Black small business owners rate Columbus as friendly

Columbus is the third-friendliest city for black-owned small businesses, according to a recent study by Thumbtack.

The annual Small Business Friendliness Survey looks at what makes a state or local government work for small businesses, such as the friendliness of local tax laws, licensing rules and the regulatory environment.

But this year, Thumbtack also singled out the responses from the 1,663 business owners who self-identified as black and ranked cities based on the response to three questions:

  • How friendly is your city?
  • How easy was it to start a business?
  • Would you encourage others to start a business in your city?

In general, black-owned businesses are on the rise. In 2007, African-Americans ran 7.1 percent of businesses in the U.S. Five years later, that number has grown to 9.4 percent.

 

Nationwide

Black business owners are:

  • Slightly younger.
  • More likely to work alone.
  • Cite inflation as a top concern for the federal government, twice the rate of other business owners.

 

Black businesses are notably overrepresented in events, primarily catering and DJs, (26%) and cleaning (15%), as well as moving and professional services like tax preparation and computer repair.

 

Black small business owners said the three most important factors when evaluating their local government were:

  • The presence of helpful training and networking programs.
  • Easy to understand tax regimes.
  • Licensing rules that were easy to follow and well enforced.

 

Top 10 Cities for Black-Owned Small Business:

1.    Austin, Texas
2.    Dallas, Texas
3.    Columbus, Ohio
4.    West Palm Beach, Florida
5.    Richmond, Virginia
6.    Virginia Beach, Virginia
7.    Kansas City, Missouri
8.    Nashville, Tennessee
9.    Jasonville, Florida
10.  Raleigh, North Carolina

Three of the 10 had black mayors when the survey was conducted, including Columbus.

 

Small Business Friendliness Survey, all races

col_ftr_columbus_blackGrades for Columbus:

A+    Training and networking programs
A      Ease of starting a business
A-     Overall friendliness
B+    Employment, labor and hiring
B      Regulations
B      Environmental
B      Tax code
B-     Health and safety
B-     Licensing
B-     Zoning
C+    Ease of hiring

 

col_ftr_ohio_blackGrades for Ohio:

A-    Training and networking programs
B+    Employment, labor and hiring
B+    Environmental
B+    Zoning
B      Overall friendliness
B      Ease of starting a business
B      Regulations
B      Health and safety
B      Licensing
B-     Tax code
C-     Ease of hiring

 

 

To learn more:

www.thumbtack.com/blog/smb
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@thumbtack
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Leveraging a small-business mindset for long-term success

We hear a lot these days about disruption. Hardly a day goes by without the announcement of a new disruptive technology. Talk of well-established companies being overtaken by new and nimble startups is commonplace. Large multinational corporations worry if they can move fast enough to respond to the next big thing.

But the threat of disruption — as well as the opportunities it presents — is every bit as relevant to small businesses. That’s because small business owners know better than anyone how thin the margin of error is between success and failure.

So how do the best businesses adapt to stay relevant and thrive over the long term?

First, they’re never complacent. They’re always adapting and finding new opportunities in the face of potentially daunting disruptions.

Second, they focus on every detail, almost like an engineer pushing for efficiency during each step in a given task.

Companies of all sizes must keep in touch with new definitions of success, watching how their competitors adapt and flourish in a rapidly changing world. This is especially true for small businesses that have limited brand-building and marketing resources.

Success today requires a fine balance. When companies find it, they must be careful not to lose sight of what got them there. But, they also can’t be obligated to maintain time-honored approaches that eventually become irrelevant.

Constructively dissatisfied

There’s a term we use at UPS: constructively dissatisfied. That basically means we’re never content. We’re always looking for areas of improvement. And perhaps most importantly, we’re not inhibited by the fear of failure.

Thomas Edison once said, “Show me a thoroughly satisfied man and I will show you a failure.”

Today, our company delivers more than 4.6 billion packages a year in more than 220 countries and territories. We owe much of our success to UPS founder Jim Casey, who said the most vulnerable companies are those where the management was “old or self-satisfied or both, and did not work as hard as the more aggressive newcomers.”

UPS’s early growth can be traced back to this thinking. When the telephone took off, Casey saw the newfound potential in home deliveries, completely overhauling his business model.

At several times in our company’s history, we have needed to recall Jim’s counsel. One of the first examples came after World War II, when our home delivery service faced a critical test of survival. A growing number of Americans owned cars and began picking up their department store purchases themselves. UPS had to change.

So Casey again changed his business model, focusing on deliveries for catalog retailers and facilitating business-to-business shipments. Re-invention is no easy feat. But as Jim proved, it’s necessary for survival.

The age of online shopping is another transformational moment. I would love to hear Casey’s thoughts on how e-commerce caused a resurgence in home delivery and how UPS is deploying new technologies to meet those needs.

With technology effectively speeding up innovation — and the speed at which we do business — the cost of not responding to changes is felt earlier than ever in the business cycle. Consider that the average lifespan of an S&P 500 company has decreased from 67 years in the 1920s to just 15 years today. Failing to adapt is a death knell for large enterprises.

Complacency is equally threatening for small businesses. They need to be nimble and innovative or they quickly fail. Many startups will pivot and radically change their business model, multiple times if necessary, until they get it right. Their vision, energy and attitude are inspiring.

Finding that sweet spot for adaptability can be difficult because it changes over time. But seeking out change, no matter how minor it might seem, keeps you ahead of the inevitable evolution of any industry or business segment. From that perspective, disruption is more of an opportunity than a threat.

To the small business owner, I’d say, never forget the early days at your company and the inspiration that drove its inception.

For some businesses, success seems to be their downfall, especially if it comes early. Revenues and recognition can lure some into a false sense of security. Management figures it has all the answers and gets comfortable.

And yes, you should actually sweat the small stuff.

As Benjamin Franklin famously said, “A small leak will sink a great ship.”

Big-picture ideas too often overshadow the smaller details that make any business hum. Construct strategies with every angle in mind or else you’ll find yourself wondering what went wrong when a small detail trips you up again — and other companies pass you by.

Ellen Ewing is vice president of small business marketing for UPS.

How PPACA will impact small employers

Chuck Whitford, client advisor, JRG Advisors, the management arm of ChamberChoice

Chuck Whitford, client advisor, JRG Advisors, the management arm of ChamberChoice

Most news surrounding the implementation of the Patient Protection and Affordable Care Act (PPACA) pertains to the employer penalties for noncompliance with the large employers’ shared responsibility provision that begins with the 2014 plan year. However, how does PPACA apply if an employer has fewer than 50 full-time equivalent employees?

“This has been a subject of great confusion among business owners,” says Chuck Whitford, client advisor, JRG Advisors, the management arm of ChamberChoice.

Smart Business spoke with Whitford about how smaller business owners need to be counting employees carefully and preparing for PPACA provisions.

How is employer size defined?

A large employer is defined as having 50 or more full-time equivalent employees during a testing period that can be from six to 12 months. Full time is defined by the government as 30 hours per week.

The term equivalent is used to account for those who work less than 30 hours per week. For example, if an employer has 30 full-time employees working 30 hours each week and three part-time employees working 20 hours each week, it has 32 full-time equivalent employees. The part-time hours per month are added, then divided by 130 to determine additional full-time equivalent employees.

There is some relief for seasonal workers.

How does PPACA apply to small employers?

The employer penalties are just one piece. All employers are subject to certain rules if providing a health insurance plan, such as:

  • Waiting periods for eligibility cannot exceed 90 days, beginning in 2014.
  • Continuing to cover dependents of employees until age 26, in most cases.
  • Providing a Summary of Benefits and Coverage to each employee at specific events, such as open enrollment.
  • Supplying 60-day notification for any plan changes, except at renewal.

What are some other considerations?

If a plan is not grandfathered — hasn’t changed since the law went into effect in 2010 — then it must continue to waive all cost sharing for preventive care services, which includes women’s preventive care for plans renewing on or after Aug. 1, 2012.

Employers also must offer employees information on the public insurance exchange whether providing health coverage or not. The law requires this notice be distributed each March; however, it has been delayed in 2013, pending Department of Labor guidance.

In 2014, all non-grandfathered small group plans will have limits on the deductibles charged in-network. The maximum deductible will be $2,000 per individual and $4,000 per family. There also will be out-of-pocket limits that apply to all non-grandfathered plans. These limits are the same as those for high deductible health plans, which this year is $6,250 for an individual and $12,500 for a family.

How will the pricing methodology change?

The biggest change for small employers will be the pricing methodology applied to group insurance plans. Insurance companies will be unable to use gender, industry, group size or medical history, and therefore are limited to family size, geography, tobacco use and age. The companies can charge the oldest ages no more than three times what they charge the youngest ages. Many insurance companies use a ratio of 7:1 or higher, so this should result in higher rates for younger, healthier groups and better rates for older, less healthy groups. In addition, there will be new taxes and fees passed through to the employer in 2014.

Where do small employers have flexibility?

A small employer, with fewer than 50 full-time employees, has more flexibility in determining how many hours an employee must work to be benefits-eligible. For example, a small employer can establish 37.5 hours as the minimum to be eligible for the company health plan, so employees regularly working less than 37.5 hours aren’t eligible. Those employees most likely are eligible for a subsidy to purchase coverage in the public insurance exchange. But, as a small employer not subject to the employer penalties, there are no financial consequences.

Because of the complexities, employers are encouraged to review their employee count and other pending health care reform legislation with a qualified advisor.

Chuck Whitford is a client advisor at JRG Advisors, the management arm of ChamberChoice. Reach him at (412) 456-7257 or [email protected]

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How to find the right financing solutions for working capital needs

Paul Gibson, senior vice president, Eastern Region market manager, Bridge Bank

Paul Gibson, senior vice president, Eastern Region market manager, Bridge Bank

Companies looking to grow and needing an infusion of capital have several options, which come with various costs and requirements.

“We look at capital on a sort of continuum, with equity perhaps being the most expensive form primarily because of its diluting impact on ownership of the company. At the other end, there’s self-generated working capital derived from profitable operations,” says Paul Gibson, senior vice president and Eastern Region market manager at Bridge Bank. “In between there are a variety of financing options to assist a growing company.”

Smart Business spoke with Gibson about where small businesses fit along the continuum and options they have available to secure working capital.

What is the least expensive option to get working capital?

There is no cheaper form of capital than self-generated profits. Apple, Inc. is an example of a company that continues to be profitable and has a huge war chest of cash available for any need. But most small and growing businesses are not capitalized like Apple and look to banks to assist in the form of senior debt. This financing is usually based on a bank’s prime lending rate as its index and has a modest margin over, or under, this index. These loans are structured, including a senior secured lien on all assets through a Uniform Commercial Code filing and frequently have financial and/or performance loan covenants. There may be a borrowing formula and an advance rate against receivables as well. There is a direct relationship between pricing and structure, as all pricing is ultimately dictated by risk. When a business can’t adhere to a traditional covenant structure, the looser structure usually translates to increased pricing.

It’s best to determine working capital and growth capital needs first when exploring financing solutions. Next, identify the various capital sources starting at the least expensive and work down until sufficient working capital is obtained. Many times it’s possible to meet all needs with senior debt, but there is a limit to how much is available and that is largely determined by the profile and complexion of the company — overall assets, liabilities, cash flow, liquidity. All of these factors help identify risk.

Many growing businesses find it difficult to obtain traditional senior debt financing because they’re focused on growth at the expense of profitability. Some banks specialize in assisting companies in this dilemma, forging strong relationships long before the mega-banks will.

What’s next if companies can’t obtain sufficient senior debt?

Another potential source of working capital is subordinated debt, also known as mezzanine debt or venture debt. Subordinated lenders do not recover their first dollar in a liquidation scenario until the senior lender has collected its last dollar. This type of financing can take many forms.

With subordinated debt there is generally less structure than with senior debt. The reduced or even lack of covenants and junior lien position contribute to increased risk. Because there’s greater risk, subordinated debt also has a higher price.

Some banks offer these instruments, but more often commercial finance companies, hedge funds and other non-bank lenders offer them. The higher rates they charge are reflective of the higher cost of their capital, usually in investor funds or a bank line.

Why is cheaper not always better?

The true cost of capital shouldn’t only be measured in simple dollars or as the spread of basis points in an interest rate. The least expensive capital isn’t always the best capital because there are more factors than just price, such as opportunity costs, ease of use, flexibility of structure and other intangible benefits. For example, a low-interest loan with a covenant package that’s too restrictive can potentially result in a business disruption when a covenant violation occurs. Balancing pricing and structure relative to individual needs is critical when evaluating multiple loan options.

Most people assume that competition is the primary driver of pricing, but it’s not. Risk determines pricing — whether it’s equity or debt — and competition further refines it. Companies should understand their risk profile. It’s a powerful tool in helping to achieve the best outcome for a business’s financing needs.

Paul Gibson is a senior vice president, Eastern Region market manager, at Bridge Bank. Reach him at (703) 481-1705 or [email protected]

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U.S. small-business borrowing rises in December, but barely

SAN FRANCISCO, Mon Feb 4, 2013 — Borrowing by small U.S. businesses rose marginally in December, eking out a tiny gain for the year and suggesting headwinds for economic growth for the first few months of 2013, a report on Monday showed.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to small U.S. companies, rose to 112 from an upwardly revised 111.1 in November, PayNet said.

Borrowing was up just 1 percent from a year earlier.

PayNet had initially reported the November figure as 108.3.

PayNet founder Bill Phelan, located in Chicago, said the index suggests small businesses “haven’t come out of their shell.” PayNet’s lending index typically correlates to overall economic growth one or two quarters in the future.

“It’s underwhelming,” he said. “The next two to five months are going to be pretty slow.”

How small and medium-sized businesses can thrive in a rapidly changing environment

Steve Carter, President and CEO, ii2P

Earlier this year, Steve Carter, president and CEO of ii2P, challenged small and medium-sized businesses (SMB) to take a look at investment decisions around their current support models. This month, he stresses the importance of adopting a strong sense of urgency to avoid upcoming challenges.

“SMBs worldwide are projected to spend $1 trillion on IT by 2014. But unless something drastically changes, that spending could be like a heavy weight on a vessel headed into a perfect storm,” says Carter. “We want to stop, take a pause and not repeat history by spending money on technologies without really looking for a composite solution.”

Smart Business spoke with Carter about the challenges SMBs face, how to avoid common traps and the importance of managing cost pressure while strengthening customer intimacy.

Why do you feel there needs to be a heightened sense of urgency around creating change right now?

There are two fundamental problems facing the SMB market space: 1) cost pressures to stay competitive; 2) customer intimacy is in jeopardy. All companies with products and services wrestle with relieving cost pressures to maintain competitiveness. However, the most significant challenge I see is declining customer intimacy. This is an aspect that has been ignored. In order to sustain and grow market share, maintaining customer intimacy is paramount. Overall, a quality customer experience is missing, which shows up in lost market share.

What factors do you feel are causing these challenges?

A perfect storm is described as having multiple conditions that are colliding at the same time. There is a perfect storm in the SMB market today. First, all too often, we see both cost and customer intimacy elements are chained to an archaic standard support model. Such a model is actually designed to cost more to interact with the customer.

Historically, this has been why companies scrambled to find ways to cut back on support costs. This standard model is also designed to drive customer interactions out because it costs so much and reflects pure overhead. What this does is create an environment for the SMB that says, ‘Use it less, find a way to reduce calls for support.’ Sounds like a good thing, but it is deceiving. It’s a death trap for the SMB.

At the same time, the demographics of the end user have changed considerably and it is imperative that you respond to their wishes. Our clients have grown up in the technology world and favor what I call the ‘preferred end user support model’ — they prefer to satisfy the needs themselves rather than call a support center for help.

Lastly, by not considering and committing to a holistic approach when installing new technologies into your business, you are actually burdening your organization with incomplete and ineffective solutions.

How can the SMB know if it is facing the perfect storm?

There are some clear, obvious indicators that every SMB should use as beacons.

  • Check your specific market growth. Has your business grown at a healthy rate? If you are not growing at a healthy rate, the storm will ultimately catch you.
  • Check your client retention. This one is big. You can’t glaze over client loss as being a result of some external factor. Truth is, if you are losing clients, your model is working against you. The two key components are your cost competitiveness and your ability to be intimate with your end users.
  • Check your profitability. This one should be obvious but can be deceiving. If your margins are falling, for example, don’t automatically blame costs of raw materials. The cost of your support model is a more obvious culprit.

What options does an SMB have if it determines it is facing a perfect storm?

There are three options that always apply, and the first two are the most common traps that sink businesses. The first option is to do nothing. Keep steaming straight ahead, believing the situation will improve. The second option is planning to do something in the future. While this one doesn’t sound quite as bad as doing nothing, it has the same result: the longer you wait, the more you lose ground.

There is a third option: Do something new. Now is the time to face the perfect storm.

How should an SMB go about implementing a new approach in order to avoid the perfect storm?

The thing to remember is that surviving the storm requires a balance between the two elements I spoke of earlier: managing cost pressure while strengthening customer intimacy. The first step to bailing water out of your boat is to analyze and optimize your current support model. Then establish a clear strategy and create self-improving client intimacy through customer-facing self-service.

We’ve all made the mistake thinking that just purchasing technology is the answer. Take a new holistic approach that will bring technology, process and management disciplines as a complete and total solution. Examine the investment in current IT expenditures and make the hard assessment: ‘Am I getting real return on investment?’ If not, make a change.

Finally, establish committed continuous improvement processes that focus on balancing the customer intimacy mandate with prudent cost management. With these approaches in place, clearing the perfect storm is simply a matter of having your clients use your new model more.

Steve Carter is president and CEO of ii2P. Reach him at (817) 442-9292 or [email protected]

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How to fuel business growth by selecting the right strategy

Yi Jiang, Assistant Professor and Associate Director for MBA for Global Innovators, College of Business and Economics, California State University, East Bay

Most companies want to grow, the issue is just how and when. And determining an advantageous growth strategy can be challenging for executives. Less than 1 percent of companies ever reach $250 million in annual revenue and fewer still eclipse $1 billion. Unless you judiciously evaluate your options and select the right growth strategy, your small business may stay that way.
“Some companies boost revenue through organic growth while others diversify their products/services or build strategic alliances,” says Yi Jiang, assistant professor and associate director of MBA for Global Innovators for the College of Business and Economics at California State University, East Bay. “The key is understanding your options and selecting a growth strategy that fits your situation.”
Smart Business spoke with Jiang about growth strategies and what executives should consider when making a selection.

How have growth strategies evolved over time?

History and experience have altered our thinking about growth strategies. For example, vertical integration was a popular diversification strategy in the 1960s and 1970s. Companies decided to boost profits by expanding into upstream or downstream activities, thereby seizing control of the entire supply chain.
Oil companies were among the first to embrace vertical integration. They ventured beyond traditional petroleum exploration activities by purchasing refineries and distributors. However, the strategy’s popularity waned when several large, multinational companies were accused of monopolistic practices and their diversification efforts were thwarted by U.S. and European anti-trust regulations. In addition, many companies struggled to manage a slate of unfamiliar entities.
As a result, smart companies turned to building a network of complementary offerings to create synergistic expansion opportunities and economies of scope. For example, Amazon boosted e-book sales by introducing Kindle, and Sony grew from a tape-recorder company to an entertainment provider with a wide range of movie and music products, which helped it to edge out Toshiba in the format war.

What kinds of companies should focus on organic growth?

Niche companies with limited market penetration should focus on building brand equity before incurring additional risk by venturing beyond their core competencies. Organic growth maximizes existing resources and helps companies gain market recognition without diluting their brand. Organic growth is a good way to show the strength of innovation to investors who are interested in paying more for a strong brand with a loyal customer following and continuous growth potential.
The downside to organic growth is time. Executives have to be patient, committed to the company culture and willing to make additional investments without succumbing to the instant revenue gratification that accompanies cultural divergence.

When should executives consider strategic alliances?

Strategic alliance is a viable expansion strategy when the joined forces in technology development and market dominance benefit all players in the coalition. Google TV is an example of a collaborative effort in which a few strong players have united to make an even stronger team. Google, LG, Sony and Samsung are contributing technology and resources and joining market power in an effort to develop a smart television platform that may revolutionize the home entertainment industry.
The bottom line is: Why risk being left behind when you can be part of a winning team?

Are companies changing the way they view and integrate acquisitions?

We used to believe that fully integrating acquisitions was the best way to lower operating costs and reap the union’s financial rewards. But assimilation is tricky and executives often failed to meld disparate cultures and people.
Instead of making integration mandatory, companies should selectively and strategically integrate parts of an acquired organization. They may combine rudimentary functions such as distribution and accounting, while allowing areas of strength to flourish autonomously.
For example, Disney wanted to strengthen its market position with young boys by acquiring Marvel Comics’ cast of super heroes such as Iron Man, Thor, Captain America and the X-Men. However, if Disney execs were to force the influence of Disney’s culture on Marvel, Marvel’s brazen creativity would be stifled.

What should executives consider when selecting a growth strategy?

Time and timing are key considerations because organic growth and synergistic expansion tend to be slow and safe, while an acquisition or merger is risky but jumpstarts new growth. History shows that growth is rarely sustained when it results from knee-jerk reactions to unanticipated competitor moves or industry changes. Executives need time to build consensus and socialize their ideas, and half-hearted alliances or acquisitions often fail because it takes commitment and tenacity to work through the inevitable challenges.
CafePress, a San Mateo company that debuted on Nasdaq last month, has been growing slowly and steadily through both organic growth and acquisition. CafePress committed many years in organic growth and developed the strength in print-on-demand services. The acquisitions helped it to diversify the portfolio and establish a network of partners and customers. Without clear positioning and dedication, CafePress may have jumped into other services and diverted from its competence.
Lastly, even the best marriages sometimes fail. So with alliance or acquisition, executives should hope for the best but plan for the worst by developing an exit strategy to end the relationship and still be friends.

Yi Jiang is an assistant professor and associate director of MBA for Global Innovators for the College of Business and Economics at California State University, East Bay. Reach her at (510) 885-2932 or [email protected]

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How to expand your business through an SBA loan

Santiago “Chico” Perez, SBA Sales Manager, California Bank & Trust

You need operating cash to grow your business, but securing a traditional commercial loan hasn’t been easy, especially for small business owners. Bank loans to businesses grew 10 percent in 2011; however, commercial lending has not returned to pre-recession levels, largely because companies that experienced a decline in sales or profitability can’t meet today’s strict underwriting standards.
Fortunately, Small Business Administration (SBA) loans are a worthwhile financing option for small to mid-sized companies. An SBA loan typically offers longer terms and more competitive interest rates than other commercial loans and, best of all, bankers can be more lenient when considering your request because the government guarantees up to 75 percent of the loan amount.
“An SBA loan is a sensible option for businesses that experienced a decline in sales and profits during the recession,” says Santiago “Chico” Perez, SBA sales manager for California Bank & Trust. “Bankers can consider your financial projections, along with historical data, when evaluating your loan application.”
Smart Business spoke with Perez about the growth opportunities for small to mid-sized business through an SBA loan.

When should small business owners consider an SBA loan?

New ventures traditionally have a hard time securing working capital, but you may get $100,000 to $5 million through a government-backed SBA loan, as long as you’ve run a similar enterprise in the past and propose a viable business strategy. You can also use SBA funding to expand by purchasing another company or using the proceeds to procure equipment or inventory to fulfill a new contract. Businesses that use an SBA loan to pay off or restructure an existing mortgage or other business debt can free up cash for other investments, such as hiring or purchasing supplies.

How do SBA loans differ from traditional commercial loans?

Generally speaking, SBA loans can offer more favorable terms than traditional commercial loans. For example, you only need 10 percent down to purchase real estate and you don’t need to come up with a lot of cash because the SBA lets you roll the fees into the loan balance. SBA loans feature higher loan-to-value ratios, longer repayment periods and no balloon payments; consequently, companies often qualify for higher loan amounts because they can amortize the purchase of buildings over 25 years or equipment over the remaining economic life, and therefore need less cash flow to service the debt. In addition, owners can use the funds to buy raw materials, as well as finished goods or equipment, which gives manufacturers the flexibility to expand into new markets.

How does the SBA’s underwriting criteria differ from traditional commercial loans?

Bankers will review standard requirements such as financial statements and credit reports, but some criteria differ from traditional commercial loans.

*Projections. Bankers can consider future sales as well as historical data when evaluating your loan application, but be sure your projections are realistic and correlate with your current financials and forecasts. For example, earnings won’t automatically double if you purchase a larger facility or new equipment. Instead, explain how the equipment will boost the bottom line by lowering operating costs or how you’ll use the extra space to increase revenue by adding a new production line. Finally, substantiate your claims by furnishing copies of customer agreements and contracts.
* Resumes. Tout your management team’s industry experience and track record, particularly if you plan to start a new business.
* Ownership. Owners with more than a 20 percent stake in the business must submit signed personal financial statements and tax returns.
* Down payment. Lenders must determine the source of a borrower’s down payment, even if the funds have been deposited into an escrow account.
* Collateral. The need for collateral hinges on the loan purpose and program, so be sure to review the underwriting criteria at SBA.gov and specifically state the need and purpose for the funds in your proposal.
* Tax returns. Owners must supply three years of tax returns, financial statements and balance sheets instead of two to qualify for an SBA loan.

Does the SBA offer other support to small business owners?

The SBA provides myriad tools and support to help business owners create a loan proposal and navigate the underwriting process. Small Business Development Centers offer free assistance with financial, marketing, production and feasibility studies, and many centers engage local CPAs, retired executives and consultants to advise small business owners.
The SBA also provides mentorships, free counseling and business plan expertise through a nonprofit organization called SCORE, which helps business owners across the country with various aspects of their business.

What else can owners do to successfully navigate the SBA lending process?

Loan approval hinges on an accurate, thorough proposal, so it behooves you to take your time and seek expert advice because you only get one chance to make a great impression. Bankers want to hear the story behind your numbers, so be ready to explain how you overcame adversity during the recession and how you’ll use an SBA loan to take your business to the next level. Help your banker understand your customers and add value  to your proposal by including links to your company’s website, LinkedIn page or Facebook page in your loan proposal. Finally, it may be possible to accelerate the process by selecting an approved Preferred Lender’s Program lender because they have the authority to approve your loan without submitting the entire package to the SBA.

Santiago “Chico” Perez is the SBA sales manager for California Bank & Trust. Reach him at [email protected]

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How to take advantage of a new state program by investing in small businesses

Mary Jo Dolson, Director in tax, SS&G

Under the InvestOhio program, a new resource for Ohio small businesses, those who invest in a small business enterprise  located in the state can receive a 10 percent income tax credit if the investment is held for two years. The small business enterprise must meet certain qualifications to be a qualified business for the credit.

And that credit applies even if the investor is the owner of the business,  says Mary Jo Dolson, CPA, director in tax at SS&G.

“It doesn’t have to be a new investor,” says Dolson. “You can invest in a company that you own, then get the credit on your individual income taxes. More and more businesses are buying equipment or expanding their buildings, both activities that would qualify. So why not invest as an individual and get the credit for dollars the business is going to be spending anyway?”

Smart Business spoke with Dolson about how to take advantage of the InvestOhio program by investing in your own business, or in someone else’s.

What is InvestOhio, and how does it work?

InvestOhio is part of the budget bill passed in June 2011 that took effect July 1 and runs through June 30, 2013.

To participate, an individual or a pass-through entity that wants to invest in a small business must register themselves as an  investor. The small business enterprise must also register itself as a small business entity. Then the two parties, the investor and the small business enterprise, decide how much to invest and when. The investor must receive an ownership interest in the small business enterprise.

For example, if someone decides to invest $1 million in a company, both sides register, and they each get an ID number. Together they would create one application that indicates that, for example, on May 1, that taxpayer is going to invest in that company. That investment then has to be made within 30 days before or after that date. The business entity then has to spend the  money invested on qualified items within six months of the investment, or that credit would potentially be  lost.

Finally, there is a two-year holding period. If a taxpayer invests on May 1, 2012, that investment and the assets acquired have to stay in place for two years, until May 1, 2014. As long as that condition is met, the taxpayer who invested $1 million then gets a 10 percent non-refundable tax credit, with $100,000 coming right off that individual 1040 return. And if you can’t take the whole credit amount in one year, it can be carried forward for seven years.

Individuals can invest up to $10 million, and the $100 million tax credit program is expected to generate at least $1 billion in new private investment in Ohio small businesses by 2013.

What kinds of companies are eligible to participate?

Qualifying entities need to have less than $50 million in assets, or less than $10 million in sales. Companies must also have employees who are located in the state. All registrations and applications for the credit are completed through the Ohio Business Gateway. The individual investors might have to set up an Ohio Business Gateway account but probably most small business enterprises will already have a gateway account.

How complex is the application process?

Even though investors and small businesses have to register, it is not a voluminous application. It is about 10 questions, and they are simple, such as your Social Security number, whether you are a pass through entity investing in another entity and your federal ID number. There are also a lot of links for small businesses to secure the information they need quickly from the state website.

Are there drawbacks?

As long as you follow through with the requirements of the application, there really are not any drawbacks for the credit. If you complete the application and say you’re going to invest $1 million, and then you only invest $250,000, the state has indicated they will deny the credit — at least 50 percent of what you indicated you were going to invest must be invested to secure the credit. Also, if you just own rental real estate and have no employees, you can’t participate. There is an employee requirement for the small business enterprise to qualify for the credit.

Finally, it has to be an individual or another pass-through entity investing. The small business enterprise cannot secure a loan and have the investors pay it off. This will not qualify.  The actual individual and/or entity investing must actually put the funds into the business. The individual and/or entity investing can borrow the investment money from a bank .

What can a business use the money to invest in?

Fixed assets, tangible personal property and real estate are included, among other items. A business can also spend the investment on wages, but it cannot be for wages for owners or officers of the company. Motor vehicles also qualify, as long as they are titled in Ohio. The key is the assets being purchased must be utilized and located in the state of Ohio.

How will businesses account for the money?

Reporting will be required after a company spends the investment through the Ohio Business Gateway. The state does not currently have those forms available, but they are anticipating they will be available by April 1.

Will the program continue after 2013?

As part of the budget bill, the program exists in the next biennium, as well, from July 1, 2013, to June 30, 2015. However, there is one major change: the holding period for assets goes from two years to five years. There is also supposed to be another round of funding in the next biennium, from July 1, 2015, to June 30, 2017, with the holding period increasing to seven years. Right now is the shortest holding period investors are going to get, so investing sooner rather than later will provide a bigger bang for your buck more quickly.

Mary Jo Dolson, CPA, is a director in tax at SS&G. Reach her at (330) 668-9696, (800) 869-1835 or [email protected]

Small business payrolls rise by 55,000 in December; paychecks up, too

WASHINGTON ― Small businesses created 55,000 jobs in December and increased working hours for employees, further evidence the labor market was strengthening.

In addition, workers at small businesses saw a rise in their paychecks last month, said payrolls processing company Intuit on Wednesday.

December’s gain compared to November’s upwardly revised 70,000 count, which was previously reported as an increase of 55,000.

The jobs market is showing signs of firming, with the unemployment rate dropping to a 2-1/2-year low of 8.6 percent in November. In addition, first-time applications for state unemployment benefits are hovering near 3-1/2-year lows.Households’ perceptions of the labor market are also improving, with measures of jobs “plentiful” and “hard to get” in the Conference Board’s December consumer sentiment survey yielding their best readings since January 2009.

The revision to Intuit’s small business payrolls in November suggests that the government’s nonfarm employment count for that month could be raised from 120,000 when figures for December are released on Friday.

December nonfarm payrolls are expected have increased 150,000 according to a Reuters survey, with the unemployment rate seen edging up to 8.7 percent.

The government has been revising the prior months’ nonfarm payrolls figures higher and analysts say the Bureau of Labor Statistics’ model tends to delay the count of small business employment.

The Intuit survey is based on responses from about 72,000 small businesses with fewer than 20 employees that use the Intuit Online Payroll system. It covered the period from Nov. 24 to Dec. 23.

The average work week for small business employees rose 0.4 percent to 25.4 hours, while the average monthly salary increased 0.4 percent to $2,706.