we should never own stock but if we do we should only own it as long as it’s necessary. Because Stock shows ownership, and the key is to control not own. There is nothing wrong with owning stock as long as you are not sued when you own it. So it is ok to own stock when you are required to by a creditor to own stock of a corporation as the guarantor of the corporation, but as soon as the transaction is complete transfer the ownership of the stock back to your private corporation. For example let’s say you’re in a profession that requires a license you can create a resolution to elect certain members to a licensing committee. The resolution should read as follows: “We the board, vote and elect that everyone named in the Licensing committee can state he/she controls up to 100% of stock (up to means 1-100%). They do not own the stock for a personal nature; they own the stock for licensing purposes only.”

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Asset Protection does not protect the Asset It is true that a setting up the proper entities and structuring them correctly will protect you and your family from any personal liability, but what about the asset? Here’s a real life example let’s say someone slipped and fell on one of your properties because you have a property manager that does not do a very good job, you told them to fix the loose stair in unit 1, they say they fixed it when it was never really done. The tenant in unit 1 happens to slip and fall on the loose stair and injures themselves and wants to sue. It’s a good thing you had it in a land trust with an LLC as the beneficiary, thus protecting you from any personal liability whatsoever. But what about the property since you did not take the proper steps to protect the equity you could risk losing the house.With the property being at fault for the accident, if there is equity in the property to take to pay the judgment then the equity will most likely be at risk of being taken. This is a horrible chain of events and could be avoided by putting liens on all of your assets that have equity in them. For example if your house is worth $500,000 and you owe $400,000. In order to protect the $100,000 that you have in equity, you can have a private corporation that you control place a second position lien of $100,000 on the house by filing a UCC-1 lien with the secretary of state. And to protect any future equity you can have another corporation place a third position lien of $50,000 on the house. Now in the event of a lawsuit not only do you not own anything for them to take from you, but everything you control has several liens on them. This strategy can be applied with any asset or possession that you may value. How to Disappear into Corporate America Apply for a Tax ID for your corporation, then apply for a Tax ID for your division, then have division apply for a Tax ID for the corporation. Then cancel the original Tax ID for the corporation that is attached to your social security number. By canceling the Tax ID for the corporation you will have erased any traces leading back to you, thus providing ultimate anonymity. How to Get Free Travel If possible, appoint yourself as President of your own non-profit organization and have the organization supply you with business attire and a "free" vehicle. It will all be expenses. If your organization is a church related corporation, you could tour Europe for free - to visit Church cathedrals as an example. A Church can raise money by "selling" charters, degrees, and other cheap paper for hundreds of 254 Copyright © 2008 Reginald Ringgold

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dollars. Many non-profit organizations sell "degrees" and diplomas for upwards of $1500 each - and it's all legal.

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Chapter 15 Survival Tips for Small Businesses “If it sounds too good to be true it probably is”

You may be in Mail Order, Direct Mail, or you may be a local merchant with 150 employees; whichever, however or whatever - you've got to know how to keep your business alive during economic recessions. Anytime the cash flow in a business, large or small, starts to tighten up, the money management of that business has to be run as a "tight ship." Some of the things you can and should do include protecting yourself from expenditures made on sudden impulse. We've all bought merchandise or services we really didn't need simply because we were in the mood, or perhaps in response to the flamboyancy of the advertising or the persuasiveness of the salesperson. Then we sort of "wake up" a couple of days later and find that we've committed hundreds of dollars of business funds for an item or service that's not essential to the success of our own business, when really pressing items had been waiting for those dollars. A Corporation can eliminate these "impulse purchases " by including in your bylaws a clause that states: "All purchasing decisions over (a certain amount) are contingent upon approval by the board of directors." This will force you to consider any "impulse purchases" of considerable cost, and may even be a reminder in the case of smaller purchases. While you may think you cannot afford it, be sure that you don't "short-change" yourself on professional services. This would apply especially during a time of emergency. Anytime you commit yourself and move ahead without completely investigating all the angles, and preparing yourself for all the contingencies that may arise, you're skating on thin ice. Regardless of the costs involved, it always pays off in the long run to seek out the advice of experienced professionals before embarking on a plan that could ruin you.

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As an example, an experienced business consultant can fill you in on the 1244 stock advantages. Getting eligibility for the 1244 stock category is a very simple process, but one with tremendous benefits to your business. The 1244 status encourages investors to put equity capital into your business because in the event of a loss, amounts up to the entire sum of the investment can be written off in the current year. Without the "1244" classification, any losses would have to be spread over several years, and this, of course, would greatly lessen the attractiveness of your company's stock. Any business owner who has not filed the 1244 corporation has in effect cut himself off from 90 percent of his prospective investors. Particularly when sales are down, you must be "hard-nosed" with people trying to sell you luxuries for your business. When business is booming, you undoubtedly will allow sales people to show you new models of equipment or a new line of supplies; but when your business is down, skip the entertaining frills and concentrate on the basics. Great care must be taken however, to maintain courtesy and allow these sellers to consider you as a friend and call back at another time. Your company's books should reflect your way of thinking, and whoever maintains them should generate information according to your policies. Thus, you should hire an outside accountant or accounting firm to figure your return on your investment, as well as the turnover on your accounts receivable and inventory. Such an audit or survey should focus in depth on any or every item within your financial statement that merits special attention. In this way, you'll probably uncover any potential financial problems before they become readily apparent, and certainly before they could get out of hand. Many small companies set up advisory boards of outside professional people. These are sometimes known as Power Circles and once in place, the business always benefits, especially in times of short operating capital. Such an advisory board or power circle should include an attorney, a certified public accountant, civic club leaders, owners or managers of businesses similar to yours, and retired executives. Setting up such an advisory board of directors is really quite easy, because most people you ask will be honored to serve. Once your board is set up, you should meet about once a month and present material for review. Each meeting should be a discussion of your business problems and an input from your advisors relative to possible solutions. These members of your board of advisors 258 Copyright © 2008 Reginald Ringgold

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should offer you advice as well as alternatives, and provide you with objectivity. No formal decisions need to be made either at your board meeting, or as a result of them, but you should be able to gain a great deal from the suggestions you hear. You will find that most of your customers have the money to pay at least some of what they owe you immediately. To keep them current, and the number of accounts receivable in your files to a minimum, you should call them on the phone and ask for some kind of explanation why they're falling behind. If you develop such a habit as part of your operating procedure, you'll find your invoices will magically be drawn to the front of their piles of bills to pay. While maintaining a courteous attitude, don't be hesitant, or too much of a "nice guy" when it comes to collecting money. By all means, join your industry's local and national trade associations. Most of these organizations have a wealth of information available on everything from details on your competitors to average industry sales figures, new products, services, and trends. If you are given a membership certificate or wall plaque, you should display these conspicuously on you office wall. Customers like to see such "seals of approval" and feel additional confidence in your business when they see them. Still another thing often overlooked: If at all possible, you should have your spouse work in the business with you for at least three or four weeks per year. The important thing is that if for any reason you are not available to run the business, your spouse will be familiar with certain people and situations about your business. These people should include your attorney, accountant, any consultants or advisors, creditors and your major suppliers. The long-term advantages of having your spouse work four weeks per year in your business with you will greatly outweigh the short-term inconvenience. Many couples share responsibility and time entirely, which is in most cases even more desirable. Whenever you can, and as often as you need it, take advantage of whatever free business counseling is available. The Small Business Administration published many excellent booklets, checklists and brochures on quite a large variety of businesses. These publications are available through the U.S. Government Printing Office. Most local universities, and many private organizations hold seminars at minimal cost, and often without charge. You should also take advantage of the services offered by your bank and local library. 259 Copyright © 2008 Reginald Ringgold

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The important thing about running a small business is to know the direction in which you're heading; to know on a day-to-day basis your progress in that very direction; to be aware of what your competitors are doing and to practice good money management at all times. All this will prepare you to recognize potential problems before they arise. In order to survive with a small business, regardless of the economic climate, it is essential to surround yourself with smart people, and practice sound business management at all times. Organization Make sure to keep good records. Plan everything out thoroughly and create and keep the proper documentation. All meetings must be held and documented resolutions, promissory notes, and contracts must be drawn up. Not following corporate formalities and keeping proper documentation can lead to the piercing of the corporate veil. And when the veil is pierced all protection is lost. Top 10 reasons why businesses fail 1. Failing to develop a business plan. 2. Lack of experience or knowledge 3. Lack of capital 4. Choosing The wrong location 5. Poor credit-granting practices 6. Drawing too much money out for personal use 7. Mismanagement of Inventory 8. Unplanned Expansions 9. Poor record keeping or book keeping 10.Financing the business with personal funds or personal credit. Here is a List of High Risk Industries • • • •

Agriculture or Forest Products Auto, Recreational Vehicle or Boat Sales Dry Cleaners Entertainment 260

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• Gasoline stations or convenience stores (also known as c-stores) • General contractors, special trade contractors • Healthcare; Specifically Nursing Homes, Assisted Living Facilities, and Continuing care retirement centers • Hotels or motels • Jewelry, precious stones and metals; wholesale and retail • Limousine services • Long distance or “over-the-road” trucking • Mobile or manufactured home sales • Phone sales and direct selling establishments • Real estate agents/brokers, real estate developers or land sub-dividers • Restaurants or drinking establishments • Software or programming companies • Taxi cabs (including the purchase of cab medallions) • And Travel Agencies Here is a list of restricted Industries • • • • • • • • • • • • •

Ammunition or Weapons Manufacturing Bail Bonds companies Check Cashing Agencies Energy, oil trading, or petroleum extraction or production Bank Holding companies Loan Brokers Commodity Brokers, Security Brokers Mortgage Brokers, Mortgage Bankers, Mortgage companies Mutual Fund Managers Gaming or Gambling Activities Loans for the speculative purchases of securities or goods Pawn Shops X-Rated Products or entertainment

Corporate Credit Scams & Myths Like anything else, there are people that exploit this valuable information I have just given you. Since most businesses fail because of under capitalization they 261 Copyright © 2008 Reginald Ringgold

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jump at any high price expert and professionals claiming that they can get your business financing of up to $250,000 with no personal guarantee no matter what your personal credit score is. Now I am not saying that this not possible if you have read this whole manual this far then you will see I have shown you several ways to make it possible. I am just saying there are a lot of snakes out there who will promises all these fabulous things like Black Cards, Bentleys, and boats all with no P.G. and they say it is all possible as soon as you pay them or within a few weeks, months etc. do not believe these people ask them if they have done this themselves and some clients they have worked with in the past. You can go on D&B’s website and order a report on any company you just have to pay for it. If they are reluctant to give you a reference then I would end the conversation right there. People that ask for money up front before they perform anything are usually crooks unless they are selling products or information on corporate credit. If they give you something tangible then it is your discretion whether you want to buy it or not. Beware of companies that offer to get you corporate credit cards and lines of credit from department stores. Though it is true they can get you approved for trade credit form a department store, trade credit may not be what the company needs at the present time. If your company needs $20,000 for a company car then $20,000 in trade credit from OfficeMax would not help your company unless OfficeMax starts selling cars. There are a whole bunch of websites that offer ways to accelerate the corporate credit building process. The opportunity to speed up any process is VERY tempting. These "corporate credit professionals" are brilliant marketers they understand that idea and it makes their offers very tempting and hard to resist! Unfortunately many of these programs provide out-of-date information that is simply no longer valid. There are a few reputable high-end accounting and legal firms that will assist you in legitimately forming a corporation and building your corporate credit. But this process takes months and this is to their advantage. There is nothing that lawyers and accountants love better than projects that take months (or years). They LOVE billing you monthly for their services! Scams you want to avoid when building business credit: "You can use business credit instead of personal credit if your credit is ruined."

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These companies actually tell you to go get an Employer Identification Number to replace your Social Security Number, and use it to establish a business credit rating! This particular scam is so common that even the Federal Trade Commission warns against it on their web site. Don’t fall for it! You do want to get a E.I.N number for your business but this does not replace your S.S.N, remember the goal of Incorporating and building Corporate Credit is to separate you from your business. "You can build business credit overnight." Don’t be misled by those companies that tell you they can get you a great business credit profile in just a few weeks from scratch. Building a business credit profile is just like building a personal one. There are steps you must take, and it takes time. But there are strategies like the ones I have shown you to shorten the process. "You can buy a good business credit rating." Whatever you do, don't buy an unknown aged corporation to get credit unless it has all of the items in the seven steps chapter in place and up to date. If no then it's a lousy investment. Here's what happened to one of my friends. Recently, he saw one of those early morning get rich quick infomercials on T.V. So he calls them up and they tell him they can help him establish a business credit rating immediately and it would give him $250,000 in unsecured credit guaranteed. How my buddy says? He'd have to pay $25,000 for an 'aged corporation' My Buddy said, "Let me have the company's name and DUNS number so I can check it out". The scam artist said, “That's not how we do business”. Fortunately, my buddy wisely said “No Thanks.” But you can bet there were other uninformed people out there that did not know which questions to ask who were willing to pay to get business credit, without knowing what they were getting. Typically these types of companies have a bad history or debt file or no real history at all; and the credit reporting agencies look for this type of unscrupulous business practice and they will list any such company setup as “HIGH RISK”. I recommend you start from scratch but if you do choose to buy a aged corporation make sure it is thoroughly researched and has all the seven steps before you purchase it. Aged Employer Identification Number (EIN) Many business owners have scoured the internet expressing interest in a shelf corporation that has an aged EIN. Although the application of the EIN can 263 Copyright © 2008 Reginald Ringgold

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determine what state the corporation was originally formed, the age of the EIN is not shown in the number. After calling the IRS several times and obtaining a consistent answer, they mentioned that the EIN is not a serial number. In other words, EIN's are not provided this way: 90-1053780 90-1053781 90-1053782 Instead, they are random numbers: 90-5893518 90-8934168 90-7152159 Since the numbers are random, you cannot tell the age by the number. Don't OVERPAY for a shelf corporation because a promoter tells you that the EIN is aged. There's no way to tell what is the age of the EIN. Food For Thought It’s essential that your business credit profile changes with your business; your business credibility can be enhanced when the information on file is correct and up-to-date. Just as important as accuracy and timeliness is the completeness of your profile. When there is little or no information in your D&B business credit profile, this can suggest that your company may be a risky proposition for potential creditors. Incomplete information can be as harmful as poor credit activity – in risk analysis, unknown quantities are considered risky. For these reasons, it is essential that you establish your business credit profile, populate it with as much information about your business as you can, and ensure that you update and review it regularly.

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Managing your business credit profile is an ongoing responsibility, and can be accomplished by: Monitoring the information that is contained in your credit report for changes; Supplying appropriate information about your business to D&B; and Getting your key vendors to report your payment history with them By managing your business credit profile, you will not only avoid mistakes and omissions, but you can be confident that your business is always being evaluated in the best possible light. Remember unlike personal credit there are no laws protecting business owners against errors in your business credit report. Just as you review your personal credit report every 60 days, you should review your D&B and Experian Business Credit Report every 60 days to make sure there are no discrepancies or inconsistencies. Obtaining Corporate Credit is an ongoing process, so be Prepared, to follow all the steps necessary no matter how small and tedious they may seem. Never give up, if you never give up you cannot fail. Besides what is the worst that can happen you’re told no?

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Questions & Answers Corporate Credit Questions & Answers There is a great deal of misinformation in the business credit Industry. So let’s clarify a few things: What is Corporate Credit? Corporate Credit is credit that is granted to one business by another business. Your corporate credit profile is the primary way that companies use to evaluate whether to do business with you, and on what terms. Although you can obtain Corporate Credit as a sole proprietor, it is highly recommended that you set-up a corporation. Because the goal of Corporate Credit it to establish a business credit profile that is separate from your personal credit. And as a Sole Proprietor there is no legal distinction between you and the business. Does my corporation qualify for Corporate Credit? Upon establishing your corporation, you will find the need for business credit. You may have already experienced the difficulty in getting approved for Corporate Credit! Many businesses that cannot provide good references have difficulty getting approved. Can I apply for credit for my company after I set-up my corporation? Setting-up a corporation is only one part of building business credit. There are several other steps to take in order to set-up a business credit profile and obtain credit for your business. Until you complete those steps a creditor will usually use your personal credit scores to make a credit decision on your business because you are your business. Creditors will not grant your business credit without a personal guarantee until you separate you’re personal and business credit profiles and establish a Duns Rating and Paydex score for your business.

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When should I begin to build business credit? You should begin to build business credit before you need credit so that it's available to you when you do need it. Your business could go through rapid growth phase and at some point, and your existing credit won't be enough to meet the credit needs of your business. Is it a good idea to buy a "Shelf" corporation to build Corporate Credit? A shelf can help expedite the process of establishing a two year history that is needed to deal with most banks, or to qualify for a government bid or contract. If you choose to buy a Shelf Corporation make sure that is does not owe any taxes. And make sure it is not labeled High-Risk with D&B. How do corporations work and why do I need one to build Corporate Credit? A corporation is a legal person. It has its own “birth certificate,” called a corporate charter, and its own “Social Security number,” called an Employer Identification Number. A corporation can buy real estate and other businesses, and it can have credit. A corporation can even have offspring, in the form of divisions. Can I buy a real estate with a corporation? Yes, you can put a property under corporate ownership. You can even get a corporate mortgage to purchase a office building if your corporation qualifies. Why use Corporate Credit instead of personal credit? Because lenders prefer lending to corporations over individuals, for the simple reason that individuals can only have one income stream, while corporations can have many. Can I be liable for the debt I created for the corporation? Yes, you can be liable for the debt, if you personally guaranteed the debt. Can I use my Federal Tax ID in place of my Social Security Number to apply for business credit?

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This is a common misconception, but no. The Federal Tax ID number cannot be used in place of a Social Security Number to apply for credit. The numbers that you need to apply for business credit are your DUNS Number and your EIN number. Is it true that I never have to personally guarantee anything again by having a corporation? No, you can limit your personal liability with a corporation, but you can never avoid personally guaranteeing anything ever again. What if my personal credit is challenged? Will I still be able to obtain Corporate Credit? If you have read this manual this far then you see I have shown you several ways to establish Corporate even if your personal credit is challenged How does Corporate Credit help my business? By establishing Corporate Credit, you can minimize or even eliminate the use of personal credit to secure credit for your business. This is very important because there may come a time when you need your personal credit for an emergency and it might not be available because your personal credit cards are maxed-out because of the business. Or even worst you can’t qualify for a new loan because your Fico score is to low and your debt ratio is too high. Corporate Credit will separate your personal from your business credit and it won't appear on your personal credit reports, so you'll have twice the access to credit once you've established a Corporate Credit profile. Who are the business credit bureaus? There are bunch of industry-specific business credit bureaus, but the two major business credit bureaus that most businesses use is Dun & Bradstreet and Experian. Here is the list in no particular order: Dun & Bradstreet Experian BusinessInsight (formerly FDInsight) by Kroll Factual Data Equifax Business 268 Copyright © 2008 Reginald Ringgold

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Credit.net by InfoUSA (Formerly Business Credit USA) ClientChecker (For a comprehensive listing of U.S. and international business credit bureaus refer to the business credit bureaus chapter) What's a good business credit score? D&B’s business credit score is known as a Paydex Score. Paydex Scores range from 0-100 and a score above 80+ is considered a good score. Experian's business credit score is known as an Intelliscore. Intelliscores range from 0-100 and a score of 80+ is considered a good credit score. Should I pay a consultant to build Corporate Credit for my corporation? Over 90% of the steps in the process of building business credit have to be performed by someone within your company. If you hire a consultant, you'll still have to apply for credit and pay your bills on time in order to create trade references with the bureaus. A consultant can show you where to apply and how to best set-up your profile. Can I use my cell phone as my business phone? We recommend using a “landline” as your primary business phone number. This allows you to list with 411 with no problem; D&B checks to see if you are listed with 411 as part of their investigation process. If they cannot find your company, they might red-flag you. You can forward your landline calls to your business cell phone, I recommend that you have a live person answer the business phone then forward your calls as needed. Can I be a sole proprietor and have business credit? Yes and no. You can get business credit by being a DBA, but it is not recommended because as an individual you are limited. Plus you will be putting you and your family at an unnecessary risk. Again a corporation is a legal person. It has its own “birth certificate,” called a corporate charter, and its own “Social Security number,” called an Employer Identification Number. A corporation can buy real estate and other businesses, and it can have credit. A corporation can even have offspring, in the form of divisions. Remember lenders prefer lending to 269 Copyright © 2008 Reginald Ringgold

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corporations over individuals. As a sole proprietor creditors will use your personal credit to make a credit decision on your business because you are your business. Creditors will not grant your business credit without a personal guarantee. I heard that getting corporate credit is fast and easy and that you can get approved instantly. Is this true? If your corporation qualifies, then you can get corporate credit quickly and easily. With a new corporation it’s different. It takes time to build corporate credit just like it takes time to build personal credit. However, there are other ways like the ones I have shown you to build corporate credit rapidly. A possible way to expedite the process would be to take over an existing business or purchase a shelf corporation that has all of the items we discussed in the shelf corporation section. What kinds of Corporate Credit are available? There are two types of Corporate Credit available: Cash Credit and Trade/vendor Credit. Cash Credit is the credit you get from credit cards- such as Visa, Master Card, and American Express as well as lines of credit from lending institutions. Trade/Vendor Credit is credit from stores such as Office Max, Office Depot, Home Depot, Lowe’s etc. How Much Corporate Credit Can I obtain? It is Unlimited the skies is the limit. Is it better to buy an existing business? According to some business experts, buying an existing business is the safest and easiest way to go into business. It’s easier to get financing to purchase an existing business than for starting a new one. This is because bankers and investors generally feel more comfortable dealing with a business that has been in business for a few years with a proven track record. In general, buying an existing business is less risky than starting from scratch. When you buy a business, you take over an operation that is already generating cash flow and profits. You have an established customer base and reputation, and 270 Copyright © 2008 Reginald Ringgold

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employees who are familiar with all aspects of the business. You don't have to “reinvent the wheel” by setting up new procedures, systems, and policies because the formula for running the business successfully has already been established. Incorporation Q&A’s What are the different types of corporations? Refer to the business entities chapter to learn about the different entities. Do I need an attorney to form a corporation? No, an attorney is not a legal requirement to form a corporation. You can prepare and file the articles of incorporation yourself; however, you need to be thoroughly versed in the laws of your state. You can use our service to incorporate and save money on attorney fees. However, if you are unsure if incorporation will benefit your business, consult an attorney or accountant. What are the Articles of Incorporation? The articles of incorporation declare the desire of an individual or group to become a corporation. It spells out certain minimum information about the corporation that is required by the laws of the state. It may also contain specific information about the corporation that needs to be made public record, like restrictions on the transfer of stock. What is an annual meeting and is it required? The annual meeting is a meeting held once a year to review the results of corporate operations. To make sure that shareholders are informed about their investments in the corporation, corporations are required by most state laws to hold annual meetings of the shareholders as well. Annual meetings are also held to choose directors and/or officers as the positions become available. Failure to follow these and other corporate formalities can have serious legal consequences for the corporation, including holding shareholders personally liable in some situations. Please consult your legal counsel for additional information, and to ensure that your business complies with all legal formal requirements. Where does the corporation obtain its corporate seal, stock certificates, books for minutes of meetings, and other records? A corporation can obtain these items from any corporate supply company.

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What are Bylaws? Bylaws are rules for the corporation that specify things such as the number of votes required to pass a matter put before the corporation, and the requirements to be met before a shareholder can sell his shares, among other things. Bylaws may not be changed without a majority of votes of the board of directors. Are corporate Bylaws filed with the State? No, Bylaws are kept at the corporation's principal place of business, or corporate office, if located within the State. The Bylaws shall be open to inspection by the shareholders at all reasonable times during normal office hours. Why are Corporate Bylaws Important? Bylaws are like an official game plan on how a corporation is to be run and operated. Bylaws also state the rights and powers of the shareholders, directors and officers. Ordinarily, they're not filed in any state's corporate filing office. In practice, bylaws can be brief or lengthy. Operating agreements and partnership agreements, the LLC and LLP counterparts of corporate bylaws, are similar requirements. Contents vary but they typically include the following provisions: 1.The time and place for meetings of officers, directors, and shareholders; 2.How many directors, their tenure, and their qualifications; 3.Title and compensation of the corporate officers; 4.The fiscal year of the corporation; 5.Who is responsible and how the bylaws are to be amended; 6.Any rules on the approval of contracts, loans, checks, and stock certificates; 7.Inspection of the corporate records book. Like the Articles of Incorporation, computer-aided programs will assemble and print bylaws. One can be prepared from scratch, or the tear-out forms provided in many published incorporation books may be used. What is a registered agent? A Registered Agent is a representative of the corporation in the state of incorporation. The Registered Agent receives service of process and notices from governmental agencies. All corporations are required to have a Registered Agent 272 Copyright © 2008 Reginald Ringgold

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located in the state in which it is incorporated. If you incorporate in a state where you are not doing business, it will be necessary for you to hire a registered agent and have a business address. A registered agent is needed to accept service of process and all states require you to maintain a business address within the state of incorporation. Many companies offer registered agent and business address services. What is a registered office? Every company must have a registered office at which official documents can be served and this address may be displayed on all business letterheads and order forms of the company. What does Nexus mean? Nexus is the degree of business activity a taxpayer must have before a state can impose taxes. Each state writes its own laws on what constitutes nexus. A business may be able to avoid unnecessary tax payments by understanding how nexus defines its tax liability (or lack of liability). What is the organizational structure of a corporation? The organizational structure of a corporation relies on three basic groups: shareholders, directors and officers. Shareholders own a corporation; however, they do not directly manage the corporation. Instead, they influence corporate decisions through indirect methods such as electing and removing directors, approving or disapproving amendments to the articles of incorporation and voting on major corporate issues. The board of directors is responsible for managing the affairs of the corporation. Usually, directors make only the major business decisions and supervise and appoint the officers who make the day-to-day business decisions of the corporation. Officers are responsible for the everyday management of the corporation. Typically, officers are appointed directly by the board of directors. It is important to note that a shareholder may serve on the board of directors and as an officer. In fact, in most states one person is enough to form a corporation. How many directors do I need to form a Corporation? Most states only require only one director. Some states make the minimum number of directors dependent on the number of shareholders. If the corporation has more than three shareholders, then the corporation must have three directors. The

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following states subscribe to this rule: AR, CA, HI, LA, ME, MD, MA, MO, NY, OH, UT, VT. What are the powers and duties of the Board of Directors? All corporate power is vested with the Board of Directors. They are elected by shareholders for a specified term. The board members act at board meetings where they set goals for the corporation, authorize the issuance of stock, and choose officers to run the daily operations of the business. What is a Nominee Officer? A nominee is an individual or entity, which acts on behalf of a beneficial owner. Many Companies provide nominee services whereby they will provide a nominee to act as owner of your arrangement but generally will not act unless instructed to by the beneficial owner. Why are corporate formalities so important? If corporate formalities are not followed, you can lose all of your liability protection. This allows creditors to seize your personal assets ("piercing the corporate veil"). Courts have the ability to pierce the veil when corporate owners fail to follow corporate formalities, use corporate funds as their own personal funds, intentionally under capitalize their corporation, or enter into agreements without intending to live up to their end of the agreement. What are Shareholders? Shareholders are the owners of the corporation. Each share of stock represents a financial interest in the company. Shareholders may receive stock for cash or services to the company. Shareholders are responsible for electing the Board of Directors. Unless the shareholders are part of the management team (directors or officers), they have no authority to control the operations of the company. If they are dissatisfied with the management, they may elect a new Board of Directors or simply sell their shares.

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What is stock? Stock certificates represent the amount of money a shareholder has decided to invest in the corporation. Owning stock entitles a shareholder to certain rights such as voting rights and dividends. At formation, a company decides how much stock will be issued, and how many different classes of shares it will have (common, preferred, etc.). This formation is contained in the articles of Incorporation. Generally, common stock entitles the owner to vote for directors and receive dividends. However, owning common stock does not guarantee that dividends will be paid. The Board of Directors must look at the Corporation's financial situation and decide whether it can legally authorize dividends to be paid. If so, dividend amounts are split among all common share and distributed to the shareholders. Most small corporations do not have preferred stock. Preferred stock usually entitles the owner to receive a certain amount of dividends each year, provided the corporation can legally authorize that payment. Preferred shareholders are paid before common shareholders. What is Par Value? Par Value is the minimum amount for which a share of stock may be sold. The Board of Directors sets the actual price of the company's shares at its own discretion. Corporations will often set the Par Value of its own shares at a low number, such as one cent. This however, does not mean that the shares are worth only one cent- it only means that they can never be sold for less than that amount. What do the different classes of stock represent? The different classes of stock determine how dividends will be paid, and how much money will be paid for each share of stock in the corporation. Each share certificate will be marked with the amount of par (the minimum amount of money that must be paid for the share). Share certificates may also be marked as no par, with no minimum amount being paid for the share. This designation must be made at the outset of incorporating and provided for in the Articles of Incorporation. Additionally, common stock represents the class of shareholders who shall be paid a dividend last, after the preferred shareholders are paid first (if any exist). If there are no preferred shareholders, then the dividend amounts are split equally among

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the common shareholders. There are additional rules regarding participating shares. For more information, contact your legal advisor, or email us at the address below. What is a Shelf Corporation? A Private Shelf Corporation is a business that was incorporated several years’ prior, and shows history. It has been purchased by an individual and converted into a status that allows it to be purchased or merged by another company or individual. What is an established Credit Shelf Corporation? Depending on your selection of a shelf corporation, you will gain 5 to 10 years of credit history for your immediate use when applying for credit. Corporations that have been in existence for many years and have thousands of dollars worth of established credit are available. How long does it take to incorporate? How long the process takes to incorporate depends on what state you incorporate in. It could take anywhere from a few days, weeks, to a month. What Is the Right Way To Sign Corporate Documents? Corporate officers should always sign documents and transact business in the name of the corporation. The officer's title should be clearly written next to his or her name and signature. This will help avoid a claim that the officer is personally liable for a corporation's default or that the officer was transacting business on his or her own behalf — not on behalf of the corporation. Here is an example:

Very truly yours, XYZ, Incorporated By: ____________________ John Doe CEO

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Glossary Accounts payable: Amount owing to creditors for goods and services on an open account. Accounts receivable: Amount due from customers for merchandise or services purchased on an open account. Asset: Anything owned by a business or individual that has commercial or exchange value. Balance sheet: Financial statement that presents a "snapshot" of what the business owns what it owes, and what equity it has on a given date. Branch: Secondary location of a company. Reports to headquarters and carries same name as headquarters. Capital: See Equity. Capital expenditures: Purchases of long-term assets, such as equipment, used in manufacturing a product. Cash flow: Incoming cash to the business less the outgoing cash during a given period. Also used to refer to the figure derived from net income plus non-cash items charged off in the accrual accounting process. Collateral: Assets pledged to secure a loan. Collection period ratio: Indicates how quickly your customers pay you. Average accounts receivable divided by net sales, multiplied by 365. Community Reinvestment Act (CRA): Under provisions of the Community Reinvestment Act of 1977, banks and thrift institutions seek opportunities to help meet the credit needs of their local communities, including low—and moderate— income neighborhoods, consistent with safe and sound operation of the institutions. 278 Copyright © 2008 Reginald Ringgold

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Compensating balance: Money a bank requires a company to leave in a deposit account as part of a loan agreement. Corporation: Form of business ownership that is a legal entity on its own and puts stockholders and the board of directors in control. Owners have limited liability for the corporation's actions. A corporation has unlimited life and in most cases is taxed as an entity on its own. Cost of goods sold: Figure representing the cost of buying raw materials and producing finished goods. Current assets: Cash or other assets you expect to use in the operation of the firm within one year. Current liabilities: Debts you expect to pay within one year. Current ratio: Shows the firm's ability to pay its current obligations from current assets. Current assets divided by current liabilities. Day’s purchases in accounts payable ratio: Indicates how quickly you pay your suppliers for inventory purchases. Average accounts payable divided by the cost of goods sold plus change in inventory, multiplied by 365. Days to sell inventory ratio: Indicates the firm's efficiency at matching purchases to expected sales. Average inventory divided by the cost of goods sold, multiplied by 365. Debt ratio: Indicates the firm's debt level, or leverage. Total liabilities divided by total liabilities plus capital. Depreciation: Amortization of the cost of a fixed asset, such as plant and equipment, over several years, or the "depreciable life." Dividend: Distribution of earnings to shareholders. Equal Credit Opportunity Act (Federal Reserve Regulation B): Prohibits lenders from denying your application 279 Copyright © 2008 Reginald Ringgold

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on the basis of race, color, religion, national origin, sex, marital status, or age, or from discouraging you from applying, or giving you less favorable terms than any other applicant, on such a basis. Regulation B also contains specific rules governing credit transactions. Division: Secondary location of a company. Reports to headquarters but usually has a distinct name or trade name. Equity: The ownership interest in a business remaining after its liabilities are deducted. Also known as common stock plus retained earnings, or capital. Extraordinary items: Unusual or nonrecurring event that must be explained to shareholders or investors, such as a manufacturer's sale of a building. Finance company: Competitors of commercial banks in providing credit to households and firms. Unlike banks, they do not accept deposits. Financial projections: Estimates of the future financial performance of a firm. Financial statements: Written record of the financial status of an individual or organization. Commonly include profit and loss, or income, statement; the balance sheet, which includes a statement of the company's retained earnings; and the cash flow statement. Fixed assets: Long-term assets such as buildings, equipment, or property that are not expected to be converted to cash in the near term. Gross profit: Indicates the revenues of the firm before consideration of its operating expenses. Net sales less cost of goods sold. Gross profit margin: Measures a firm's profitability. Gross profits divided by net sales. Gross income: Net sales less cost of goods sold. Installment loan: Loan type that is paid in periodic payments, such as an automobile loan. 280 Copyright © 2008 Reginald Ringgold

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Headquarters: Main office of a company implies existence of one or more branches reporting to it, under same name. Immigration Planning: The legal steps a natural person plans and/or undertakes in view of his/her (and family members') future immigration. IP often includes tax planning and asset protection components. Incorporation: The legal process of establishing a company (corporation), which entails submitting of definite documents to the authorities of a relevant jurisdiction, their further registration and issuing by the authorities of proper documentary evidences of the company's (corporation) legal existence (e.g., Certificate of Incorporation). Initial Public Offering: An initial public offering, also known as an IPO, constitutes the first initial sale of a corporation's common shares to public investors. The main objective of an IPO is to help advance the capital of the corporation. Intelliscore: Intelliscore is Experian’s unique numerical indicator of how a firm paid its bills over the past year, based on trade experiences reported to Experian by various vendors. The Intelliscore ranges from 1 to 100, with higher scores indicating better payment performance. International Business Corporation (IBC): A typical company of that type can carry on business outside its jurisdiction of incorporation, have meetings of its Directors and/or Members anywhere in the world, keep as many bank accounts as it desires anywhere in any currency, issue bearer shares. An IBC is exempted from all or the most part of taxes in jurisdiction of incorporation. As a rule such companies have low profile owing to the lack of requirements to register their Directors' and Shareholders' details with the local authorities. Inventory: Value of a firm's raw materials, work in process, supplies used in operations, and finished goods. Investor: An individual who takes an ownership position in a company, thus assuming risk of loss in exchange for anticipated returns. Jurisdiction: Within the context of our site it's a country or a territory, where we provide incorporation and other services. Each such jurisdiction adopted its 281 Copyright © 2008 Reginald Ringgold

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peculiar legislation, which concerns incorporation/formation of offshore legal entities and their further activities. Jurisdiction of the incorporation/formation: A jurisdiction where the company or corporation was incorporated/formed. Legal Entity (Legal Person): A legal entity (LE), e.g., an International Business Company, Panamanian Private Foundation, Delaware Corporation or Limited Liability Company, exists independently from its members, founders or shareholders. Generally, the liability is limited to the assets a LE owns, and the personal property of the members, founders or shareholders may not be seized by the creditors. A LE has many features of a natural person, e.g. it may hold property, suit other legal and natural persons, and be responsible in a court for its acts and deeds. Leverage: Measures the firm's use of borrowed funds versus those funds provided by the shareholders or owners (equity). Liability: Any current or future legal obligation, e.g. debt, duties under a contract or a position. Limited Liability: Within the context of our site it's limited liability of shareholders or members in a Company Limited by Shares or Company Limited by Guarantee. Line of credit: Although not a contract, a bank's promise to lend to a specific borrower up to a pre-agreed amount during a specific time frame. Usually reviewed annually and subject to cancellation without notice. Liquid assets: Those assets that can be readily turned into cash. Liquidity: Gauges firm's ability to quickly turn assets into cash. Marketable securities: Securities that are easily sold. Minor: A person who has no attained full age under the law of his domicile. Money Laundering: The process and technology of disguising, investing, and/or hiding the proceeds of criminal activities coupled with their "legitimization". 282 Copyright © 2008 Reginald Ringgold

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Natural person: An individual as a subject of legal and/or business relations. Net income: The sum remaining after all expenses have been met or deducted. Also called profit. Net sales: Gross sales minus returns and allowances. Net worth: Excess of assets over debt. Niche: Particular specialty in which a firm has gained a large market share. Nominal Director: A Director holding its position only formally, while the real powers on administering and managing the company rest with the Beneficiary or its agent. Nominal Shareholder (Member): A shareholder holding the shares only nominally. At any point, the Nominal Shareholder will transfer the shares he/she formally holds to the person(s) listed in the appropriate instruction from the Beneficiary. Nominees: General term for Nominal Directors, Nominal Shareholders (Members), and other nominal persons in an offshore legal entity. Non-resident: In relation to a jurisdiction: a legal or natural person not having its domicile and/or place of business in the given jurisdiction. Non-resident alien (NRA): The person who is neither a resident in nor a citizen of the country, esp. in the USA. Offshore: Managed, registered, located, conducted, or operated in a foreign country, especially when it is arranged for the tax-planning or asset-protection purposes. Offshore Financial Center (OFC): A jurisdiction, providing some or all of the following services: low or zero taxation; moderate or light financial regulation; banking secrecy and anonymity. Operating Expenses: The amount paid for assets maintenance or those costs associated with the day-to-day activities of the business. 283 Copyright © 2008 Reginald Ringgold

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Operating profit (loss): Income or loss before taxes and extraordinary items resulting from transactions other than those in the normal course of business. Operating profit margin: Measures a firm's profitability by examining the pre-tax profit generated from primary operations (versus extraordinary items) in relation to net sales. Operating profit divided by net sales. Parent Corporation: A corporation in relation to its subsidiaries, branches, or daughter companies. A Parent corporation is a Corporation that owns more than 50% of the voting stock of another corporation (the subsidiary). Partnership: Can be general or limited, but in either case the general partners are in control. The tax burden is shared by all the partners at their personal rate, and the general partners have unlimited liability. Limited partners have limited liability. Principal: The currently unpaid balance of a loan, not including interest owed. Also can refer to a primary owner or investor. Private Foundation: In the context of our services, it is a Panamanian legal entity combining the features of a trust and an International Business company. Similarly to a Trust, the purpose of a Private Foundation is to preserve the assets, donated by the Founder and some third persons, for the benefit of and distribution among the Beneficiaries. Akin to an International Business Company, a Private Foundation has a distinctive legal personality and tax-exempt status. PF is an effectual offshore asset protection tool. Private unlimited company: A company with unlimited liability of its members. Profit: Compensation an entrepreneur receives for the assumption of risk in a business venture. Also called net income. Profit and loss statement: Summary of the revenues, costs, and expenses for a business over a period of time. Also called the income statement. Pro forma financial statements: Financial statements for a business where certain amounts shown are hypothetical, or estimated, for the period depicted. 284 Copyright © 2008 Reginald Ringgold

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Protector: The Protector is "a watchdog" overseeing the proper fulfillment by the Foundation Council of all instructions of the Founder. Public limited company (PLC): The shares of such company may be offered for sale to the general public and members' liability is limited to the amount unpaid on shares held by them. Quick ratio: Liquidity ratio that focuses on the firm's most liquid assets by excluding inventory. Also known as the acid test ratio. Cash, marketable securities, and accounts receivable divided by current liabilities. Registered Agent: A registered agent represents an International Business Company, Panamanian Private Foundation, Delaware Corporation or Limited Liability Company in the jurisdiction of incorporation. A Registered Agent normally provides a Registered Office address, provides liaison with local authorities and receives all legal and tax papers and/or notices addressed to the underlying company, corporation or foundation. Registered Office: It is the official address of a company to which authorities, courts, and suitors send their notices, letters and reminders. The Registered Office (RO) can be anywhere in the jurisdiction of the incorporation. It must always be an effective address for delivering documents to the company. The RO is provided by a Registered Agent. Resident: In relation to a jurisdiction: a legal or natural person having its domicile and/or place of business in the given jurisdiction. Retained earnings: Net profits kept to accumulate in a business after dividends are paid. Seasonal loan: A loan made for the purpose of meeting predictable and periodic funding needs, such as funding of camping gear inventory before summer purchases. Small Business Administration (SBA): Federal agency created in 1953 to provide management and financial assistance to small businesses. Mainly, the SBA

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guarantees loans through financial institutions. The loans may be used for working capital, machinery and equipment acquisition of real estate, and expansion. Securities: Shares, bonds, and other instruments, which give evidence to and assure the fulfillment of an obligation. Securities are traded in financial markets. Having opened an Offshore Brokerage Account you may buy and sell securities via the Internet. Settler: The person who actually creates a trust by donating property to be managed and administered by a trustee but from which all benefits and profits would go to a beneficiary. Share: Part ownership in a company limited by shares. Share Certificate: A document signifying part ownership in a company. Same as a "Stock Certificate". Shareholder: The owner of one or more shares in a company. Shelf Company: A company, which has been incorporated and kept on the shelf. In some cases it is "pure" in a sense that it may or may not have entered into any commercial or other activities and/or obligations. The client him/herself appoints the initial Director(s) of the SC and decides on issuance of the shares. Shipping Company: A company, which owns a ship or ships. One of the preferable jurisdictions for registration of SC is Cyprus. Small Business Administration (SBA): Federal agency created in 1953 to provide management and financial assistance to small businesses. Mainly, the SBA guarantees loans through financial institutions. The loans may be used for working capital, machinery and equipment acquisition of real estate, and expansion. Sole proprietorship: A type of business where the owner has full control and unlimited liability. A sole proprietorship is taxed at the personal income tax rate. Subsidiary (Subsidiary company): A company with a majority of its shares being owned by another company. 286 Copyright © 2008 Reginald Ringgold

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Tax haven: A jurisdiction where local legislation provides for considerable tax exemptions for non-residents. Tax planning: The legal steps a natural or legal person plans and/or undertakes to minimize lawfully his/her/its tax liabilities. Such offshore tools as Private Foundations, International Business Companies, Delaware Corporations and Limited Liability Companies, and Trusts are being used by our clients for the above purpose. See more details in the appropriate sections of OFFSHORE TOOLS. The Statute of Elizabeth: It was enacted in 1576 by the Queen Elizabeth I. The Statute voids a transfer to a trust if the transfer could be interpreted as intention to hinder, delay, or defraud creditors, including potential future creditors. Some Offshore Financial Centers (i.e. Nevis) declared The Statute of Elizabeth null and void in their trust legislation. Trust: A legal design placing ownership of property in the name of one person, called a trustee, to be held by the trustee for the use and benefit of some other person, called a beneficiary. In some jurisdictions (i.e. Nevis) Trust Law permits the Settler and Beneficiary in a Trust be the same person. Trust Company: A company properly licensed by the authorities to provide services of a Trustee. Trustee: The person who administers and manages the property transferred in a Trust. This person becomes a legal owner of the property. In due time, a Trustee distributes the property and/or relevant earnings under the trust among beneficiaries. Unlimited Company: See Private unlimited company.

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Glossary of terms Average High Credit/Highest Credit - Average and highest credit levels granted. Banking Section – This section of the Business Information and Comprehensive Reports includes information on a company’s access to additional financial capital, such as accounts, loans, and specific banking relationships, as well as bank evaluations (when available) of whether the relation(s) are satisfactory. The content may not represent the full extent of the firm’s banking relationships, nor the primary bank used by the business. Bankruptcy– A proceeding under the U.S. Bankruptcy Code, in which either a debtor files a bankruptcy petition and voluntarily seeks protection from creditors, or creditors file a bankruptcy petition against a debtor to force the debtor to pay debts owed to them. BIR – (Business Information Report) – The BIR provides an overall profile of a company, including financial information, payment history and trends, history of a business, ownership details, operational information, and details on related firms and special events (such as business moves, fires and other disasters, and quarterly performance). It also includes the D&B Rating, which shows the financial size (net worth) of a business and a risk indicator. Branch – A secondary location of a business. It has no legal responsibility for its debts, even though bills may be paid from the branch location. It will have the same legal business name as its headquarters. A branch often operates under a different trade style. It may be located at the same address as the headquarters if it has a unique trade style and unique operations. Business Background – Information about ownership, history, principals, operations, and locations of the business. Business Information Report (BIR) – The BIR provides an overall profile of a company, including financial information, payment history and trends, history of a business, ownership details, operational information, and details on related firms and special events (such as business moves, fires and other disasters, and quarterly performance). It also includes the D&B Rating, which shows the financial size (net worth) of a business. Business Registration – A business registration is information filed by a corporation or limited liability company with the Secretary of State or other state agency in order to obtain a state charter to do business within that state was a corporation or limited liability company. 288 Copyright © 2008 Reginald Ringgold

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Commercial Credit Score – Predicts the likelihood of an account becoming severely delinquent within the next 12 months. The 101-660 scale gives is a direct correlation between the score and risk. Each 40-pt increase or decrease relates to a doubling or halving the risk. For example, a business that scores 360 is twice as risky as a business that scores 400. Comprehensive Report – The Comprehensive Report is an in-depth evaluation of a company’s short/long term financial stability. This report offers an in-depth view of a company’s financial position, offers comparisons to industry norms, and is the only credit report that includes scores and analysis that predict future payment habits and financial stability. Control Date – The year the present management took control. For example, if a business was started in 1985 but was sold to new owners in 1996, the Control Date will be 1996. Credit Capacity Summary – Reviews an analysis of credit capacity (size, overall financial condition, payment capacity) to gauge the firm’s ability to take on additional credit. Credit Limit Recommendation – The D&B Credit Limit Recommendation is intended to help you more easily manage your credit decisions. It provides two recommended dollar guidelines: A conservative limit, which suggests a dollar benchmark if your policy is to extend less credit to minimize risk and an aggressive limit, which suggests a dollar benchmark if your policy is to extend more credit with potentially more risk. The dollar guideline amounts are based on a historical analysis of the credit demand of customers in D&B’s U.S. payments database who have a similar profile to the business you are evaluating in respect to employee size and industry. The guidelines do not address whether a particular business can pay that amount or whether a particular customer’s total credit limit has achieved (based on their total trade experiences and outstanding balances). Each set of limits is accompanies by an assessment of the risk category a business falls into, or D&B’s assessment of how likely they are to continue to pay their obligations within terms and their likelihood of undergoing financial stress in the next 12 months. The risk category is created using D&B’s risk modeling methodology and is based on the company’s credit and financial stress scores. Generally speaking, D&B’s standard limit recommendations are less applicable for very large credit lines – over one million dollars – and when assessing very large organizations, which may pay slowly as a rule. You are most likely to the find the recommended limits useful for small to medium-large size decisions. The 289 Copyright © 2008 Reginald Ringgold

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recommended limits also are useful when you are dealing with a new customer or prospect, one with whom you do not have a previously established credit record. The recommended limits, while not customized to every situation, create useful default starting point. Credit Score Class – Assesses the company’s probable payment habits and indicates the likelihood of an account becoming delinquent within the next 12 months. A 1 denotes low risk, 5 denotes high risk, and 0 denotes open bankruptcy and/or out of business at this location. Credit Score Norms – Compares the company’s Credit Score Class to that of firms with similar demographic characteristics. Credit Score Summary – Reviews an analysis of credit capacity (size, overall financial condition, payment capacity) to gauge the firm’s ability to take on additional credit. Division - A division is an operating unit of a business entity with a specific divisional name performing a specific activity normally different than the activity performed at the headquarters. A division is different than a branch in that the division is operated like a separate and unique entity (it may have divisional officers; however, it is not legally a separate entity). D&B Rating - The D&B Rating can help you quickly assess a firm's size and composite credit appraisal, based on information in a company's interim or fiscal balance sheet and an overall evaluation of the firm's creditworthiness. The "5A" to "HH" Rating Classifications reflect company size based on worth or equity as computed by D&B. Company size can be an effective indicator of credit capacity. These Ratings are assigned to businesses that have supplied D&B with a current financial statement. The Composite Credit Appraisal is a number, 1 through 4 that makes up the second half of the company's rating and reflects D&B's overall assessment of that firm's creditworthiness. The Composite Credit Appraisal is based on D&B’s analysis of company payments, financial information, public records, business age and other important factors (when available). Note: A "2" is the highest Composite Credit Appraisal a company not supplying D&B with current financial information can receive. The "1R" and "2R" Rating categories reflect company size based on the total 290 Copyright © 2008 Reginald Ringgold

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number of employees for the business. They are assigned to company files that do not contain a current financial statement. ER (Employee Range) Ratings apply to certain lines of business that do not lend themselves to classification under the D&B Rating system. Instead, we assign these types of businesses an Employee Range symbol based on the number of people employed. No other significance should be attached to this symbol. For example, a rating of "ER7" means there are between five and nine employees in the company. "ERN" should not be interpreted negatively. It simply means we do not have information indicating how many people are employed at this firm. The D&B Rating field in a report may also display the following designations when certain conditions are present: The '- -' Symbol: This represents the absence of a D&B Rating and should not be interpreted as indicating that credit should be denied. It means that the information available to D&B does not permit us to classify the company within our Rating Key and that further inquiry should be made before reaching a credit decision. Some reasons for using the "- -" symbol include: deficit net worth, bankruptcy proceedings, lack of sufficient payment information or incomplete history indicator. DS (DUNS Support): This indicates that the information available to D&B does not permit us to classify the company within our Rating Key. When ordering these reports, an investigation can be performed and results sent to you at your request for an additional fee. D-U-N-S® Number (Data Universal Numbering System) - The D&B D-U-N-S Number is a non-indicative, nine-digit number assigned to each business location in the D&B database having a unique, separate, and distinct operation, and is maintained solely by D&B. The D&B D-U-N-S Number is used by industries and organizations around the world as a global standard for business identification and tracking. If you don’t have a D-U-N-S Number, you can get one for free through the SBS site. DUNSRight - DUNSRight is the data quality process that ensures that you get the most accurate and complete information available. Employees Here – Total number of employees for all locations of the business. Employees Total – Total number of employees for all locations of the business. eUpdate – eUpdate is a simple tool you can use to ensure our database contains the 291 Copyright © 2008 Reginald Ringgold

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most up-to-date information on your business. eUpdate provides you with the ability to create a new DUNS Number, build a credit file, review your D&B Report, and update your company profile online, free of charge, 24 hours a day. Executive Summary Section – Reviews an analysis of credit capacity (size, overall financial condition, payment capacity) to gauge the firm’s ability to take on additional credit. Finance Section - Found in the Business Information and Comprehensive Reports, this section includes balance sheets, financial income statements and management estimates or projections when available. If provided, up to three years of comparative summaries may be displayed here. This data can help you to assess: • A company's ability to meet current debt by comparing all liquid assets to current debt, or all liquid assets plus inventory to current debt. • The amount of capital provided by creditors compared to capital invested by the owners. • The amount of sales compared to total assets of the company. Commentary on absence of financial information may also appear in this section, for example, "A financial statement was declined by management." An explanation of the financial information may also be provided and my include a narrative indicating the source of the data (i.e., "Submitted by ..."), as well as an explanation of certain financial statement items. The company may also add other comments in this section, such as "Current cash is low because a recent expansion was financed with cash rather than loans." Financial Condition - Found in the Business Information and Comprehensive Reports, this section provides an overview of a company's financial statement with a designation of Strong, Good, Fair or Unbalanced. Financial Condition is calculated by reviewing up to 11 financial ratios and comparing them to industry averages for each of the company's lines of business. Financial Stress - D&B defines a financially stressed company as one that has ceased operations following assignment or bankruptcy, ceased operations with loss to creditors, voluntarily withdrawn from business operation leaving unpaid obligations or is in receivership, reorganization, or has made an arrangement for the benefit of creditors. Note: Voluntary discontinuance involving no loss to creditors is not defined as financial stress. Financial Stress Norms - Compare the company's Financial Stress Class to average ratings for firms with similar demographic characteristics to help you determine where the firm stands in relation to the norm. 292 Copyright © 2008 Reginald Ringgold

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Financial Stress Score - Found in the Comprehensive Report, this score ranges from 1,001 to 1,875 and is the raw output of the Financial Stress Scoring Model scorecards. 1,001 represents the highest risk and 1,875 represents the lowest risk of business failure. Each Financial Stress Score within the range (1,001-1,875) has a related probability of business failure within a 12-month period. This score is also often referred to as the Raw Score. Financial Stress Summary - The company's Financial Stress Class is given as a 1 to 5 rating and as a percentile ranking to determine the likelihood of business experiencing financial stress as compared to the national average and the company's industry. Headquarters- A headquarters is a business location that has branches or divisions reporting to it, and is legally responsible for those branches or divisions. If the headquarters is more than 50 percent owned by another corporation, it will also be a subsidiary. If it owns more than 50 percent of another corporation, then it is also a parent. History Indicator - Found in the Business Information and Comprehensive Reports, the History Indicator is designated as: • Clear - Certain minimal information necessary for D&B rating consideration is contained in the report. It also means the report is free of negative information which could cause the selection of other History captions or designation as a potential higher-risk case. • Incomplete - D&B's file does not contain sufficient information about the background of the business and its significant principals to fully assess risk. • Management - D&B's file contains certain unfavorable current or historical information on one or more significant principals associated with this company. • Business - D&B's file contains certain unfavorable current or historical information on this company. History Section - Found in the Business Information and Comprehensive Reports, the History Section typically includes details on the company's history, including: • Incorporation details, par value of shares and ownership information. • Background information on management, such as the educational and career history of the company principals. • Related companies, including identification of parent, affiliates, subsidiaries and/or branches worldwide. 293 Copyright © 2008 Reginald Ringgold

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The History Section may also include corporate registration details, which can help you to: • Verify the existence of a registered organization. • Confirm legal information, such as a company's organizational structure, date and state of incorporation. • Research possible fraud by reviewing names of principals and business standing within a state. INV (Investigation Being Conducted): When an "INV" appears, it means an investigation is being conducted on this business to get the most current details. NQ (Not Quoted): This is generally assigned when a business has been confirmed as no longer active at the location, or when D & B is unable to confirm active operations. It may also appear on some branch reports, when the branch is located in the same city as the headquarters. Judgment - A Judgment is the final resolution of a suit; the official court decision regarding the parties' rights and obligations, including whether the plaintiff is entitled to relief defined in the suit. Legal Filings - Reported open/closed public filings include bankruptcy, judgments, suits or liens. Leveraged Buyout: A leveraged buyout (or LBO, or highly-leveraged transaction (HLT), or "bootstrap" transaction) occurs when a financial sponsor gains control of a majority of a target company's equity through the use of borrowed money or debt. A leveraged buyout is a strategy involving the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans, in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital. Lien - A lien is a claim or encumbrance which one party holds against the property of another party until a debt or obligation is satisfied. NAICS (North American Industry Classification System) – SIC (Standard Industrial Code) codes are a numbering convention to identify an industry or service a business provides. NAICS codes were created to increase service orientation and recognize new and emerging industries and are more process focused descriptions of what a business does. 294 Copyright © 2008 Reginald Ringgold

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Negative Payment Comments/Information - Negative Payments consist of unsatisfactory, bad debt, suit-filed, non-sufficient funds, credit refused, placed for collection or repossession trade experiences. Net Worth - The net worth of a business. "E" indicates figures are estimates provided by the owners, partners or officers of the company; "F" means figures were taken from a financial statement. This element offers another view of the company's financial size. Operation Section - Found in the Business Information and Comprehensive Reports, this section provides background information on the business operations of a company. This may include the identity of a parent company, the number of accounts and geographic scope of the business, typical selling terms, and whether the firm owns or leases its facilities. The names and locations of branch operations and subsidiary may also be identified in this section. Other Payment Categories - Miscellaneous indicators of a firm's payment habits, including the highest dollar amounts owed; the highest dollar amounts past due; number and dollar value of cash payments and placed for collection experiences. Parent - A parent is a corporation that owns more than 50 percent of another corporation. The parent company may also be a subsidiary of another corporation. If the parent also has branches/divisions, then it is also a headquarters. Parents can have both direct and indirect subsidiaries, indirect subsidiaries being those that have another company in between the subsidiary and the parent. PAYDEX® Score - The PAYDEX Score is D&B's unique dollar-weighted numerical indicator of how a firm paid its bills over the past year, based on trade experiences reported to D&B by various vendors. The D&B PAYDEX Score ranges from 1 to 100, with higher scores indicating better payment performance. Payment Details Section - Found in the Business Information and Comprehensive Reports, the Payment Detail Section displays a listing of recent payments reported to D&B. Each line (up to 80) provides the most recent information secured through company trade tapes and other D&B data collection methods. It's important to note that an unusually large number of transactions during a single month or time period may indicate a seasonal purchasing pattern. The following manners of payment appear most frequently in this section: • Antic - payments are received prior to date of invoice (Anticipated). • Disc - payments are received within trade discount period (Discount). • Ppt - payments are received within terms granted (Prompt). • Slow - payments are beyond vendor's terms. For example, "Slow 30" means 295 Copyright © 2008 Reginald Ringgold

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payments are 30 days past due. • Ppt-Slow - some invoices are paid within terms, others are paid beyond terms. • (#) -indicates that no manner of payment was provided; the number merely reflects the line where it appears in the listing. For example, (004) means it is the fourth experience listed. • Payment Commentary - such as "Cash in Advance," "Account in Dispute," "Credit Refused," or "Placed for Collection" may also display next to trade details. "Placed for Collection" means the account was forwarded to a third party for collection action during the past year. Payment Performance Trend - An element in the Credit eValuator and SelfMonitor 2.0 Reports that compares a company's dollar-weighted payment performance today to the company's payment performance three months ago. The Payment Performance Trend Arrow shows the payment trend (improving, steady or declining) of the business today to its payment trend three months ago and to an industry average. D&B Payment Index (or PAYDEX) is a dollar-weighted payment calculation on the number of days a business takes to pay based on the terms extended. Up to 875 payment experiences in the D&B trade file are used to dynamically calculate this score. Payment Summary by Industry - An overview of how a firm pays suppliers in up to 10 lines of business where it has recorded the highest number of credit transactions. This information can help you evaluate how quickly you can expect to be paid, based on a company's payment history with your industry peers. Payment Summary Section - This section highlights how quickly a company is likely to pay its bills in the future by reviewing its payment patterns with other vendors in the past, as reported to D&B. Payment performance is outlined relative to aging, dollar amounts, and industry groupings. Specific information includes: • The D&B PAYDEX® Score • Payment Summary by Industry • Other Payment Categories Payment Trends - Spot trends in a company's business by analyzing how it pays its bills. D&B's PAYDEX Score compares a company's payment records with others in the industry -- for up to two years. This unique indicator gives you an instant overview of how a firm pays its bills. It is calculated based on up to 875 payment experiences reported to D&B by various sources. 296 Copyright © 2008 Reginald Ringgold

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Payment Trend by Industry - See at a glance how the company's payment habits, as reported by D&B, compare with those of other companies in its line of business. Predictive Scoring / Models - Predictive scoring is the process of using historical information to predict future outcomes. It involves identifying the risks inherent in a future decision by examining the relationship between historical information and the future event. In essence, it is an objective and statistically derived counterpart to subjective, intuitive assessments. The objective of a score is to report the risk involved in a given decision. Predictive Scoring allows you to rank order accounts based on the probability of an event occurring. Predictive Scoring represents a statistical probability, not a guarantee. Examples include the Risk of Late Payment Indicator in the Credit eValuator Report and the Commercial Credit and Financial Stress Scores in the Business Information and Comprehensive Reports. Primary SIC - Represents a company's activity with the largest percentage of sales revenue. See SIC Code. Public Filings - This term is used to identify bankruptcy filing, suit, lien, and judgment information obtained from Federal and State court houses for a company. Rating or D&B Rating - The D&B Rating can help you quickly assess a firm's size and composite credit appraisal, based on information in a company's interim or fiscal balance sheet and an overall evaluation of the firm's creditworthiness. The "5A" to "HH" Rating Classifications reflect company size based on worth or equity as computed by D&B. Company size can be an effective indicator of credit capacity. These Ratings are assigned to businesses that have supplied D&B with a current financial statement. The Composite Credit Appraisal is a number, 1 through 4 that makes up the second half of the company's rating and reflects D&B's overall assessment of that firm's creditworthiness. The Composite Credit Appraisal is based on D&B’s analysis of company payments, financial information, public records, business age and other important factors (when available). Note: A "2" is the highest Composite Credit Appraisal a company not supplying D&B with current financial information can receive. The "1R" and "2R" Rating categories reflect company size based on the total number of employees for the business. They are assigned to company files that do not contain a current financial statement. 297 Copyright © 2008 Reginald Ringgold

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ER (Employee Range) Ratings apply to certain lines of business that do not lend themselves to classification under the D&B Rating system. Instead, we assign these types of businesses an Employee Range symbol based on the number of people employed. No other significance should be attached to this symbol. For example, a rating of "ER7" means there are between five and nine employees in the company. "ERN" should not be interpreted negatively. It simply means we do not have information indicating how many people are employed at this firm. The D&B Rating field in a report may also display the following designations when certain conditions are present: The '- -' Symbol: This represents the absence of a D&B Rating and should not be interpreted as indicating that credit should be denied. It means that the information available to D&B does not permit us to classify the company within our Rating Key and that further inquiry should be made before reaching a credit decision. Some reasons for using the "- -" symbol include: deficit net worth, bankruptcy proceedings, lack of sufficient payment information or incomplete history indicator. DS (DUNS Support): This indicates that the information available to D&B does not permit us to classify the company within our Rating Key. When ordering these reports, an investigation can be performed and results sent to you at your request for an additional fee. INV (Investigation Being Conducted): When an "INV" appears, it means an investigation is being conducted on this business to get the most current details. NQ (Not Quoted): This is generally assigned when a business has been confirmed as no longer active at the location, or when D & B is unable to confirm active operations. It may also appear on some branch reports, when the branch is located in the same city as the headquarters. Risk of Late Payment - Risk of Late Payment is an element in the Credit eValuator and SelfMonitor 2.0 Reports, which predicts the risk that a company will pay on time versus the risk of other companies in the same industry. The risk dial () shows the potential risk of late or delinquent payment. The dial - from lower risk to higher risk - shows the risk that a company will pay in a severely delinquent manner (90+ days past terms) relative to other businesses in the D&B database. Higher risk (red) indicates that a company is more likely to pay severely beyond terms, and lower risk (green) indicates that a company has a low likelihood of paying in a severely delinquent manner. The rating is based on a number of credit 298 Copyright © 2008 Reginald Ringgold

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factors determined by D&B's sophisticated analytical. Risk Summary - Identification of the Risk of Late Payment and Payment Performance Trend indicators in the Credit eValuator. The Risk of Late Payment is based on the D&B Credit Score, and the Payment Performance Trend is based on D&B's PAYDEX score. Both are indicators of short-term payment performance. Sales - Sales information provides a snapshot of a company's financial size in terms of sales/revenue volume. "Projected" indicates an estimated sales volume provided by management; "F" means figures were taken from an income statement. See the Finance Section for more details. Sales Trend - A Sales Trend is based upon additional data extracted from D&B's credit and financial statement databases. Sales data is captured on the percentage of growth or decline in a company's annual sales and employment over three and five year periods. This data is compared to the company's reported financial data to determine trend against the industry. Secured / Unsecured - In the Business Information and Comprehensive Reports, the Financing section will identify Secured, Unsecured or Secured/Unsecured when financing statements have been issued. A financing statement is proof of a security interest in personal property whereas a deed, properly recorded at a County Recorder’s Office, is proof of ownership for real property (land and buildings). In the D&B Business Information and Comprehensive Reports, the notation that FINANCING is secured means that a company's accounts receivables, inventory and/or other liquid assets have been pledged. SIC Code - The SIC code is a standardized numbering system developed by the Federal Government that classifies business establishments according to their industries. It is particularly helpful when you're looking to segment markets, analyze customer relationships, and conduct general business research. SIC codes divide all major economic activity into ten major divisions. Businesses are then further classified within each division. The first two digits in the code represent a company's major industry affiliation and its subdivision. For example, the first two digits in "Manufacturing," one of the ten major SIC divisions, range from 20 to 39. The remaining digits break down the divisions into specific activities and "subindustries." If more than one SIC Code is listed, the first one is the company's primary line of business, with others comprising at least 10 percent of the company's revenue. A maximum of six SIC's will be listed for a company. Details can be found in the Operations Section of the Business Information Report. Special Events - Special Events alert you to any recent developments D&B learns about that may impact your potential relationship with a firm, such as bankruptcy 299 Copyright © 2008 Reginald Ringgold

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filings, changes in ownership, acquisitions and other events. Information reported in this section may also include announcements on the release of earnings reports. Special Events may help explain unusual company trends. For example, a change in ownership could have an impact on manner of payment, or decreased production may reflect an unexpected interruption in factory operations (i.e., labor strike or fire). Standard Industrial Code (SIC) - The SIC code is a standardized numbering system developed by the Federal Government that classifies business establishments according to their industries. It is particularly helpful when you're looking to segment markets, analyze customer relationships, and conduct general business research. SIC codes divide all major economic activity into ten major divisions. Businesses are then further classified within each division. The first two digits in the code represent a company's major industry affiliation and its subdivision. For example, the first two digits in "Manufacturing," one of the ten major SIC divisions, range from 20 to 39. The remaining digits break down the divisions into specific activities and "sub-industries." If more than one SIC Code is listed, the first one is the company's primary line of business, with others comprising at least 10 percent of the company's revenue. A maximum of six SIC’s will be listed for a company. Details can be found in the Operations Section of the Business Information Report. Started (Control Date) - Indicates the year the company was started or present management took control. Statement Update Section - This section includes information D&B has obtained directly from the company since our last full interview with the principals of the business. It may include pertinent information such as updated financial data, commentary on recent business trends or operating details. Subsidiary - A subsidiary is a corporation in which more than 50% of its voting stock is owned by another corporation and will have a different legal business name from its parent company. A subsidiary must be a single location, a headquarters, or a parent. A subsidiary may have branches and/or subsidiaries of its own. Suit - A proceeding filed by a plaintiff(s) against a defendant(s) in a court of law, in which the plaintiff(s) seeks monetary or non-monetary relief. Summary Analysis Section - This section displays the current D&B Rating, when it was assigned and why. Additional content may include rating changes that have occurred during the past year so you can spot trends and evaluate the stability of a firm over time. 300 Copyright © 2008 Reginald Ringgold

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Summary of Payment Habits - Gives you a detailed look at payment practices reported to D&B to support your assessment, such as number of payment experiences by dollar amount and percent paid promptly. Trend Sales - Found in the Company Profile Report / Sales Information section, Trend Sales is the last (most current) year of the three year period. UCC (Uniform Commercial Code) Filing - By properly filing a financing statement at the state and/or local jurisdiction, the security interest of the secured party is protected. The document contains the names and addresses of the debtor and the secured party along with a description of the collateral (security interest). A financing statement is proof of a security interest in personal property whereas a deed, properly recorded at a County Recorder’s Office, is proof of ownership for real property (land and buildings). Worth - The net worth of the business. "E" indicates figures are estimates provided by the owners, partners or officers of the company; "F" means figures were taken from a financial statement. This element offers another view of the company's financial size. See the Finance Section for details.

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Appendix Example Manufacturing Co. Inc. Balance Sheet As of December 31,

2006

2005

Assets Current Assets 1. Cash

$3,000

$2,000

8,000

12,000

42,000

33,000

157,000

150,000

2,000

3,000

212,000

200,000

1,067,000

983,000

8. Less Accumulated Depreciation

450,000

417,000

9. Net PPE

617,000

567,000

267,000

217,000

16,000

17,000

2. Marketable Securities 3. Accounts Receivable 4. Inventories 5. Prepaid Expenses 6. Total Current Assets

7. Plant, Property, and Equipment

10. Investments 11. Other Assets 12. Total Assets

1,112,000 1,000,000

Liabilities Current Liabilities 13. Accounts Payable

38,000

42,000

14. Notes Payable

80,000

67,000

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15. Total Current Liabilities 16. Long-Term Debt 17. Deferred Tax Liability

118,000

108,000

0

0

77,000

67,000

195,000

175,000

19. Common Stock

367,000

327,000

20. Retained Earnings

550,000

498,000

18. Total Liabilities

Capital

21. Total Liabilities and Capital

1,112,000 1,000,000

Example Manufacturing Co. Inc. Profit and Loss Statement (Income Statement) Year Ended December 31,

a. Net Sales b. Cost of Goods Sold

2006

2005

$633,000 $500,000 358,000

300,000

275,000

200,000

d. Selling and Administrative Expenses

27,000

20,000

e. Lease Payments

17,000

12,000

f. Depreciation

50,000

42,000

g. Repairs and Maintenance

17,000

18,000

164,000

108,000

c. Gross Profit

h. Operating Profit

Other Income (Expense) i. Interest Income

3,000

1,000

j. Interest Expense

0

0

303 Copyright © 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT k. Earnings Before Income Taxes

167,000 109,000

l. Income Taxes

57,000

37,000

m. Net Earnings

110,000

72,000

Example Manufacturing Co. Inc. Cash Flow Statement Sources/(Uses)

Operating Activities Net

Income

Plus: Depreciation Decrease in Prepaid Expenses Increase in Deferred Tax Liability

$110,000 50,000 1,000 10,000 171,000

Less: Profit on Sale of Equipment

(25,000)

(line 9(2005) + Note 1 - f - 9(2006) - Note 2) Increase in Inventories

(7,000)

Increase in Accounts Receivable

(8,000)

Decrease in Accounts Payable

(4,000)

Net Cash Provided From Operating Activities

127,000

Investing Activities Capital Expenditures Increase in Investments Proceeds From Sale of Equipment Net Cash Provided From Investing Activities

(167,000) (50,000) 92,000 (125,000)

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April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT

Financing Activities Proceeds From Sale of Stock

40,000

Proceeds From Notes

13,000

Dividends

(58,000)

(Line m (2006)- change in line 20 (2006-2005)

Net Cash Provided From Financing Activities

(5,000)

Increase in Cash and Marketable Securities

(3,000)

Notes:

1. Capital Expenditures in 2006 were $167,000. 2. Equipment sold in 2006 for $92,000.

Gross Profit Margin = Net Sales - Cost of Goods Sold -------------------------------Net Sales

Example: The gross profit margin for Example Manufacturing Company Inc. for 2006 is:

$633,000 - $358,000 x 100 = 43.4% -----------------$633,000

Operating Profit Margin = Operating Profit -----------------Net Sales

Example: The operating profit margin for Example Manufacturing Company Inc. for 2006 is:

305 Copyright © 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT $164,000 x 100 = 25.9% -------$633,000 Cash +Marketable Securities Quick Ratio = +Accounts Receivable -------------------------Current Liabilities

Example: The quick ratio for Example Manufacturing Company Inc. for 2006 is: $3,000 + $8,000 + $42,000

= 0.45

---------------------------$118,000

Current Ratio =

Current Assets ---------------Current Liabilities

Example: The current ratio for Example Manufacturing Company Inc. for 2006 is: $212,000 = 1.8 -------$118,000

Debt Ratio =

Total Liabilities --------------------------Total Liabilities + Capital

306 Copyright © 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT Example: The debt ratio for Example Manufacturing Company Inc. for 2006 is: $195,000

x 100 = 17.5%

---------$1,112,000 Average Accounts Collection Period Ratio =

Receivable ------------------

x 365

Net Sales

Example: The collection period ratio for Example Manufacturing Company Inc. for 2006 is: ($42,000 + $33,000)/2 x 365 = 22 days ------------------$633,000

Days to Sell

Average Inventory

Inventory Ratio

= ----------------------

x 365

Cost of Goods Sold

Example: The days to sell inventory ratio for Example Manufacturing Company Inc. for 2006 is: $157,000 + $150,000)/2 x 365 = 156 days -------------------$358,000

Days Purchases in Accounts Payable Ratio

Average Accounts Payable =

-------------------------------

x 365

Cost of Goods Sold + Change in Inventory

Example: The day’s purchase in accounts payable ratio for Example Manufacturing Company Inc. for 2006 is: 307 Copyright © 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT ($38,000 + $42,000)/2

x 365 = 40 days

--------------------$358,000 + $7,000

Example Manufacturing Company Inc. Pro Forma Balance Sheet As of December 31,

2007

Assets Current Assets 1. Cash

$

4,000

2. Marketable Securities

10,000

3. Accounts Receivable

52,000

4. Inventories 5. Prepaid Expenses 6. Total Current Assets

7. Plant, Property, and Equipment 8. Less Accumulated Depreciation 9. Net PPE 10. Investments

196,000 2,000 265,000

1,242,000 508,000 734,000 333,000

11. Other Assets

21,000

12. Total Assets

1,352,000

Liabilities Current Liabilities 13. Accounts Payable 14. Notes Payable

48,000 100,000

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15. Total Current Liabilities

16. Long-Term Debt

148,000

0

17. Deferred Tax Liability 18. Total Liabilities

96,000 244,000

Capital 19. Common Stock

367,000

20. Retained Earnings

639,000

21. New Cash Needs or (excess Cash) 22. Total Liabilities

Notes:

and Capital

103,000 1,352,000

1. Capital Expenditures are estimated to be $175,000 for 2007.

Example Manufacturing Company Inc. Pro Forma Profit and Loss Statement Year Ended December 31,

a. Net Sales b. Cost of Goods Sold c. Gross Profit

2007

$792,000 448,000 344,000

d. Selling and Administrative Expenses

27,000

e. Lease Payments

17,000

f. Depreciation

58,000

g. Repairs and Maintenance

21,000

h. Operating Profit

221,000

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April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT

Other Income (Expense) i. Interest Income

2,000

j. Interest Expense

0

k. Earnings Before Income Taxes

223,000

l. Income Taxes m. Net Earnings

Notes:

76,000 147,000

1. Capital Expenditures in 2005 were $1,000,000. 2. Equipment sold in 2005 for $550,000.

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April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT

D&B Rating Interpretation Table The US 5A to HH ratings reflect company size based on net worth or equity as computed by D&B. These ratings are assigned to businesses that have supplied D&B with current financial information. The 1R and 2R ratings categories reflect company size based on the total number of employees for the business. They are assigned to business files that do not contain a current financial statement. For 5A to HH Ratings, the Composite Credit Appraisal is a number between 1 and 4 that makes up the second half of the company's Rating and reflects an overall assessment of creditworthiness. D&B’s creditworthiness assessment is based on both payments and financial stability. In 1R and 2R Ratings, the 2, 3, or 4 creditworthiness indicator is based on analysis by D&B of public filings, trade payments, business age and other important factors. 2 is the highest Composite Credit Appraisal a company not supplying D&B with current financial information can receive. Financial Strength Rating

US$

Composite Credit Appraisal High

Good

Fair

Limited

5A

50,000,000 and over

1

2

3

4

4A

10,000,000 to 49,999,999

1

2

3

4

3A

1,000,000 to 9,999,999

1

2

3

4

2A

750,000 to 999,999

1

2

3

4

1A

500,000 to 749,999

1

2

3

4

BA

300,000 to 499,999

1

2

3

4

BB

200,000 to 299,999

1

2

3

4

CB

125,000 to 199,999

1

2

3

4

CC

75,000 to 124,999

1

2

3

4

DC

50,000 to 74,999

1

2

3

4

DD

35,000 to 49,999

1

2

3

4

EE

20,000 to 34,999

1

2

3

4

FF

10,000 to 19,999

1

2

3

4

GG

5,000 to 9,999

1

2

3

4

HH

Up to 4,999

1

2

3

4

Rating Classification Rating

Number of Employees

1R 2R

Composite Credit Appraisal High

Good

Fair

Limited

10 employees and over

2

3

4

1 to 9

2

3

4

Alternative Ratings Used INV

Indicates that D&B is currently conducting an investigation to gather information for a new report.

DS

Indicates that the information available does not permit D&B to classify the company within our

311 Copyright © 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT rating key.

-- (blank)

The blank symbol should not be interpreted as indicating that credit should be denied. It simply means that the information available to D&B does not permit us to classify the company within our rating key and that further enquiry should be made before reaching a decision. Some reasons for using a "-" symbol include: deficit net worth, bankruptcy proceedings, lack of insufficient payment information, or incomplete history information.

ER

Certain lines of business, primarily banks, insurance companies and government entities do not lend themselves to classification under the D&B Rating system. Instead, we assign these types of businesses an Employee range symbol based on the number of people employed. No other significance should be attached to this symbol. ERN should not be interpreted negatively. It simply means we do not have information indicating how many people are employed at this firm.

NQ

Not Quoted. This is generally assigned when a business has been confirmed as no longer active at the location, or when D & B is unable to confirm active operations. It may also appear on some branch reports, when the branch is located in the same city as the headquarters.

US Emplo yee Range Designation ER1

1000 or more employees

ER2

500 to 999 employees

ER3

100 to 499 employees

ER4

50 to 99 employees

ER5

20 to 49 employees

ER6

10 to 19 employees

ER7

5 to 9 employees

ER8

1 to 4 employees

ERN

Not Available

D&B Score Interpretation Table D&B Score Interpretation Table D&B PAYDEX Score

Payment Habit

100

Anticipate

90

Discount

80

Prompt

70

15 days beyond terms

60

22 days beyond terms

50

30 days beyond terms

40

60 days beyond terms

30

90 days beyond terms

20

120 days beyond terms

UN

Unavailable

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April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT

D&B PAYDEX Value Table PAYDEX Value Chart

PAYDEX

Average Days to Pay

100

30 days sooner than terms

99

29 days sooner than terms

98

28 days sooner than terms

97

27 days sooner than terms

96

26 days sooner than terms

95

25 days sooner than terms

94

24 days sooner than terms

93

23 days sooner than terms

92

22 days sooner than terms

91

21 days sooner than terms

90

20 days sooner than terms

89

18 days sooner than terms

88

16 days sooner than terms

87

14 days sooner than terms

86

12 days sooner than terms

85

10 days sooner than terms

84

8 days sooner than terms

83

6 days sooner than terms

82

4 days sooner than terms

81

2 days sooner than terms

80

ON TERMS

79

2 days beyond terms

78

3 days beyond terms

77

5 days beyond terms

76

6 days beyond terms

75

8 days beyond terms

74

9 days beyond terms

73

11 days beyond terms

72

12 days beyond terms

71

14 days beyond terms

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April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT

70

15 days beyond terms

69

16 days beyond terms

68

17 days beyond terms

67

18 days beyond terms

66

19 days beyond terms

65

19 days beyond terms

64

19 days beyond terms

63

20 days beyond terms

62

21 days beyond terms

61

22 days beyond terms

60

22 days beyond terms

59

23 days beyond terms

58

24 days beyond terms

57

25 days beyond terms

56

26 days beyond terms

55

26 days beyond terms

54

27 days beyond terms

53

28 days beyond terms

52

29 days beyond terms

51

29 days beyond terms

50

30 days beyond terms

49

33 days beyond terms

48

36 days beyond terms

47

39 days beyond terms

46

42 days beyond terms

45

45 days beyond terms

44

48 days beyond terms

43

51 days beyond terms

42

54 days beyond terms

41

57 days beyond terms

40

60 days beyond terms

39

63 days beyond terms

38

66 days beyond terms

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37

69 days beyond terms

36

72 days beyond terms

35

75 days beyond terms

34

78 days beyond terms

33

81 days beyond terms

32

84 days beyond terms

31

87 days beyond terms

30

90 days beyond terms

29

93 days beyond terms

28

96 days beyond terms

27

99 days beyond terms

26

102 days beyond terms

25

105 days beyond terms

24

108 days beyond terms

23

111 days beyond terms

22

114 days beyond terms

21

117 days beyond terms

20

120 days beyond terms

1 to 19

Over 120 days beyond terms

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April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT

Financial Stress Score The Financial Stress model predicts the likelihood of a firm ceasing business without paying all creditors in full, or reorganizing or obtaining relief from creditors under state/federal law over the next twelve months. Scores were calculated using a statistically valid model derived from D&B's extensive data files.

Financial Stress Score Financial Stress Class

Financial Stress Score Range

Percentile Score Range

Incidence of Financial Stress

1

1377-1875

21-100

0.49%

2

1353-1376

11-20

1.37%

3

1303-1352

5-10

3.73%

4

1225-1302

2-4

8.30%

5

1001-1224

1

35.80%

"0" generally denotes indication of open bankruptcy or out of business at the location. "0"may also denote higher risk situations.

The Incidence of Financial Stress -National Average for all firms in the United States in D&B's file is 1.4%. The Incidence of Financial Stress shows the percentage of firms in a given Class that discontinued operations over the past year with loss to creditors. The Incidence of Financial Stress-National Average represents the national failure rate and is provided for comparative purposes. All Financial Stress Class, Percentile, Score and Incidence statistics are based on 2001.

316 Copyright © 2008 Reginald Ringgold

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Commercial Credit Score The US Commercial Credit Score predicts the likelihood of a firm paying in a delinquent manner (90 + days past terms) during the next 12 months, based on the information in D&B's file. The score was calculated using statistically valid models derived from D&B's extensive data files.

Commercial Credit Score Commercial Credit Score

Credit Score Percentile

Credit Score Class

Incidence of Delinquency

536-670

91-100

1

2.5%

493-535

71-90

2

4.8%

423-492

31-70

3

12.9%

376-422

11-30

4

24.2%

101-375

1-10

5

58.8%

"0" generally denotes indication of open bankruptcy or out of business at the location. "0"may also denote higher risk situations. Incidence of Delinquent Pa yment Assignment Table Minimum Score

Maximum Score

Incidence of Delinquent Payment

96

100

2.1%

91

95

2.9%

86

90

3.6%

81

85

4.4%

76

80

5.2%

71

75

6.1%

66

70

7.3%

61

65

8.7%

56

60

10.5%

51

55

12.2%

46

50

13.9%

41

45

15.5%

36

40

17.2%

31

35

18.4%

26

30

20.2%

21

25

22.5%

16

20

24.6%

11

15

29.6%

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10

44.9%

1

5

72.7%

The Incidence of Delinquent Payment for all firms in the United States in D&B's file is 17.3%. The Incidence of Delinquent Payment shows the percentage of firms in a given percentile range that paid in a delinquent manner (90 + days past terms) over the past year. The Incidence of Delinquent Payment among all firms in D&B's files represents the national delinquency rate and is provided for comparative purposes. All Commercial Credit Class, Percentile, Score and Incidence statistics are based on 2001.

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Vendor List

Obtaining credit for any business starts with having companies that will extend credit. That's the Catch 22. It is difficult to obtain credit when you don't have any. The Vendor resource is growing daily and will help you find the 3-5 vendors needed to report your credit-worthiness monthly.

Vendor? Personal guarantee required? Paydex required? Terms/ Required?

Report to D & B? Report to Experian? Trade Reference? Contact? Vendor? Personal guarantee required? Paydex required? Terms/ Required?

Report to D & B? Report to Experian? Trade Reference? Contact?

Viking Office Products No No $300-500 beginning credit line, Duns number needed. Verify Address. Yes Yes No 800-421-1222 Quill No No Net-30 terms, Duns # check and 1-3 trade references, in business for 6 months Yes, Monthly Yes, Monthly No 800-634-0321

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April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT Vendor? Personal guarantee required? Paydex required? Terms/ Required? Report to D & B? Report to Experian? Trade Reference? Contact? Vendor? Personal guarantee required? Paydex required? Terms/ Required? Report to D & B? Report to Experian? Trade Reference? Contact? Vendor? Personal guarantee required? Paydex required? Terms/ Required? Report to D & B? Report to Experian? Trade Reference? Contact? Vendor? Personal guarantee required? Paydex required? Terms/ Required? Report to D & B? Report to Experian? Trade Reference? Contact?

ULINE Office & Shipping Supplies No No Net-30 terms, Duns # check and 1-2 trade references Yes No No 800-958-5463 Accurate No No Net 30, revolving account, 3 trades and 1 bank trade. Call to have application faxed

Yes No No 800-325-2551

Five Point capital Yes Yes Paydex score of 65+, 2 yrs in business, apply online

Yes Yes Yes 888-576-4685 System-Direct No No No Terms, but reports on transactions. no Yes Yes http://systemdirect.vstoreoffice.com/

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Vendor? Personal guarantee required? Paydex required? Terms/ Required? Report to D & B? Report to Experian? Trade Reference? Contact? Vendor? Personal guarantee required? Paydex required? Terms/ Required? Report to D & B? Report to Experian? Trade Reference? Contact? Vendor? Personal guarantee required? Paydex required? Terms/ Required? Report to D & B? Report to Experian? Trade Reference? Contact? Vendor? Personal guarantee required? Paydex required? Terms/ Required? Report to D & B? Report to Experian? Trade Reference? Contact?

Kinko's No No Corporate Account/Duns & Address Check Yes, Negatives Yes No www.Kinkos.com WebPrinted No No $100 Deposit for Company Design & Set-up Yes Yes Yes www.WebPrinted.com Marketing World No No 20% Down for various Business & web marketing packages Yes Yes Yes Contact Stan Lewis [email protected] McWeb Internet, E-commerce and turnkey web design No No Custom and Package Designs for $500-$2000/ 25% Down/ No Trade Checks to start job Yes, Mnthly Yes Yes E-Mail, Rob McGee [email protected]

321 Copyright © 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT Vendor? Personal guarantee required? Paydex required? Terms/ Required? Report to D & B? Report to Experian? Trade Reference? Contact?

Trans Promote Products, company apparel & promotional products No No Net 10 Terms, 2 trades Yes Yes Yes E-mail Mark Thomas [email protected]

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Retail Credit After you have established a Paydex score (usually within 60-90 days or sooner of 3-5 vendors submitting good reports) choose 2-3 retail cards to continue building your credit file. The following retailers offer corporate accounts with different terms. Be sure to apply in the company name, utilize vendor references, and ask to apply for a business account, not personal. . Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone?

Name? Personal guarantee Required? Paydex required? Required?

Chevron Yes No At least 2 yrs in business, DNB check revolving acct – net 30, apply online Yes Yes 888-243-8358 Best Buy No Yes Paydex score of 65+, 2 yrs in business, apply online Yes No 800-811-7276 Staples No No Revolving acct, net 30 Yes Yes 800-669-5285

Sears No No 2 yrs in business or personal guarantee, revolving acct, net 30, call to get app faxed

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April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone?

No Yes 800-917-7700 Texaco No No Need some credit history or personal guarantee, apply online Yes Yes 800-839-2267 Radio Shack No No Revolving Acct, net 30 Yes Yes 888-773-2435 Conoco, Inc No No Net 30-full balance, apply online, located in 23 states, ask for locations Yes Yes 800-764-9500 Diners Club Yes No Corp accts (min. 5 cards) 3 yrs in business, $200,000 net worth, each card holder gives personal guarantee, call to apply Yes, only collections No 800-234-6377

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April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required?

Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Personal guarantee exceptions? Phone? Name? Personal guarantee Required? Paydex required? Required?

Exxon Fuel Yes No Net 30-full balance, 1 year secured or 3 yrs in business, apply online No Yes 800-438-3996 Grainger.com No No Net 30-full balance. $1000 min. credit limit, business license needed along with 1 bank trade and 2-3 trades Yes No 310-327-7370 Orchard Supply Hardware No No Net 30, 3 trades w/at least 3 months activity and 1 bank trade-if not incorporated, personal info and guarantee is required, call to get app faxed No No 408-281-3500 Union 76 Gas Card No No 2-3 trade references, 1 bank reference, duns check done on large businesses Yes, only collections No None 800-944-7676 Fry’s Electronics No No 3 trades, 1 bank trade, net 30-full balance.

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Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone?

Must submit financials and balance sheet before approval No No 714-688-3000 Kinkos No No Revolving acct, net 30, apply online, will check Duns Number & verify Business address Yes, only when requested by D & B No 800-488-3705 Lowes No No Revolving acct, net 30, 3 yrs in business or personal guarantee Yes No 800-445-6937 Wright Express Fleet Card Yes, if corp. is under three yrs old Yes Some credit history, 3 yrs in business, net 26, full balance Yes No 800-395-0812 Office Max No No Must have some credit history, apply online Yes, pymt has to be made after invoice is received Yes 877-633-4236

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April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required?

Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone? Name? Personal guarantee Required? Paydex required? Required? Report to D & B? Report to Experian? Phone?

Office Depot No No Revolving acct, net 30, must be incorporated, or more than $1mm revenue, print online & fax in Yes, last Saturday of every month Yes 800-729-7744 Home Depot No No 2MM annual sales or more than 10 employees, or Paydex 65+, or 2 years in business, no SS# is required, apply online, revolving act, net 30 Only negative accounts Yes 800-685-6691 Neiman Marcus Yes No Must be in business 2 yrs and signer on acct gives personal guarantee, call to have app mailed No Yes 800-685-6695 Mobil Gas Yes No Net 30-full balance, 1 year secured acct or 3 yrs in business, apply online Yes Yes 877-959-1007

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Corporate Credit Cards Issuer ADVANTA FINANCIAL AMALGAMATED BANK OF CHI AMERICAN EXPRESS AMSOUTH BANK ASSOCIATED BANK ASSOCIATED CAPITAL BANK ASSOCIATED NATIONAL BANK AT&T UNIVERSIAL CARD BANK OF AMERICA BANK ONE N.A. BANK BOSTON BAY BANK CALIFORNIA BANK & TRUST CAPITAL ONE CENTRAL CAROLINA BANK CHASE MANHATTAN BANK N.A. CITI BANK N.A. CITIZEN’S BANK CITIZEN’S COMMERCIAL BANK COLONIAL NATIONAL BANK COLUMBUS BANK & TRUST COMMERCE BANK COMPASS BANK DISCOVER CARD ELAN FINANCIAL SERVICES FCC NATIONAL BANK THE FIFTH THIRD BANK FIRST BANK, N.A. FIRST CARD FIRST CITIZEN’S BANK FIRST INTERSTATE BANCORP FIRST MERIT CORP

Phone 800-705-7255 800-723-0303 800-THE CARD 800-365-5700 800-472-7708 877-462-8802 800-233-1343 800-423-4343 800-243-7762 800-945-2000 800-252-2273 800-229-3278 800-356-4536 800-955-7070 800-422-2226 800-882-0991 800-456-4277 800-438-9222 800-288-2484 800-570-6400 800-282-1205 800-645-2103 800-239-5175 800-347-2683 800-644-3526 800-888-5649 800-972-3030 888-467-2217 312-732-4000 800-763-0356 800-955-5050 800-572-6039 328

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April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT

Issuer FIRST NATIONAL BANK FIRST NEW HAMPSHIRE BANK FIRST TENNESSEE BANK FIRST UNION NATIONAL BANK FIRST USA BANK FIRST VIRGINA BANK FULTON BANK GE PRODUCTIVITY BIZ CARD HSBC BANK USA HUNTING NATIONAL BANK INTRUST BANK KEY BANK, N.A. M&T BANK, N.A. MBNA AMERICA BANK, N.A. MELLON BANK (DE) N.A. MERCANTILE BANK MIDWEST EXPRESS NATIONAL CITY BANK NATIONS BANK OF DELAWARE NORWEST BANK PACIFIC CENTURY BANK OF CHI. PEOPLE’S BANK OF BRIDGE PORT PNC NATIONAL BANK ROCKY MOUTIAN BANKCARD SIMMIONS FIRST NATIONAL BNK SOUTHTRUST BANK SUNTRUST BANK SUNWEST BANK SYNOVUS BUSINESS VISA TRAVELERS BANK USA UNITED NATIONAL BANK U.S. BANK NATIONAL ASSN WACHOVIA BANK

Phone 800-688-7070 800-852-3719 800-234-2840 800-704-0883 800-955-3050 800-421-2110 800-322-2595 800-562-8973 800-975-4722 800-237-7400 800-999-4048 800-444-4539 800-724-3222 800-545-7899 800-753-7011 800-755-4070 800-320-2282 800-622-6736 800-373-3368 800-247-8101 602-257-4440 800-426-1114 800-762-2273 800-933-4433 800-636-5151 800-292-6538 800-432-4932 800-233-3722 800-543-8227 800-772-7775 800-223-1123 800-445-9934 800-263-0988 329

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Issuer WELLS FARGO BANK WEST AMERICA BANK WHITNEY BANK ZIONS BANCORP

Phone 800-642-4720 800-955-9900 800-343-7272 800-789-5626

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Funding Sources Venture Capitalist, Angel Investors & IPO Firms Here is a list of few Venture Capitalist directory websites: www.corporatecreditassociation.com www.vfinance.com www.Venturechoice.com www.vcaonline.com www.gpmn.com www.businessfinance.com www.cloudstart.com www.ustyleit.com/Venture_Capital_Directory http://dmoz.org/Business/Financial_Services/Venture_Capital/ www.moneycenter.com www.nvca.org/members.html www.vclocater.com www.thedirectoriescompany.com/venturecapital.html www.abcsmallbiz.com/reference/vcd/index.html www.businessplanposting.com/vcfhome.php www.private-equity.org.uk/pe-firms/pa.cfm www.boogar.com/resources/venturecapital/index.htm www.mycapital.com www.gobig.com

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Notes

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333 Copyright © 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT

334 Copyright © 2008 Reginald Ringgold

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335 Copyright © 2008 Reginald Ringgold

April 1, 2007 THE BILLIONAIRE’S BUSINESS BLUEPRINT

C o p y r i g h t © 2 0 08 R e g i n a l d Ri n gg o l d A L L RI G H T S RE S E R VE D

336 Copyright © 2008 Reginald Ringgold