Information on getting a Small Business Loan

To determine if you qualify for SBA’s financial assistance, you should first understand some basic credit factors that apply to all loan requests. Every application needs positive credit merits to be approved. These are the same credit factors a lender will review and analyze before deciding whether to internally approve your loan application, seek a guaranty from SBA to support their loan to you, or decline your application all together. 1. EQUITY INVESTMENT

Business loan applicants must have a reasonable amount invested in their business. This ensures that, when combined with borrowed funds, the business can operate on a sound basis. There will be a careful examination of the debt-to- worth ratio of the applicant to understand how much money
the lender is being asked to lend (debt) in relation to how much the owner(s) have invested (worth). Owners invest either assets that are applicable to the operation of the business and/or cash which can be used to acquire such assets. The value of invested assets should be substantiated by invoices or appraisals for start-up businesses, or current financial statements for existing businesses.

Strong equity with a manageable debt level provide financial resiliency to help a firm weather periods of operational adversity. Minimal or non-existent equity makes a business susceptible to miscalculation and thereby increases the risk of default on — failing to repay — borrowed funds. Strong equity ensures the owner(s) remains committed to the business. Sufficient equity is particularly important for
new business. Weak equity makes a lender more hesitant to provide any financial assistance. However, low (not non- existent) equity in relation to existing and projected debt — the loan — can be overcome with a strong showing in all the other credit factors.

Determining whether a company’s level of debt is appropriate in relation to its equity requires analysis of the company’s expected earnings and the viability and variability of these earnings. The stronger the support for projected profits, the greater the likelihood the loan will be approved. Applications with high debt, low equity, and unsupported projections are prime candidates for loan denial.

2. EARNINGS REQUIREMENTS

Financial obligations are paid with cash, not profits. When cash outflow exceeds cash inflow for an extended period of time, a business cannot continue to operate. As a result, cash management is extremely important. In order to adequately support a company’s operation, cash must be at
the right place, at the right time and in the right amount.

A company must be able to meet all its debt payments, not just its loan payments, as they come due. Applicants are generally required to provide a report on when their income will become cash and when their expenses must be paid. This report is usually in the form of a cash flow projection,
broken down on a monthly basis, and covering the first annual period after the loan is received.

When the projections are for either a new business or an existing business with a significant (20% plus) difference in performance, the applicant should write down all assumptions which went into the estimations of both revenues and expenses and provide these assumptions as part of the application.

All SBA loans must be able to reasonably demonstrate the “ability to repay” the intended obligation from the business operation. For an existing business wanting to buy a building where the mortgage payment will not exceed historical rent, the process is relatively easy. In this case, the funds used to pay the rent can now be used to pay the mortgage. However, for a new or expanding business with
anticipated revenues and expenses exceeding past performance, the necessity for the lender to understand all the assumptions on how these revenues will be generated is paramount to loan approval.

3. WORKING CAPITAL

Working capital is defined as the excess of current assets over current liabilities.

Current assets are the most liquid and most easily convertible to cash, of all assets. Current liabilities are obligations due within one year. Therefore, working capital measures what is available to pay a company’s current debts. It also represents the cushion or margin of protection a company can give their short term creditors.

Working capital is essential for a company to meet its continuous operational needs. Its adequacy influences the firm’s ability to meet its trade and short-term debt obligations, as well as to remain financially viable.

4. COLLATERAL

To the extent that worthwhile assets are available, adequate collateral is required as security on all SBA loans. However, SBA will generally not decline a loan where inadequacy of collateral is the only unfavorable factor.

Collateral can consist of both assets which are usable in the business and personal assets which remain outside the business. Borrowers can assume that all assets financed with borrowed funds will collateralize the loan. Depending upon how much equity was contributed towards the acquisition of
these assets, the lender also is likely to require other business assets as collateral.

For all SBA loans, personal guarantees are required of every 20 percent or greater owner, plus others individuals who hold key management positions. Whether or not a guarantee will be secured by personal assets is based on the value of the assets already pledged and the value of the assets
personally owned compared to the amount borrowed. In the event real estate is to be used as collateral, borrowers should be aware that banks and other regulated lenders are now required by law to obtain third-party valuation on real estate related transactions of $50,000 or more.

Certified appraisals are required for loans of $100,000 or more. SBA may require professional appraisals of both business and personal assets, plus any necessary survey, and/or feasibility study.

Owner-occupied residences generally become collateral when:

1) The lender requires the residence as collateral;

2) The equity in the residence is substantial and other credit factors are weak;

3) Such collateral is necessary to assure that the principal(s) remain committed to the success of the
venture for which the loan is being made;

4) The applicant operates the business out of the residence or other buildings located on the same
parcel of land.

5. RESOURCE MANAGEMENT

The ability of individuals to manage the resources of their business, sometimes referred to as “character,” is a prime consideration when determining whether or not a loan will be made. Managerial capacity is an important factor involving education, experience and motivation. A proven positive
ability to manage resources is also a large consideration.

Mathematical calculations on the historical and projected financial statements form ratios which provide insight into how resources have been managed in the past. It is important to understand that no single ratio provides all this insight, but the use of several ratios in conjunction with one another can provides an overall picture of management performance. Some key ratios all lenders review are: debt
to worth, working capital, the rate at which income is received after it is earned, the rate at which debt is paid after becoming due, and the rate at which the service or product moves from the business to the customer.

What are the employment taxes a small business has to pay?

Small business owners often have great responsibilities while operating and managing a business. Small business owners often have great responsibilities while operating and managing a business. Before you become an employer and hire employees, you need a Federal Employer Identification Number (EIN). If you have employees, you are responsible for several federal, state, and local taxes. As an employer, you must withhold Federal income tax, Social Security and Medicare taxes, and Federal unemployment tax act (FUTA). For more information on these taxes refer to Publication 583, Starting a Business and Keeping Records.

As an employer, you are also responsible for timely depositing and withholding federal income, your matching share of social security and Medicare taxes from your employees’ wages and any federal unemployment tax act (FUTA) taxes. Refer to Publication 15, Circular E, Employers Tax Guide.

Sales Tax Number

I’ve had a bunch of questions about sales tax recently, here’s a brief guide. In each state, there is a specified percent sales and use tax which applies to the retail purchase, retail site, rental, storage, use or consumption of tangible personal property and certain services. In other words, sales tax must be collected on just about every tangible item sold.

A sales tax number is required for each business before opening. The number, plus instructions for collection, reporting and remitting the money to the state on a monthly basis, can be obtained through your state government.

We have some good people who can advise you on this subject at
http://www.small-business-forum.com

Employer Taxes

Once you become an employer, your tax situation is immediately much more complicated. Generally, you should hire a CPA to help you through this maze, but it’s good for the small business owner to understand the basics. Especially for Employers

Employment taxes are:
The amount you should withhold from your employees for both income and social security tax, plus
The amount of social security tax you pay on behalf of each employee.
Caution: If you ignore the federal tax deposit and filing requirements, the amount you owe can increase dramatically.

If you do not pay your employment taxes on time, or if you were required to and did not include your payment with your return, we will charge you interest and penalties on any unpaid balance. We may charge you penalties of up to 15% of the amount not deposited, depending on how many days late you are.

If you do not pay withheld trust fund taxes, we may take additional collection action. We may require you to:

File and pay your taxes monthly rather than quarterly, or
Open a special bank account for the withheld amounts, under penalty of prosecution. See Form 8109, Federal Tax Deposit Coupon and Circular E, Employer’s Tax Guide.

What Structure for your Small Business? Incorporate? Sole Proprietor? LLC?

One of the most important decisions that a person opening a small business (or even down along the road you may decide to change structure), is whether or not to incorporate, and if so which form of corporation? Most of the advice I’ve received suggest that I choose between making my company a Limited Liability Company, or a S-Corp. I find it rather amusing that here in Massachusetts, it’s about twice the price to be a LLC compared to a S-Corp (the corporate filing fees), and in my circumstances anyway it seems that the tax advantages and disadvantages are a wash for me.

The actual process is both easy, and difficult. Easy in that the forms to fill out and send to the state are plainly simple. Difficult in that if you don’t put some thought into the process before you commit, you might make some mistakes that haunt you down the road. 2004 will be the first year my company will be a corporation. I’m meeting with a CPA soon and there are a bunch of things I’ll need to iron out before solidifying my corporate structure.

What does a business owner do when he’s sick?

The whole family has been sick this week, including myself. For me, it’s not enough of an illness to put me out of action, but it did bring some interesting points to mind, and an altering of goal for the short-term. I guess it’s more of a question when you cross the line from being self-employed to operating a business. Sure, self-employed people are businesses by themself, but when they’re sick the business grinds to a halt. Where’s the line, though. When you begin to employ people that will work even when you’re not there?

Barter Exchanges

A barter exchange is any person or organization with members or clients that contract with each other (or with the barter exchange) to jointly trade or barter property or services. The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis.

The Internet has provided a medium for new growth in the bartering exchange industry. This growth prompts the following reminder: Barter exchanges are required to file form 1099-B for all transactions unless certain exceptions are met.

Under the exceptions, barter exchanges are not required to file form 1099-B for:
Exchanges through a barter exchange having fewer than 100 transactions during the year.

Exempt foreign persons as defined in Regulations section 1.6045-1(g)(1)(i).
Exchanges involving property or services with a fair market value of less than $1.00.
For corporate members or clients, transactions may be combined and reported in aggregate.
Forms 1099-B are due by March 1, 2004 (March 31, 2004, if filing electronically).

Failure to file can result in significant penalties (Internal Code Section 6721). The penalty is based on when you file correct information return. The penalty is:

$15 per information return if you correctly file within 30 days of the due date (March 1, 2003), maximum penalty $75,000 per filing period.
$30 per information return if you correctly file after 30 days after the due date but by August 1; maximum penalty $150,000 per filing period.
$50 per information return if you file after August 1 or you do not file required information returns; maximum penalty $250,000 per filing period. A barter exchange is any person or organization with members or clients that contract with each other (or with the barter exchange) to jointly trade or barter property or services. The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis.

The Internet has provided a medium for new growth in the bartering exchange industry. This growth prompts the following reminder: Barter exchanges are required to file form 1099-B for all transactions unless certain exceptions are met.

Under the exceptions, barter exchanges are not required to file form 1099-B for:
Exchanges through a barter exchange having fewer than 100 transactions during the year.

Exempt foreign persons as defined in Regulations section 1.6045-1(g)(1)(i).
Exchanges involving property or services with a fair market value of less than $1.00.
For corporate members or clients, transactions may be combined and reported in aggregate.
Forms 1099-B are due by March 1, 2004 (March 31, 2004, if filing electronically).

Failure to file can result in significant penalties (Internal Code Section 6721). The penalty is based on when you file correct information return. The penalty is:

$15 per information return if you correctly file within 30 days of the due date (March 1, 2003), maximum penalty $75,000 per filing period.
$30 per information return if you correctly file after 30 days after the due date but by August 1; maximum penalty $150,000 per filing period.
$50 per information return if you file after August 1 or you do not file required information returns; maximum penalty $250,000 per filing period.

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How to choose a company to outsource your dedicated server hosting.

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Business Startup Advice

Advice for Entrepreneurs: Mistakes Are the Key to Success

Considering starting your own business? You are not alone. In fact, entrepreneurship has become an increasingly popular career choice in the last few years. (ARA) - Considering starting your own business? You are not alone. In fact, entrepreneurship has become an increasingly popular career choice in the last few years.
Some people decide to build their own businesses out of a desire to be out on their own or because they have dreams of turning a hobby into a career. Others may have been laid off and are frustrated with their current job prospects, or they may simply need greater flexibility in their lives.
But starting your own business can be challenging, and requires long hours and a lot of hard work and determination. In fact, only 30 percent of business start-ups survive more than five years. To avoid the pitfalls, new entrepreneurs need to do their homework and seek out all the advice they can get.
Michael Kerrison, 50, an IBM salesman turned self-made millionaire has recently chronicled his entrepreneurial experiences in a new book called

ecommerce startup

There are five steps to building your ecommerce startup. Before transacting business on your Web site, you should select vendors to assist you in each step of establishing your ecommerce startup, or look for a vendor that provides an integrated solution. Choosing a single vendor that offers a complete suite of ecommerce services can often simplify the process, save time, and be less expenive in the long-run. The following five steps you need to to complete before launching your ecommerce starup.

1. Choosing and registering a domain name.

What’s in a name? Plenty when you are an ecommerce starup. It is not only your brand, it’s also your address on the web. Once you’ve selected what name you wish to use, you must register it with a domain registration service. You can select from hundreds of domain registration services that cater to ecommerce starup websites. Even though your Internet Service Provider or your web host is ofte able to perform this task for you, you should ensure the domain is registered in your name only to avoid domain name hijacking.

2. Website Design and Development

The key decision at this step is to determine whether you plan to build your site yourself or have a provider build it for you. If you choose to build your site yourself (either by purchasing a related software package or using a “browser-based” store-building package that you download from the Web), keep in mind you will not only have the initial task of construction but also the ongoing responsibility of making modifications to the site.

With many Web building services and software products available to assist businesses in designing a Web Store, you do not have to take on this project by yourself. However, even with a Web building service provider, you still must consider several critical issues to ensure that the site you build meets your vision and needs:

What products/services do you want to sell? What do you want the look and feel of your logo and your site overall to be? What type of navigation tools do you want to use? By what forms of payment do you wish to transact business? How are you going to calculate tax and shipping charges?

Once you’ve made these decisions, you are ready to develop your product catalog. You’ll need to provide necessary information on each product, i.e. description, color, size and price. This catalog is expandable, so that you may add to it as your business and product offering grows.

After the product catalog is completed, your Web building vendor can publish your Web site online.

3. Server Hosting

Another major decision that businesses joining the electronic marketplace must face is whether to buy a server and host their Web site in-house, or to outsource the entire operation to a service provider. For many smaller businesses, outsourcing is the most viable and cost-effective option. Establishing your own operation is complicated and can take several months to set up, whereas using a hosting service can take less than an hour to set up. It will also speed the time it takes customers to download pages on your Web site, improving the customers’ experience on your site.

4. Payment Solutions

In order to become truly e-commerce enabled, you must have the following: Payment software, a merchant account, payment processing services and a gateway to connect all these elements of the payment process. You also will need cash register software to help easily calculate sales tax as well as shipping charges, and may want to include a shopping cart function as well.

In order to start transacting business and accepting payments, you must first open an account with a merchant bank. Checking out dozens of merchant banks to find the one for you can be an arduous process, but a fully integrated solution eliminates the need for this task.

Once you have established an account, your merchant bank retains the services of a payment processing company to “acquire” transactions of your customers, secure the funds from the customers’ credit card issuer and place that money into your merchant account. This is the last part of the payment solutions equation

5. Traffic Coverage

“If you build it they will come.”

If only it were that easy with e-tailing. However, no matter how great your Web site is, no one will come to it if they don’t know you are there. This is where driving traffic and transactions becomes an essential element of your e-commerce plan.

The first step in building traffic is registering your site with search engines. Again, there are vendors that will do this for you. For registration, you will need to think of keywords that will be associated with your site, and acquire links to your website using those keywords as anchor text.

Another advantage of building a link exchane program is the possibility of cross promotions with other ecommerce startups. You can establish relationships with sites that reach a similar demographic group and offer premiums in exchange for links, referrals and demographic information. For instance, you and another ecommerce starups could include taglines about each other’s stores in your purchase confirmation emails.

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