1. Determine Your Stated Business Purpose

Hello, and welcome to this module, determining your business stated purpose. Now, this is really important because this typically trips people up or disqualifies them from obtaining funding or significantly reduces the amount of funding that they receives. So here is what we’re going to cover. So the first thing I’m gonna get into was is why it’s so important for you to determine your state of business purpose. Very similar to when I was saying, choosing your corporate name, that’s why I say, keep it generic for a number of reasons. I’m going to get into the specifics as to why we do it here. And then for actual industry classification perspective, we need to notify the credit bureaus of this on the front end as well. And we don’t want to cause a red flag unnecessarily. I’m going to cover SIC and NAIC codes, really the history of them and how they come into a play with this particular scenario and really how to keep it really simple here.

The restricted/less, less funded industries. I have a list of these, I provided this list before, but I’m gonna cover this list one more time. I’m gonna actually pull it up and go through it in detail, and then the preferred company activity description. So I’m going to end with the preferred company activity description, and I’m going to strongly encourage you to follow my leadership on this. And don’t disagree. Don’t not listen to this. So, let me go and hop in. So why is it, why is it important to determine our business state of purpose? So the first thing is, is that building corporate credit when done the right way, and you want to make sure you’re doing this with the intent of doing something that you love to do and you care to do, but also at the end of the day, you want to be able to get as much funding as possible.

So we’re going to go through a lot of steps and you’ve already gone through a lot of steps. So we want to make sure that as we’re going through these steps, that we’re not doing it for no specific purpose. Also, a service-based business is, typically is harder for lender to know exactly how large a company is. So we generally kind of sway over to the service-based business compared to being a product manufacturer. So the service-based business is going to be one of those businesses that generally speaking have higher profit margins, don’t have as much low profit margins. And that’s why they industry gets a lot more corporate credit even if it’s a business that’s product-based, it’s good idea to have some type of service related around that particular company or business. So that’s why consulting services, all those types of businesses generally speaking are higher lenders. Now, many people kind of go wrong because they may have a specific business in mind. Like for example, they may want to do rental luxury cars, or they may want to do CD sales or the, I mean, CMS what does that weed stuff, whatever that marijuana stuff is, or they may want to do real estate, like I’ve covered this or insurance or credit or whatever they may want to do that. Right? Even now nowadays people ask me what my business is. I say I’m a digital financial education company. And if they engrossed, what does that mean? E-commerce right. Most people know what e-commerce is. E-commerce retail, right? And the reason why is because, and I just tell people I sell products online, but the reason why I do this is because it keeps it generic, especially when I’m going to get funding from the banks.

And we want to make sure that this information is on our credit profile. Because even when we incorporate that on our credit report, that’s going to let Dun & Bradstreet and the other bureaus know what this this industry is or what this business is. And it’s really, really important that you’re flexible with your official, your official company description. And you don’t want to be specific because the more specific you make it, you put yourself in a box. We want to avoid a box. Again, you do not do not say you do real estate. Do not say you do credit repair. Do not say you do any of these things, especially if you’re trying to get funding, don’t say that you do any type of anything in that. Now, if it’s a service for example, and I’ll get into the restricted industries, if it’s a service like ironically, hair salons, barbers service-based businesses, because the profit margins are higher, generally get higher limits, so to speak, cause there’s a cashflow type of business.

But essentially what I’m saying is, is keep it generic. Okay. So there’s something called SIC and NAIC codes. And essentially back in the 1930s, the federal government developed a standard industrial classification that’s what SIC code means system to define and analyze business industries. SIC or the four “Base 4” is a four digit code that is used for market planning and development, customer and economic analysis, sales prospecting, and forecasting acquisition analysis, and more. It’s also used by business credit bureaus in lending institutions. That’s the only reason why I read that definition. So it’s used by the most important people, we need credit bureaus and lending institutions. That being said, what happened was in 1986, Dun and Bradstreet, one of the main credit bureaus you’ll be building with, improve the system by adding four additional digits to the code.

Their first four digits are known as the base or base four. And the the four D&B digits are known as the “extension 4”. Base 4s are assigned to the company for each activity that constitutes at least 10% of gross revenue, or if under 10% could stand by itself in a separate business. Dun and Bradstreet reports up to six Base 4s per report in descending order of dollar amount volume, unless management alters the order of importance up to the Extension 4s are then added to each Base 4 by D&B. Now really all this simply means is we have to keep our Base 4 in our SIC codes, or NAIC codes, simple. There’s no need to start going into the weeds about all this stuff when we’re trying to get funding, initially. We just created a brand new business entity. We want to get as much funding as possible.

And even if you decide to use those funds, which you’ve obtained them to go do real estate investing, then that’s a totally different story, but I’d rather you get the money, first. Now, this was replaced the SIC code was replaced in by the North American Industry Classification System in 1997, but several government agencies and bureau still use SIC-based data, both SIC and NAICS, classify establishments by their primary type of activity. Okay. So to obtain a SIC code for your company, use OSHA’s SIC system and into the best key word to describe that industry. So right below this video, I’m going to include the SIC industry classification look up. And again, you can nerd yourself out on this, just do what I suggest. And then, if you want to, this is like the website here that shows how to do, there’s a screenshot.

And then for the NAIC code, I’m going to include this link as well. The North American industrial class industry classification system, and then certain industries have SIC/NAIC codes that make it harder to obtain funding. Okay. For example, and then this I’m including on the PowerPoint, just to reiterate even real estate businesses with excellent credit, probably won’t get as much credit, industries like collection NDCs, telemarketing organizations, loan modification, personal credit repair, and even some restaurants will have a hard time securing funding just because of their industry type. Okay. I’m not saying that you’re a bad real estate person or you’re bad collection agency or any type of these or these businesses. However, historically these businesses have taken advantage of some consumers or have mismanaged or misappropriated funds from the banks perspective. So they don’t want to lend to them. That being said, there’s no need to say that we do those activities.

Okay. So, I’m going to go ahead and go over some of these restricted industries, just so I can make this clear. And then we’ll come back over to the preferred list of industries. So when you’re looking at this particular module right below this video, you’ll see the restricted industries list. This is where I’m getting this from. And then you have those two things. I was just breaking now. So the restricted industries list kind of beef this up a little bit, anything in financial services, we want to kind of avoid so many of you will not be starting a bank credit union or lenders, but non-bank finance companies, money-based services, money services, bail bonding, factoring or purchasing financing. All of these are, even tax preparation services, which is ironic, lessors of real estate, leasers of real estate and property managers, credit protection repair collection agencies.

It doesn’t mean you can’t get funding in these industries, is just that investment opportunities and advice, securities and commodities insurance related activities, real estate brokers, and agencies is just that these codes, you know, financial services in general, is a higher risk activity. Okay? Because typically when you’re in these industries, you’re getting some type of piece of a commission and you’re not necessarily creating real revenue, even though you can create massive amounts of money, you still are a middleman in that transaction typically. So we want to avoid those then the other industry miscellaneous, so religious, governments, online auctions, historical sites, funeral services, which kind of doesn’t make sense, but again, vehicle manufacturing, printing, construction, energy distribution, vitamin retailers, and some scenarios, media publishing and production, telephone carriers, and resellers. So really the resellers, video rental, schools and daycares, farming, blood & organ banks, sports &performing arts venues.

Okay. Again, we want to avoid using these and then one more to kind of bring it all home. Vehicle sells new and use. So anything to deal with automobiles, RVs, trailers, motorcycles, boat dealers, manufactured homes, mobile home dealers, ATV, Snowmobile dealers, outdoor power equipment, logistics, freight forwarding, non-truck based freight, passenger transportation, marinas, travel agencies, tour operators, museums, and zoos. You can have an 850 credit score. It doesn’t mean you can’t get funded. But what I’m saying to be clear is, do not use any of these names or be in any of these industries or put any of these industries on your credit profile, because we want to keep it specific. We want to keep it generic. And then also from a high level perspective, as a business owner, you really at the end of the day, when it keep it, you know, you might be, well, let me say this.

Well, you may just create a holding company and your holding company may just be the company where all the revenue goes, and you may have a separate company that engages in the activity and the revenue flows to the holding company. Keep it simple. We’re really building for the holding company. So that way we can really view this as a, Hey look is just a generic company. Then as your holding company, I am just providing these type of services, which I’m going to cover really quickly next. Alright. But I hope this makes perfect sense. Now, the preferred company activity description, I would suggest that you take is lenders are most likely or more likely to lend to a company that provides business management services than one that sells products. It doesn’t mean that you can’t sell products. But what I’m saying is business management is a preferred company description for three primary reasons.

Number one, business management is broad enough to encompass anything you want to do with your company. And so that’s what I’m saying. If you have a holding company, you can say that’s a business management holding company. Okay? So it’s technically holding the assets of another company or whatever the case is. However you want to say it. Then business management is a reliable business space for lenders to consider, and then last but not least business management is a justifiable candidate to report credit and or other business down the road, giving lines of credit to clients, which can be a business onto itself. Okay. So essentially what I’m saying is this business that you’re creating can give your other business lines of credit, which you can also create another business. So you get the point. So my suggestion here is you just keep it real specific. I mean, you keep it real generic and you keep your stated purpose around business management or service-based, because we want to make sure our credit, our company can get credit optimize.

And this is the very first step and the credit optimization section. So we’re going over here and we’re going back over to this particular deal and we’ll click on up NAIC codes so to speak. I kept mine as generic and to say any business purpose, well, we’ve had to say business management, management, and we just hit go. And I’m probably spelling management incorrectly, business management search for business management. So again, we can see construction, manufacturing, and we just really want to keep it really retail, we could do internet sells only. That will be a good one to do. I would just stick with the, from my storefront without, I would just say retail – internet sales only. And let me go back over here, next structure utilities. And you can kind of start to see the different codes here with the sectors, right?

So stay away from finance and insurance. I mean, I think that’s pretty clear, but again, management and management companies and enterprises, this is really what we want to stay in this particular 55, right. We want to stay in here, management enterprises, that kind of thing, management companies and enterprises right there. This is pretty, pretty, pretty simple here. So I’m not gonna go in the weeds, but essentially just say that you are business management, right? That’s really the point I’m trying to make the business management is a preferred company activity. Okay. So choose this and I will see you in the next module. And, we’ll be good to go.