Nathalia Giroldo knows firsthand the struggles of small business owners. Growing up in Colombia, she witnessed her mother struggling to support the family by running a consignment shop. Giroldo earned her own spending money by selling candy at school. So when she advises small businesses on how to manage their credit, she speaks from experience as well as her extensive education.
For a business owner, or even for an individual, few things in the financial world are more important than maintaining good credit, Giroldo says. With good credit comes access to capital, such as bank loans. Having bad credit blocks access to capital and is a sure way to doom a business. “We are in a capitalist country,” Giroldo says. “Capital is what runs the everyday economy.”
Giroldo, who is the director of financial education for the Regional Business Assistance Corporation, will present a free program on credit management for individuals and small business owners at the RBAC on Wednesday, April 29, at 6 p.m. at the organization’s headquarters at 3111 Quakerbridge Road in Mercerville. For more information, visit www.rbacloan.com, call 609-587-1133 or E-Mail firstname.lastname@example.org.
“The most important thing that we want people to take away from this seminar is an understanding of how to keep their accounts intact in order to have not only a good credit score, but access to capital in the future,” Giroldo says.
Giroldo moved to Elizabeth with her family when she was 16. “The main reason we came to the U.S. was because my mom didn’t have the money to pay for college,” she says. “We decided to come here in order to allow us to have a higher education.” She graduated from Kean University with a dual degree in economics and finance management, and earned a certificate in nonprofit management at Columbia University. One of her first jobs was for a group called Accion in New York that gives “microloans” to people who would otherwise not be able to get them.
The RBAC also works with banks to give small loans to business owners who may have a hard time accessing the normal capital system. It takes advantage of a federal program that guarantees 75 percent of loans of up to $250,000 to small business owners. Giroldo says the group has a less than 2 percent default rate on about $100 million in loans. The RBAC was recently honored by the Mid-Jersey Chamber of Commerce as its outstanding small business of the year.
In her job at the RBAC, Giroldo often evaluates the finances of her clients to see if they are good candidates for loans. She has a number of tips for people on how to maintain good credit, or recover from a poor credit score:
Pay high interest first. If you have multiple credit cards with lines of credit, Giroldo says, you should prioritize paying off the one with the highest interest rate first. Retail store credit cards are notorious for having high interest rates, up to 29 percent, so paying down that debt will leave you in a better financial position than if you paid off lower-interest cards first. If possible, make at least minimum payments on everything to avoid having negative items reported on your credit score.
Don’t consolidate your debt. There are many advertisements on TV and the radio that offer to help people get out from under oppressive debts, such as excessive credit card debt by “consolidating” their loans and paying back a fraction of the balance due. “What consolidation companies do is they will contact the business owners’ credit cards and offer them a settlement,” Giroldo explains “They will offer not to pay the debt but to settle it at, say 50 percent. If the client had two credit cards owing $5,000 each, the consolidation company would offer to settle them for half rather than repaying the full $10,000. It sounds good because now you only owe 50 percent of what you were liable for before”
But of course, it is too good to be true. “The problem is the way those settlements are reported in credit reports. They don’t report them as accounts being paid as agreed, but instead report as a charge-off for the entire dollar amount — the $10,000, not the $5,000.” Giroldo says an item on your credit report that says “legally paid in full for less than the amount owed” is devastating.
Beware of home mortgage modifications. “The other thing we are seeing more and more often is home loan modifications,” Giroldo says. Sometimes banks will only grant modifications if the homeowner misses a certain amount of payments. “They are fine, but the banks will report you as late for every month you have not been making payments, in order to qualify for the modification,” she says. She says she has seen clients’ credit scores slip below the threshold of 600 because of this, at which point it becomes very hard to get any kind of capital.
Look at your credit report, and take time for finances. New Jersey law allows consumers to view their credit report at each of the three agencies — TransUnion, Experian, and Equifax — once a year. Giroldo says it is a good idea to spread them out over the year and view one of them every few months, in order to keep watch over your credit.
Corner stores are no place for money management. Giroldo says business owners should pay attention to their finances and get expert advice when needed. “In general, small business owners believe that running a good business is working 15 hours a day doing their best to run the business,” Giroldo says. “But they never really look at the finances. They are always either in the sales part or the production part, but when it comes to finances, they delegate that work to a third party.”
For small businesses, that third party is sometimes a “multiservice” corner store where people can get money orders, pay utility bills, get something notarized, or get tax help. “The people there just don’t have the knowledge,” Giroldo says. “They might be good people, but they just don’t have the knowledge, and it hurts the client.”