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May 15, 2018

Building a Wall of Business Credit — Borrowing Has Benefits

By Josh Fiorini

Grandpa may have taught you never to borrow money, but in today’s business world, having established credit has numerous benefits.

It may not seem on the surface that walls and business credit have much in common, but there is one important characteristic both things share — you have to build them before you need them.

Access to capital can be one of the biggest challenges for a small business in any industry. That challenge is only being made harder for small businesses in the firearms industry today, due to the pandering, anti-firearms stance that is rapidly spreading among the banking oligarchy.

It wasn’t so long ago that the banking world’s antipathy towards the firearms industry was government-engendered via Operation Choke Point. Today, the institutional prejudice seems to be spreading voluntarily, which may have further reaching implications, including creating a greater need than ever for business owners in all aspects of the firearms industry to understand the dynamics of business credit.

Be Able to Borrow, Even if You Don’t

Many readers may come from an “old school” upbringing like myself and are predisposed to eschew borrowing. “Granddad built his business with blood, sweat and tears, and so will I — not with other people’s money!” This is a healthy attitude in many cases, but the reality is that access to credit provides flexibility and versatility, and those things are essential to growing a small business.

What is credit at its core and why is it important to a business? There are many definitions of credit, but the more esoteric version directly underlies the financial one, and that reads, “reliance on the truth or reality of something.” For a business, that means reliance on your good faith and your willingness and ability to pay. It is about trust, and trust takes time to build.

The Price of Money

Banks charge interest to lend money, as does any lender. The interest rate that one pays is the “price of money” and is based on many factors, mostly trust, so for a new business partner, that trust must be earned or supported. For a new or small business, the price of money — that interest rate offered to them — can be horrifyingly high and potentially prohibitive. Even if it wasn’t, lenders will typically require personal guarantees from the owners, officers or directors of a business in order to lend, a situation that can get messy. And what about Granddad? He wouldn’t have paid someone interest just to use their money, because he couldn’t be patient!

I just listed three potentially valid reasons to avoid borrowing from banks or other lenders on a regular basis: The price of money, personal guarantees and the need for patience. But what about when you need to expand your operations to meet a surge in demand? What happens when you need extra capital to make it through a cyclical slump? The firearms industry is nothing if not cyclical, so those circumstances occur more often than anyone would admit.

You Don’t Have to Use It

Building business credit can and will take time, as well as diligence. It is a process of building trust, and that is done by dutifully managing the risk that others have taken to extend credit to you in its various forms. Remember, too, that well-established credit can serve as a wall — a wall between your business and failure in poor circumstances, and a wall that can serve as a stepping stone to bigger things in advantageous ones.

In light of that, having established credit to rely on when necessary is an unquestionably good thing, even if you never use it. The good news is that you can work toward establishing that credit by taking simple steps in your day-to-day business that will not only build your business credit, but provide flexibility in managing your cash flow and increase your purchasing power, all without a dime of interest charges. (Granddad would be proud!). Next up, I’ll cover how to do just that in Part II of this article, “Building a Wall of Business Credit — Three Paths to Improvement.”

About the Author
Josh Fiorini is the former CEO of PTR Industries, Inc., and spent the first decade of his career in finance holding positions as an equity analyst and portfolio manager before starting his own hedge fund that led him to the firearms industry. This experience, along with a deep background in manufacturing, banking and private equity has made him a sought-after contributor on numerous boards and discussion groups on political and economic issues. Currently, Fiorini invests his time and resources into non-profit initiatives and acts as a contributor and management consultant to various firms in the firearms industry. His activities have been reported in such publications as The Wall Street Journal, The New York Times and USA Today.

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