As part of President Obama’s efforts to help us recover from the economic disaster of the past few years, from June 15, 2009 to September 30, 2010, the Small Business Administration is offering a guaranteed loan program for small businesses. This program, called the ARC loan program (Americans’ Recovery Capital), is designed to provide short-term financial relief to struggling but promising small business throughout the United States.
ARC loans are capped at $35,000 and are intended to be used to make payments on interest and principal of existing loans and other debts (including suppliers, credit card companies, and other major expenses), thereby allowing small businesses to defer their income directly to operating expenses such as payroll, utilities, and necessary supplies.
These loans are not granted by the SBA directly, but by other lenders. The loan funds can be drawn down over a 6-month period. The loans are interest free and the borrower is not required to begin making payments on the ARC loan for 12 months after the final disbursement. Repayment may be extended over a period of up to 5 years.
Although the SBA guarantees repayment of the loan to your lender, the SBA does not charge a fee for its involvement in this program. The entire goal of the program is to help small businesses to stay in business while the economy is struggling. The SBA has taken the position that by decreasing the risk to lenders, they will be increasing our access to much-needed funds. It’s a win-win situation.
To be eligible for an ARC loan, a small business must demonstrate its viability or past success. The loan funds can only be used for approved debt, and you may be required to provide various documentation to your lending institution. In some cases, your regular bank may be able to offer you access to this program.
On behalf of small business owners, I think it is admirable that our president has taken measures to help small businesses, which generate billions in revenue in the U.S. every year.
Call your bank or visit the SBA website and learn more about how to apply for an ARC loan.
With the recent credit crisis, everyone’s talking about how hard it is to borrow money, even for small businesses that are showing profit and have established a good credit history. A lot of small businesses get financing through the owner’s personal credit/equity, or from family and friends, but even friends and family may be hesitant to part with the savings they still have after two years of economic downturn and investment value loss. While it seems natural to query whatever bank you use for your regular business account for financing, you may find that larger banks are unwilling or unable to offer you the financing you need to stay in business.
Before you go out in search of a loan or other financing, do some research. You’ll need a business plan with projected earnings and, if available, past earning records. You’ll also need a basic understanding of how loans work, including compound interest and penalties for missed or late payments. If you’re using your personal finances as the backbone of your request, lenders will examine aspects of your financial history like past utility payments, historical income, and other factors. It is a good idea to talk to a lawyer and to read whatever you can find about borrowing money. Most importantly, when you go in for the meeting with a prospective lender, you want to make sure you have all your ducks in a row. Call ahead and find out everything you’ll need to bring to your meeting. Make sure you have all the necessary paperwork, and keep it organized, so you can avoid prolonging the process.
If your regular bank turns you down for financing, there are other options:
Visit smaller, independent banks in your area. Smaller banks deal with a smaller overall amount of money and therefore are not in as great a danger of losing everything and going out of business. As per my post on April 3rd, small businesses are persevering through the economic crisis better than big businesses because they have already cut out the fat. Big businesses have been overstaffed and pampered for years, and aren’t accustomed to cutting corners. The same goes for banks. Big banks that have loaned billions of dollars to individuals and businesses stand to lose everything if the bulk of their borrowers default on loans. Small banks may be less panicked right now, and therefore more willing to loan money to strong, promising small businesses.
Every city has organizations designed to provide financing to small businesses and individual entrepreneurs. They can often offer competitive interest rates and more flexible payback schedules than banks, who are bound to their corporate policies. The SBA may be able to help you find independent lenders in your state or locality. In my family business, a bakery, we once borrowed $3500 for an emergency refrigerator repair, from a small lending company just a few blocks from our storefront. These independent lenders offer personal service, less red tape, and a much smaller bureaucracy than big banks.
Another idea is to seek out grants. The Small Business Administration not only offers federal loans to small businesses, but also has programs that may allow access to grants (which do not need to be paid back). Grants are available for various types of businesses, especially minority-owned and women-owned businesses.
These are just a few ideas. The main point is not to be discouraged if your first attempt at getting financing is unsuccessful. At the federal, state, and local levels, there are a variety of possible financing sources for any business that shows promise. If you’ve only checked with one bank, you may be missing out on better opportunities elsewhere.
Surprisingly, not many. Although we are a nation of cardholders, most of us don’t really understand how the system works. So recently, the US government has taken steps to help make the system more affordable and user-friendly.
On May 20, Congress passed new legislation that makes some key changes to the way credit card companies do business. Included in the bill are regulations preventing credit card companies from charging late fees for payments that arrive on the afternoon of the due date, and preventing the companies from raising interest rates without fair notice. The companies will also be prevented from charging hidden fees for such things as phone payments. For cardholders who pay over the minimum balance, credit card companies will also be required to apply the extra amount to the highest-interest segment of the cardholders’ debt.
Until now, credit card companies used these and other loopholes to interlace hidden fees into what consumers thought was a fair agreement. As a result, cardholders have been facing mounting debt due to increased interest rates, and have recently had more trouble paying off debt than ever before. Thus, at a time when the economy is in great need of consumer spending, the average person is spending less money to avoid paying exorbitant fees on credit cards. This legislation will go into effect early in 2010.
According to the 2008 Nilson report, the US had 700 million credit cards in circulation, which translates to more than two cards per person (including children) in the US. Clearly we are a nation that loves to spend money and we love doing it on credit. So who is to blame for the credit crisis? Is it over-spending consumers or greedy credit card companies?
The answer is, both. Credit card companies are guilty of using fine print and arbitrarily hiked-up interest rates to stay rich. And as a nation of consumers, we are guilty of spending way more money than we earn every year, thereby legitimizing the practices of the companies who provide us our spending cash.
Never in recent history has there been such an obvious need for education on financing and budgeting. It can easily be argued that with a clearer understanding of how credit and debt work, consumers would make better decisions about their own budgets.
The Money Merge Account from United First Financial aims to help consumers and businesses alike to escape the liability of high-interest debt. This ingenious program uses the information you provide about your expenses to calculate a schedule to pay off debt in as little as half the time, and with virtually no interest.
By transferring money between ordinary bank accounts and lines of credit and making payments on strategic days of each month, you can start paying down the principal amounts of your debt and stop putting all your money into interest. The program prompts the user to make transfers through text messages, and is integrated to allow you to approve the transfers directly from your mobile phone.
Amidst a sea of self-proclaimed revolutionary financial software, and debt reduction plans that only serve to add another creditor to the list, this program really does what it claims to do. It even adjusts your payment schedule based on changes in your financial situation, such as lay-offs and big purchases. The best part is, it’s a one-time purchase with no monthly fee or percentage rate. This program is truly innovative.
Get more information about the Money Merge Account.
Find out more about our company, Small Business Web Marketing, and what we do for small businesses.
Tax season is annoying, especially when the IRS enjoys playing little tricks on small and home based businesses. Large corporations can employ people that keep up with the multiple changes that occur each year and have prominent CPA firms to act as watch dogs.
Not true for small business.
We have to rely on keeping up on what is a legitimate tax deduction, and although some employ accountants, I know a lot of businesses submit their own tax report because it’s cheaper.
A prominent tax advisor stated that overlooked deductions every year allow the IRS to pocket $250,000 that should be left with us.
Here are a few thoughts: generally, you can utilize a Schedule C form if “your intent is to make a profit” and you “work consistently for a minimum of ten hours a week.”
Other things to take note of are keeping an appointment book and a phone log, placing business emails in a folder on your computer, maintaining a client database, having business cards and, of course, keeping all receipts. Information on receipts should include: who, what, when, where, and why.
My personal tax adviser never allows me to claim entertainment…dinners mostly. We run it under advertising. Now, if you and your prospect go Dutch treat, you can deduct 50% of your half of the tab. I also use business gifts, particularly when clients introduce me to a potential prospect.
Car allowances are constantly being fiddled with by the IRS. I believe you can write off the entire lease if you use your car for business well over 50% of the time. Just remember when you are going to the grocery store, be sure to stop off and leave a sample or promotional piece while you are out. For those taking mileage, a simple travel log kept in the car is quite sufficient. If you don’t think the price of gasoline is going to skyrocket again, you may consider that Big Vehicle deduction under IRS 179. Just be sure on the door it reads GVWR6001 – I think that means it weighs 6000 pounds.
Travel expense is always fun if you are going someplace you enjoy. Go to www.gsa.gov and compare the per diem costs of the most popular convention destinations. Here is a little trick that the IRS can’t touch. The per diem cost in San Francisco is $48/day. But if you stayed at Aunt Betty’s house and she drove you to the convention, you could still write off the allowable deduction. Neat, eh?
Hire your children and make them work for that allowance and you can write it off. They must contribute to your business, of course.
Presentation expenses are allowed. That projector and screen that is used at trade shows and other venues can also be used to enjoy family parties.
The bottom line is this. If the IRS comes calling you must be prepared with all the records they want to see. A big smack down is writing off a portion of your home as a home office, including a portion of the utilities, taxes, assessments, etc. The IRS has made it clear that the office must have a separate entrance and the room is actually an office…not the dining room table. I stay away from that one altogether.
Hope this helps…we have a little time left. If you have thoughts or comments on this topic, I’d love to hear from you.
Best,
Ruth Ann Hall
I want to expand a bit more on why I named this blog with such an obscure name. I wanted to use outsourcing, but was advised by friends that it would probably be met negatively. You know, American jobs going outside our country is kind of negative.
Actually, I went to my trusty Webster’s Unabridged and looked up outsourcing and you’ve got to check it out to believe it. Outspanning was the very next word! The derivation was explained in our Welcome post, so if you missed it, just check it out.
I thought I’d really caught on to something unique.
While visiting my son and his family recently, I picked up the St.Louis Women’s Journal while having my favorite breakfast (lox/bagel) at Einstein Bros. in Kirkwood.
I read the headline…Can You Blend with an Enemy to Make a Friend? The use of the word “blend” seemed odd, so I read on.
I found I’m not the only one looking for unique words to spice up the vocabulary of old problems. For the next few minutes I was fascinated by Ms. Judy Ryan’s explanation and use of entrainment.
Sidebar: It has nothing to do with railroads.
First, she explained how one must first notice and appreciate the other person. You must have heard the expression, “the customer is always right.” Although Ms. Ryan’s exercise in Emotional Intelligence wasn’t directed toward small business, I picked up a lot of pointers from her article…like agreeing with others’ opinions and being SINCERE about it. She insisted on “entering fully into their viewpoint and how they see the world.”
This stuff has application for business and your life with friends, family members, and enemies. Check it out in the Archives of: www.stlwomensjournal.com – February/March 09.
“Can You Blend With an Enemy to Make a Friend?” ~by Judy Ryan, Expanding Human Potential
I’m actually going to give this a try…perhaps with my husband first.
Seriously, check out this article and please comment on it. It struck me as such a fresh approach.
Best,
Ruth Ann
Most small businesses start with loans or investors. True, a small percentage of business owners use their own money for start-up costs, but that is not the norm. Most of us are not independently wealthy. We start with a great idea, a few dedicated individuals (usually ourselves and a few friends or family members), and a loan to get us going. This means that from minute one, the business is in debt.
It is standard to borrow enough money to operate the business for the first year with little to no profit, even though we hope we’ll have profit from day one. However, getting enough money for the whole year is impossible for most of us. This means we have to find other ways to make ends meet, which usually translates to underpaying employees and cutting corners on expenses.
My mom bought her business (a bakery) for nothing from the previous owners, who wanted out in the early 1990s and didn’t think the business was worth anything. At the time, we were serving only wholesale clients (restaurants), and our profit margin was ridiculously small. The building was leased, but we did acquire some basic cooking equipment, including two convection ovens, a walk-in refrigerator, and a few large mixers. When we decided to expand the bakery into a bakery/café with a dining area, we needed a lot of new equipment.
We borrowed as much money as we could using my mom’s house as collateral. Most banks will only loan you a portion of the equity you hold. In our case, we were only able to get $23,000 to start the business. That may seem like a tiny sum to fund a new business, and it is. We were forced to make tough decisions about how to spend the money. The portion of the building that would become the café needed lots of work. We also needed an espresso machine (commercial ones start at about $6,000), tables and chairs, counters, display furniture, and cash to pay our staff until we could get going.
We spent over $12,000 on rent during our first year in business, which was more than half of our start-up money. Though we inherited some equipment from the previous owner of the bakery, we were surprised at how quickly the money went, even with my family doing most of the work ourselves.
When we first opened, we had nothing in the bank. We were depending on our new income to help us pay off the loan and our new, larger bills. This meant that we were always a few steps behind our expenses. If we had a slow week, bill couldn’t be paid.
Small Businesses MUST Juggle Cash Flow & Expenses
A big part of running a small business is juggling cash flow and expenses. It is necessary to rob Peter to pay Paul, on a daily basis. In the case of my family business, we struggled through the first two years and paid off about a third of our start-up loan before we decided to borrow more money. Sometimes, loan money is used for start-up or expansion, but in small businesses, loans can also be useful just for improving your financial situation, paying off bills, and bridging the gap during slow times.
In the seven years since we opened, we’ve borrowed money three more times. But, we’ve managed to pay off the original bank loan and we’ve made capital improvements along the way. Every business has moments when cash flow is nonexistent and it seems to be circling the drain. Even soft drink giant Pepsi Cola declared bankruptcy in the 1920s and then recovered. Slow times and financial turmoil don’t have to mean the end, even for small businesses. Before you think of giving up, it’s important to know your options. Whether you need a new budget, an adjusted business strategy, a line of credit, or just more money, step one is believing that success is possible. Don’t be too quick to decide that it’s not worth it.
Note: If you’re interested, the bakery’s name is La Dolce Via, located in St. Louis, MO. View our website.
Small Businesses Need Credit
In his February 24th speech to Congress, President Barack Obama said the solution to our economic troubles lies “in the imaginations of our entrepreneurs and the pride of the hardest-working people on Earth.” As of 2003, well over 12.2 million Americans were self-employed. President Obama vowed to make it easier for entrepreneurs to get loans, which may be the only way for us to weather the storm of a struggling economy. Of late, many of us have seen a reduction in available credit that threatens to stop our business’s growth dead in its tracks.
When you own a small business, your life becomes a perpetual to-do list. Not being able to get loans and financing adds insult to injury. It seems as though the system is against us, but in fact the US creates and fosters more independent businesses than any other nation. Now that President Obama is working hard to give us the financial tools for success, it’s up to us to use them wisely.
Inspanning and Outspanning
“Inspanning” is a term of African origin meaning “to yoke an animal.” Inspanning is the process we go through when we start a small business. Slowly we become yoked by the business, which seems to take and take until we feel like we have nothing more to give.
This blog is about “outspanning,” or unyoking yourself from the stress of your business. In its original South African usage, outspanning referred to the unyoking of an animal. We’re going to focus on unyoking people from the oppressive struggle of making ends meet without a surplus of cash. For our purposes, “small business owners” may also be heads of their household, church, or even a small town.
By creating a safe place for small business owners to talk about their struggles and share solutions, we want to help you unyoke yourself from the stress of living and breathing nothing but work. We encourage our readers to share the tricks you’ve discovered for making your business run more smoothly and for relieving stress. How do you keep yourself going every day?