Our guest blogger, Larry Chiang, is an instructive humorist. If you liked 9 VC’s You’re Gonna Want To Avoid, you’ll like this submission on some all-important credit management for entrepreneurs. We’re co-sponsoring Larry’s secret event Aug 28 to activate your new knowledge and his “What They Don’t Teach You at Stanford Business School” and at Blog World
by Larry Chiang
Creative Founder Financing
Entrepreneurship is about going to hell and living to tell about it. What really goes south is your credit score. Remember, there’s a right way and a wrong way to do EVERYTHING, so lets mess up our credit and maximize how we monetize our high FICO score.
Note, this is not for European people or foreign people fresh into the USA. Ideally it is for a fresh college grad with a FICO score over 750 looking to start a business.
All of these tips are for entertaiment purposes only. I recommend consulting professional help before executing on an idea.
-1- Try to default on a second mortgage to the tune of about $30-75k. Remember, we can’t get kicked out of our home if our 1st mortgage is in good shape. Defaulting on the second mortgage results in a lien.
-2- We never never never charge-off for under $2,000. A ‘charge-off’ is when the bank recognizes you as a dead-beat and gives up trying to collect on a bill. Normal consumers (non entrepreneurs) get a “9″ for charging off $200
-3- Be your own collection agency. Lets say you owe $55k on a piece of equipment your company desperately need to buy and resell. The revenue from selling it got channeled into meeting payroll so you are left with the expense secured and guaranteed with your name. The solution: be your own grim reaper and negotiate to collect on your own bad debt.
Collection agencies offer 20-35c on the owed dollar. If you are collecting your own debt, ofer up 55-58c. It is hard to refuse.
-4- Kill them with kindness. Collectors are used to being treat inhumanely. Kill them with kindness by offering 55-58c but in a payment plan with no interest. Something in the $150-200/month range. It kills me cuz using time value of money, that 55-58c just became 30-45c based on time value of money because you’re not paying additional interest.
Pay no money to a collector unless you
-a- have a written contract from the orinating creditor you owe. As entrepreneurs we do not honor the transitive property of debt collection because we only deal with the originating party
-b- are negotiating with the originating creditor in the loop.
-5- Monetize your FICO. You can only monetize your FICO if you have a high credit score. Duck9 can help you graduate a four-year college with a FICO over 750. The national average is 585. As a rule of thumb, we as entrepreneurs will only take a 50 point FICO hit for $20,000++.
-6- Organize in a manilla folder every debt. Track every debt and plan for a way to pay it off.
-7- Borrow against a receivable. Your company has sales right?! Well for every thousand dollars in sales, you can borrow against it by offering the receivable to a bank to secure a loan.
-8- Let them chase bad money with good. There are going to be deals in business that go wayward in some faraway state that you can not collect on nor want to try. Other people chase bad money (money not likely to pay cuz the name is mixed and they operate between here and Asia) with good money (good money is your cold hard cash getting sent to an attorney). Genius is know the difference.
-9- Get some revenue by saving you customers some money. Once you can show savings, have your customers pre-pay a portion of those savings UPFRONT.
Good luck out there.
Larry Chiang is the founder of duck9 , which educates college students on how to establish and maintain a FICO score over 750. He is a frequent contributor to GigaOm’s Found| Read . His earlier posts include: How to Work The Room ; 8 Tips On How to Get Mentored ; and 9 VCs You’re Gonna Want To Avoid . You can read more equally funny, but non-founder-focused-lessons on Larry’s Amazon blog .