Keys to getting a small business loan
Before a start-up company can begin producing revenue, it often needs an infusion of cash that exceeds owner contributions. Even long-established firms sometimes must borrow to purchase inventory, buy real estate, expand operations, meet payroll, or keep the lights on. When business owners turn to banks and other financial institutions for help, some are offered loans; others walk away empty handed.
Why the difference? If you’ve read the financial press in recent years, you know that many banks have been burned. Some with lax underwriting practices extended credit to companies that went bankrupt. Even some strong institutions failed when large loans weren’t repaid. Those that survived may be licking their wounds and rethinking their lending practices. As a result, your bank may be reticent to extend credit to a company that lacks a proven track record or that’s otherwise perceived as a bad risk.
But even if your bank is willing to extend credit, don’t sabotage your efforts by failing to prepare adequately. Increase your chances of getting a business loan by following these suggestions:
- Show that you have a detailed business plan. Putting your ideas, projections, and assumptions on paper can uncover gaps in your logic and flaws in your research. Your business plan should lay out market research, financial projections, start-up costs (if applicable), and assumptions. Show how you’re going to spend every dollar of the loan proceeds to generate revenue. Consider the plan from the other side of the table. Would you lend money to a company that lacks a credible strategy?
- Show that you’re capable. Lenders must have confidence in you. Convince them. Show that the combination of your management team’s education, skills, and work ethic will lead to success. To demonstrate your ability to repay the loan, you may be asked to share your credit report and tax returns. If you’ve struggled to meet prior obligations, be ready with explanations, including evidence of extenuating circumstances.
- Show that you’re invested. Lenders often look kindly on business partners who have pumped a substantial amount of their own savings into a company. Before applying for a business loan, plan to document that at least 25% of the firm’s equity has come from the personal assets of its owners and investors. From a lender’s perspective, such an investment demonstrates a commitment to see the company through hard times — and to pay back the loan.
Payroll update for 2012
Out with the old and in with the new. The expression applies not only to the upcoming new year, but also to the new year’s payroll tax reporting and compliance.
Here are two changes.
- Health care costs. You’re not required to include the amount of insurance coverage you provided to your employees in 2011 on Forms W-2. When you have less than 250 employees, you’re exempt from reporting health insurance costs in 2012 as well. If you’re already tracking the costs, you can choose to report the information in both years, no matter how many employees you have.
Note: The reported benefits are not taxable to your employees.
- Wages subject to social security. Social security tax (FICA) applies to gross wages you pay your employees, up to a “wage base,” or limit, that’s typically adjusted each year. The wage base for 2012 is $110,100, up from $106,800 in 2011.
Reminder: There’s no wage base for the Medicare portion of the payroll tax you withhold from employees. All compensation is taxed at the current rate of 1.45%.
Give us a call for information on state payroll tax changes, as well as proposed federal legislation. It’s our job to help you keep up to date
Customers share both good and bad experiences
It’s a fact. Many of your customers are chatting with one another and sharing information through social media, smart phones, and a variety of Internet applications and websites. For many companies, that very connectivity has resulted in greater sales. The pool of potential clients has extended well beyond the confines of brick-and-mortar stores and locales. On the other hand, “word of mouth” has taken on an ominous new meaning. Treat customers well, and new revenues may flow from distant locales as your company receives “thumbs up” reviews. Treat customers poorly, however, and they may share their experiences with the world — quickly and with long-lasting effect. To keep your business from becoming the latest customer service joke on YouTube or MySpace, be sure to follow these tried-and-true guidelines.
- Respond to customer inquiries with care. Customers need to feel that you’re listening to their concerns, needs, and complaints. If they call your offices and are shuffled around or put on hold while your latest marketing pitch endlessly assails their ears and wastes their time, don’t expect return sales. When they walk into your store, listen first, then offer advice. Even if they approach during a peak time, try to give them the courtesy of your undivided attention.
- Don’t get defensive. Want to appear on somebody’s Internet video or blog? Be rude. Be irritable. Cut off customers before they have an opportunity to voice their comments or complaints. When customers have mistaken notions about your products or services, take a deep breath and explain the problem in a calm manner. Even if you feel personally attacked, never lash out at a client who, after all, has come to your business for help. Being cordial won’t please everyone. But most people respond better to honey than to vinegar.
- Train your employees well. People aren’t born with good people skills. Such skills are developed. A good manager will take time to share his expertise with front-line staff by providing training classes and a personal example. If an employee can’t or won’t treat customers with respect, that person may need to be placed in a different position — away from clients. Good customer service also includes training staff on the technical aspects of your business. Employees should be fully conversant with your products and services, as well as your firm’s routine procedures and policies.
Your customers will notice.
Financial resolutions to make for 2012
Shedding unwanted pounds, recharging a golf score that’s stuck in neutral, nurturing a better relationship with your teenager — these resolutions and many more will appear on lists this coming January. Of course, some good intentions will fade before the flowers arrive on Valentine’s Day. But other decisions, if allowed to harden into habit, have the potential to greatly affect your financial future. For most people, incremental choices and a lifestyle of discipline are the key to attaining financial independence. Here are five suggestions for the coming year to help you achieve that goal.
- Review your expenses. The start of a new year is a great time to take inventory of your finances. Track your expenses for six months or so. You may be surprised at the result. Do I really spend that much on coffee? Are my utility bills really that high? For many people, getting a handle on how cash actually flows through their checkbook can be a great motivator.
- Build an emergency fund. Unless you plan to finance your “rainy days” with expensive credit card debt, setting aside cash in an easy-to-access emergency fund should be a priority. Many companies will allow you to allocate paycheck deposits into more than one bank account. Pick a savings account, designate it as your emergency fund, and start socking money away. Strive to accumulate a large enough balance to cover three to six months of living expenses.
- Save — automatically. Retirement savings can be set up along similar lines. By making deposits directly into a retirement account, the money won’t show up in your checking account where it’s likely to be spent. Of course, if your employer offers to match contributions to a 401(k) plan, be sure to take full advantage of the matching amount.
- Pay down debts. If you’re saddled with debt, you’re beholden to others. As the old saying goes, “The borrower is slave to the lender.” True, it’s often more fun to buy stuff on credit — you don’t have to wait. But by whittling away at debt, you can expect to cut your overall interest costs and enjoy more financial flexibility in the future.
- Treat yourself. Most of us can’t live like monks. To stay motivated, budget some “fun money” into the mix. Make that meal at a nice restaurant or a weekend get-away your reward for the financial sacrifices you make the rest of the year.