SFS: Small. Fast. Smart.

How to Finance your Business

You have a variety of options when it comes to financing your small business. In addition to traditional loans, you may wish to explore other opportunities that range from grants and bonds to investor-based venture capital. Here is an overview of your options so you can decide which one is best for you:

• Grants~Unlike business loans, grants have the advantage of not having to be repaid. However, grant funding is generally restricted to very specific audiences, and the use of grant funding is often subject to specific conditions, with strict reporting responsibilities.
  
  Facts About Government Grants
  SBA does NOT provide grants for starting and expanding a business. Government grants are funded by your tax dollars and, therefore, require very stringent compliance and reporting measures to ensure the money is well spent.
  Research Grants for Small Businesses
  If your small business is engaged in scientific research and development (R&D), you may qualify for federal grants under the SBIR (Small Business Innovation Research) and the STTR (Small Business Technology Transfer) programs as well.
  Find Grants
  Federal, state and local governments offer a wide range of financing programs to help small businesses start and grow their operations. These programs include low-interest loans, venture capital, and scientific and economic grants.
• Bonds~Bonds represent a unique funding opportunity for small business owners. Any bond offering made by your small business should be carefully reviewed by an attorney. The topics in this article will acquaint you with the types of bonds that are generally available.
  
  Surety Bonds
  A surety bond is an instrument that is signed by the Principal (or Contractor) and the Surety Company in order to protect the interests of the Obligee (the buyer, or party issuing the contract) in the event the Principal defaults on the loan.
  Tax-Exempt Bonds
  Tax-exempt, industrial-revenue bond (IRB) programs are attractive financing options for small manufacturers looking to expand operations and upgrade facilities. What is a Tax-Exempt Bond? Tax-exempt bonds are debt securities issued by a state or local government development agency on behalf of a private business.
• Investor-based venture capital~Venture capital is a type of equity financing that addresses the funding needs of entrepreneurial companies that for reasons of size, assets, and stage of development cannot seek capital from more traditional sources, such as public markets and banks. Venture capital investments are generally made as cash in exchange for shares and an active role in the invested company.
  
  The New Markets Venture Capital Companies
  The New Markets Venture Capital (NMVC) program seeks to stimulate economic development in Low Income (LI) areas. Through public-private partnerships between the SBA and newly formed NMVC Companies (NMVCCs) and existing Specialized Small Business Investment Companies (SSBICs), the program is designed to serve the unmet equity needs of local entrepreneurs through developmental venture capital investments, provide technical assistance to small businesses, create quality employment opportunities for LI area residents, and build wealth within LI areas.
  All SBIC Licensees by State
  The Small Business Investment Company (SBIC) Program provides venture capital to small businesses. Although SBICs are licensed and regulated by SBA, they are private, profit-seeking investment companies.

As you can see, there are many options to help you get started. The number of small businesses are growing rapidly, and it's nice to see that a support system is in place to ensure their success.

References: http://www.sba.gov/

How Well Does Your Bank Know You? Making the Most of Your Banking Relationship

Mark Gruttadauria is the Manager of Hudson Valley Bank’s Stratford branch.

Your banking relationship should be a mutually beneficial and pleasant one. The right bank can take some of the pressure off and help your business grow and succeed. The following suggestions may help you know what to expect from your bank and how to get the most out of your overall banking experience.

1) Meet with your banker to explain your banking needs, including cash management and financing, now and in the future.  With their expertise and experience in financial matters, many bankers can be a valuable resource for you and your business.

Using Barter to Improve Your Business

Elizabeth Jordan is the President of New England Trade, LLC in Stratford, CT.

  Barter is the trade of goods and services between people. It has been around for thousands of years. Barter can occur between the smallest businesses to multimillion dollar corporations. Only within the past 78 years has it been organized into trade exchanges. Trade exchanges provide record keeping of barter between their clients.  They act as a bank or clearing house for trades and broker trades between their clients.  We are one of 9 barter exchanges in the state, with over 1200 barter exchanges nationwide.

Why should your business barter? Barter provides for greater profits with no bad debts and assured trade credits. It also conserves cash because you can purchase your wants and needs with barter dollars.  The trade exchange directs its clients to patronize your business when they require your goods or services.

5 Simple Tips for Applying for a Small Business Loan

Michelle Orr is a Business Development Officer at Wells Fargo SBA Lending in Shelton, CT.

With interest rates at record lows, many small business ow ners are seizing this
moment to  grow their businesses.  When the time comes to open or expand a small business, countless small business owners select the benefits of a Small Business Administration (SBA) loan for their financing needs.  These guaranteed loans provide high-leverage financing with low down payments for qualified borrowers.  While the process of applying and successfully qualifying for a SBA loan is no different than any loan process, here are a few helpful tips that should simplify your trip to the lender:

Tip #1:  Be Aware
Gather all of your personal and business financial records for the past three years (tax
returns, financial statements, etc.) and make a copy of this package for the lender.  Also, be aware of your credit standing.  If there is any derogatory information on your credit report, prepare a letter explaining what happened and why the problem will not occur again.

Understanding your Homeowners Policy

Guy Hatfield, CPCU is the President of Hatfield Insurance Agency in Fairfield, CT.

The homeowners (HO) policy is probably the most ubiquitous insurance contract around. Yet, few understand what is provided-or not provided in the document.  The homeowners policy is a "packaged" contract that insures your home, contents, detached buildings on your property such as garages and barns, and expenses necessary if you have to live elsewhere because of a loss.  The perils insured against include the most likely losses such as fire, wind, smoke, explosion, water damage from busting pipes, theft, as well as others.  The policy does not insure against flood.  The latter policy can be purchased through the government.  In addition, the HO policy insures against injuries and property damage due to your negligence such as when someone slips on that doorstep you didn't get around to shoveling or when your semi vicious dog bites the mailman.

Accounts Receivable – Risks and Opportunities

Bob Svensk is a counselor at Greater Bridgeport SCORE.

Accounts receivable typically account for a significant percentage of an SME’s assets.  Accordingly, they should be treated like all your other assets – they should be productive and they should be protected.  

Extending credit to your clients can be both a necessity -- to keep a good customer or to respond to a competitive threat -- and an opportunity – to help secure a new customer.  The extension of credit to an existing or prospective customer can be a powerful marketing tool.  Your receivables can also be an important source of financing.  Thus, careful management of these assets is essential.

The same methods for managing the risks faced by all your assets are equally relevant for managing your accounts receivable.  These methods include:  

Avoidance – No risk here, but not extending credit can have a negative impact on your sales.
Retention – Not always the best strategy unless you know your customers very well.
Control – Offering very short credit terms or discounts for prompt or early payment are two examples of control. Clients needing on-going parts or service also give you greater control over your collections.
Transfer – This may be the most efficient way to accomplish both your marketing and your risk management objectives.  All methods of transferring risk entail a cost, albeit more quantifiable than, say, an avoidance or retention strategy.

Health Care Reform Update: New Small Business Tax Credit

Valerie Koch is the Vice President & Chief Operating Officer of The Ganim Group in Bridgeport, CT.  

One of the first provisions to become effective with the New Health Care Reform Legislation is the Small Business Tax Credit. Congress created the tax credit when it approved Section 1421 of the new Patient Protection and Affordable Care Act, which added Section 45R to the Internal Revenue Code. For tax years 2010 through 2013, small employers will receive a tax credit of up to 35 percent of the employer's contribution toward their employee's health insurance premium if the employer contributes at least 50 percent of the total premium cost, or 50 percent of a benchmark premium. The full credit will be available to employers with 10 or fewer employees with average annual wages of less than $25,000.

Starting in 2014, the maximum Section 45R tax credit will be 50% of the cost of coverage, IRS officials write in IRS Revenue Ruling 2010-13.

For purposes of this tax credit, a Small Employer is defined as an employer with no more than 25 full time equivalent (FTE) employees. A FTE employee is determined by dividing the total number of hours of service for which wages were paid by the employer during the taxable year by 2,080, rounded to the next lowest whole number. If an employee works in excess of 2,080 hours of service during any taxable year, the excess is not taken into account. Seasonal workers are excluded unless they work more than 120 days per year. Owners and family members are also excluded.

IESC and OPIC Promote SME Investment in the Emerging Markets

Bob Svensk is a counselor at Greater Bridgeport SCORE

The International Executive Service Corps (“IESC”) of Washington, DC has partnered with the Overseas Private Investment Corporation’s (“OPIC”) in promoting OPIC’s Enterprise Development Network (the “EDN”).  This program is aimed at increasing the use of OPIC’s finance programs by smaller and medium size companies.
 
IESC was founded in 1964 by David Rockefeller and other corporate leaders with the mission of promoting stability and prosperity around the world through private enterprise development.  Since its first assignment in Panama in 1965, IESC now has 8,500 volunteers and has completed more than 25,000 technical and managerial consultancies in more than 130 countries. 

OPIC is the US government agency that promotes foreign direct investment in the Developing World through the provision of Political Risk Insurance and Project Loans.

Under this cooperative program, IESC will assist an SME in:

• Completing the OPIC loan application;
• Providing guidance through the loan approval process;
• Reviewing business plans and financial projections;
• Identifying technical, legal and consulting services for the client as appropriate; and
• Assessing the viability of the potential deals and their fit with OPIC policies.

Hiring Bargains ! -- Courtesy of the IRS

Margaret Sheahan is the President of Mitchell and Sheahan, P.C of Stratford, CT.  

We all pray that the economy is recovering from recent, disastrous blows. Some Spring 2010 federal legislation is designed to encourage action that might help make those hopes reality.  The Hiring Incentives to Restore Employment (“HIRE”) Act is the clever name of the legislation signed by President Obama earlier this year to initiate these incentives. 

A pair of HIRE tax breaks can make adding to workforce in 2010 a little more palatable to the wary employer.  One reprieves the employer’s share of the Social Security payroll tax for the lion’s share of the year for a qualifying hire, a savings of 6.2% of wages.  This credit can apply to wages paid on or after March 19 through December 31, 2010.  The other is a credit on the employer’s income taxes for 6.2% of a year’s wages (up to $1,000) paid to such a new hire who remains employed for at least 52 weeks without significant  wage reduction in the second six months. 

Qualified employers are non-domestic and non-governmental employers and governmental educational institutions.   Conditions also apply to judge whether the hire itself is qualified and if the new hire is a qualified employee. 

The Law May Provide A Lifeline for Borrowers

David A. Slossberg is a partner at Hurwitz, Sagarin, Slossberg & Knuff, LLC in Milford, CT.

Did I sign my life away?  That is a question voiced all too frequently by businesses in their dealings with banks and lenders.  The answer may surprise you.  In many cases, no matter how dire the circumstances and ironclad the loan documents, the law may provide a solid lifeline. 

The current economic downturn has placed tremendous pressure on financing relationships; the values of commercial properties have decreased and the ability of businesses to generate revenues to service debt has declined. 

Loan documents are generally unforgiving.  They usually contain decisive default provisions and significant consequences flowing from any default.  Penalties are often harsh.  They may include foreclosure on property, actions to recover unpaid sums, execution on collateral and appointment of a receiver.  Very often the penalties overtake the underlying debt. 

In distress situations, lenders will insist that borrowers sign forbearance agreements before even agreeing to discuss possible workouts, which include broad general releases of potential claims, and add yet another layer of legal protection for banks.