TARP Money Headed To The SBA

[There has been a lot of Buzz this week about TARP money headef for small businesses. Below is a Press Release from the SBA that can sets out the facts straight from the horses mouth. The original press release can be found at: http://www.sba.gov/idc/groups/public/documents/ca_fresno/ca_fresno_opedra.pdf ]

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Op-Ed . . . Recovery Act

Recovery Act Gives SBA Tools to Boost Small Businesses: By Carlos G. Mendoza, Fresno District Director

The Administration is taking actions to make a big dent in the small business credit crunchby offering new incentives to small business borrowers and lenders through the AmericanRecovery and Reinvestment Act and Department of Treasury actions.

With tax incentives and steps to encourage lending, the Recovery Act recognizes that small businesses are part of the solution to getting our economy moving again. The bill’s primary goals for the U.S. Small Business Administration are jump-starting job creation, re-starting lending, and promoting investment in small businesses.

The Recovery Act provides entrepreneurs and lenders financial relief from the currenteconomic crisis that will help encourage borrowing and lending to all small businesses,including start-ups.

For small businesses, the Recovery Act temporarily eliminates SBA guaranteed 7(a) and 504 loan fees and offers tax credits. For lenders, it temporarily eliminates 504 loan fees. The fee eliminations are retroactive to February 17, the day the Recovery Act was signed. SBA is developing a mechanism for refunding fees paid on loans since then.

The Act also supports guarantees of up to 90 percent on most types of 7(a) loans toqualified small businesses. The temporary loan fee eliminations and 90 percentguarantee provisions will apply to approximately $8.7 billion in 7(a) loans and $3.6billion in 504 loans. SBA estimates this will cover lending in both programs throughcalendar year 2009.

In addition, the Treasury Department will commit up to $15 billion in TARP funds to help unfreeze the small business lending market, which will particularly benefit community banks, credit unions and other small lenders. Treasury will purchase existing and new SBA-backed loans made by banks, freeing up more capital so these banks can restart SBA-backed lending to local small businesses. This is yet another step in President Obama’s plan to assist small businesses during this economic crisis.

SBA staff is working hard to implement the rest of the Recovery Act’s programs for small businesses. There are a lot of moving parts, but our aim is put these programs in place as quickly and effectively as we can so they have the broadest and most rapid effect possible on small business credit markets.

The Act provides SBA with $730 million in total funding. This includes $375 million tocover the costs of temporarily eliminating loan fees and raising guarantee limits on someloans; extra funding for SBA-backed Microlenders; and $255 million for a new loanprogram to help viable small businesses with immediate economic hardship make payments on existing loans.

The Recovery Act also authorizes SBA to use its 504 program to refinance existing loans for fixed assets as part of a business expansion project; to use its guarantee authority to establish a secondary market for bank loans made under the 504 loan program; and to make loans to broker-dealers who buy SBA-backed loans from lenders and pool them for sale to investors on the secondary loan market.

Also under the Act, small businesses that need surety bonds to compete for construction and service contracts can qualify for SBA-backed surety bonds of up to $5 million, more than double the previous $2 million maximum.

Another element of the Recovery Act that is already in place is SBA’s Microloan program. These non-profit, community-based lenders make loans of up to $35,000 to small businesses and start-ups. Because this program is already operating, you can go to a Microlender today and apply for a loan. The Act funds $50 million in new loans by these Microlenders, plus $24 million to help pay for the technical assistance and training they provide to loan applicants.

We have already seen significant interest in a new program, America’s Recovery Capital, or ARC Stabilization Loans, by lenders and small businesses alike. Once in place, this temporary new program will offer deferred-payment loans of up to $35,000 to viable small businesses that need help making payments on an existing, qualifying loan for up to six months. These loans will be 100 percent guaranteed by SBA. Repayment would not have to begin until 12 months after the loan is fully disbursed, giving small businesses time to refocus their business plans in order to succeed in the long run.

The bill helps SBA-licensed Small Business Investment Companies by raising the level of SBA funding they can receive to make venture capital investments in small businesses. It also raises the percentage of their investments that must be made in smaller businesses from 20 percent to 25 percent.

Finally, I want to emphasize that all of SBA’s existing programs are open for business – we are backing loans, and providing technical assistance, training, and contract help to entrepreneurs every day.

In short, SBA is working overtime to get these provisions in place to begin knocking down the obstacles that are keeping credit from flowing to small business entrepreneurs, whose proven ability to create new jobs and commerce is second to none, and in whose hands the next phase of our economic recovery rests.

For additional information please contact the SBA at (559) 487-5791.

SBA Demographics on Minority Small Businesses

[Here are some statistics from an executive summary of an SBA report that may help minorities considering creating their own businesses. There are taken from the SBA Small Business web site found at the link below. The data is a bit dated and examines a comparison of growth rates between 1997 and 2002. However, the information can be very useful and the full report is 49 pages long and relatively through.]
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Minorities in Business: A Demographic Review of Minority Business Ownership

• In 2002, minorities owned approximately 18 percent of the 23 million U.S. firms.
• Using a proxy for measuring minority business growth, Black-owned firms had the highest growth rate for several measures between 1997 and 2002:
45.4 percent for the number of firms; 24.5 percent of total receipts for the group; and 16.7 percent for employer firm receipts.

Asians also experienced growth in the number of employer firms, at 12.6 percent, and in annual payroll, 25.3 percent. The number of American Indian and Native Alaskan businesses grew 2.1 percent.

• Hispanics or Latinos constituted the largest minority business community and owned 6.6 percent of all U.S. firms, 3.7 percent of employer firms, and 7.4 percent of nonemployer firms.

• Blacks owned 5.0 percent of all U.S. firms, 1.8 percent of employer firms, and 5.9 percent of nonemployer firms. Asians and Islanders owned 4.7 percent of all U.S. firms, 6.1 percent of employer firms, and 4.3 percent of nonemployer firms. For comparison purposes, the percentages for Whites are 82.9, 88.0, and 81.4 respectively.

• Percentages of minority women owning businesses rose from 1997 to 2002: 29 percent of Black employer firms and 47 percent of Black nonemployer firms were women-owned in 2002. In contrast, women owned 17 percent of White employer firms and 31 percent of White nonemployer firms.

• More than half of Black-owned businesses had less than $10,000 in business receipts in 2002, compared with one-third of White-owned firms and 28.8 percent of Asian-owned firms.

• On average, for every dollar that a White-owned firm made, Pacific Islander-owned firms made about 59 cents, Hispanic-, Native American-, and Asianowned businesses made 56 cents, and Black-owned businesses made 43 cents.

• The distribution of firms varied by industry and race or ethnicity. For example, 16 percent of Native American-owned firms operated in construction; 20.5 percent of Black-owned firms were in health care and social assistance. Hispanic-owned businesses were concentrated in administrative and support, waste management, and remediation services, 13.2 percent, as were Islander-owned businesses, 11.6 percent.

• All minority-owned business categories had higher proportions than the non-minority-owned businesses in “other services,” such as personal services and repair and maintenance. Of Black-owned firms, 17.6 percent were in other services; for Asians, the share was 17.1 percent; for Hispanics, 15.8 percent;
and for Native Americans, 13.2 percent.

• The ethnicities of Asian business owners were identified as Asian Indian, Chinese, Filipino, Japanese, Korean, Vietnamese, and other Asian. Among this group, Asian Indians had the highest ratio of employer firms to total firms (37 percent), followed by Koreans (36 percent), and Chinese (31 percent). Asian Indians also had the highest average receipts per nonemployer firm, $56,792 followed by Koreans, $56,320. Japanese had the highest receipts per employer firm, $1,256,646, followed by Chinese, $1,075,029. Asian Indians once again had the highest average annual payroll per employee, $28,779, followed by Japanese at $28,141.

• The ethnicities of Hispanic business owners were identified as Mexican, Mexican American, and Chicano; Puerto Rican; Cuban; and other Spanish/ Hispanic/Latino. Among this group, Cubans had the highest ratio of employer firms to total firms, 18 percent; the highest average receipts per nonemployer firm, $36,692; the highest receipts per employer firm, $1,108,998; and the highest average annual payroll per employee, $28,769. Mexicans, Mexican Americans, and Chicanos had the highest average number of employees per employer firm, 8.1, followed by other Spanish/Hispanic/Latino, 7.5.

• Of nonemployers, 58.3 percent were homebased, compared with 22.1 percent of employers. Home-based business rates decline sharply with firm employment size. Twenty-nine percent of all respondent employer firms with one to four employees were home-based and 0.2 percent of those with 500 or more employees.

• Home-based rates varied by ethnic and racial characteristic, a fact that may also be related to the industries in which these firms are concentrated. More than two-thirds of Asian business owners reported that they conducted business from nonresidential locations. Hispanics had a relatively smaller share of firms with one to four employees that were home-based, but a relatively large share—5.6 percent— of large firms based in the home.

• Owners use a variety of sources of capital to start or acquire businesses. Nonemployer firm owners generally use a less varied array of financing sources than owners of firms with employees. Higher percentages of male/female equally owned, male-owned, and White-owned employer firms than of other firm groups financed their startups or acquisitions through business loans from banks. Higher percentages of Black- and Native American-owned employer businesses, as well as equally men- and women-owned employer firms used business loans from the government or government-guaranteed bank loans. More than all other groups, Islander employers used personal and business credit cards to finance their startups and acquisitions.

• The majority of Asians and Hispanics in the U.S. labor force are immigrants, either naturalized or not. Among self-employed Asians, 80.8 percent are immigrants, compared with 67.9 percent of Islanders and 56.8 percent of Hispanics. Asians tended to have the highest shares of naturalized citizens in all work categories (labor force, self-employment, professional, and moonlighter) and vied with Hispanics for the highest shares of non-U.S. citizens.

READ THE ENTIRE REPORT AT:

Minorities in Business: A Demographic Review of Minority Business Ownership

Acquiring an Employer Identification Number

Many small businesses fail to get a seperate Employer Identification Number (also called an "EIN" or a Tax Identification Number - "TIN). And that is a BIG MISTAKE! Your business should be seperate from you as an individual, and as such, it should have its own identification for IRS purposes. The Small Business Administration has a web page that takes you through the process of getting an EIN and explaining why (and if) you need one.
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"An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Generally, businesses need an EIN. You may apply for an EIN in various ways, and now you may apply online. This is a free service offered by the Internal Revenue Service. You must check with your state to make sure you need a state number or charter.

Do You Need an EIN?
Do You Need a New EIN?
How to Apply for an EIN
Apply for an EIN Online
How Long Will it Take to Get a Number?
Misplaced Your EIN?
How EINs are Assigned and Valid EIN Prefixes
Canceling an EIN – Closing Your Account
Apply for an EIN Online

Check out our Interview-style online EIN application. No need to file a Form SS-4! We ask you the questions and you give us the answers. The application includes embedded help topics and hyperlinked keywords and definitions so separate instructions aren’t needed. After all validations are done you will get your EIN immediately upon completion. You can then download, save, and print your confirmation notice. It’s fast, free, and user-friendly!

Change of Ownership or Structure Generally, businesses need a new EIN when their ownership or structure has changed. Refer to "Do You Need a New EIN?" to determine if this applies to your business."

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This information can be found at the SBA web site: here.

GETTING STARTED ON THAT BUSINESS PLAN

If you have been following this Blog and you are planning on starting or expanding your small business, hopefully you have visited the SBA website that I mentioned in my post on May 12th, 2009.

One of the worst pitfalls for the small business person is “Over-Eagerness” and this causes a person to skip very important steps in preparing oneself for the unforgiving world of business. And the world of business is definitely unforgiving – Just ask G.M.

I have also mentioned earlier that one of the keys to success in starting a small business is to HAVE A GOOD BUSINESS PLAN. And the SBA can help you with this. If you take a moment to go to their “Small Business Planner” that explains how to write a Business Plan, you will find some invaluable information.

I don’t believe in wasting time, and one of the biggest wastes of time is “re-inventing the wheel.” So, I am not going to recite what the SBA has already made available to you (Your tax dollars at work – really!) At this page, if you are willing to put in the time, you really can learn how to put together a very effective Business Plan. And effective Business Plans can help to capture financing.

In its introduction, the SBA gives some very helpful tips, like:

“A business plan should be a work-in-progress. Even successful, growing
businesses should maintain a current business plan.”

“[K]now
everything you can about your products or services in order to persuade someone
to buy them.”

“To become an expert (or to fine-tune your knowledge
if you already believe you are one), you must be willing to roll up your sleeves
and begin digging through information.”

And then the site provide links to the various elements of the Business Plan so as to walk you through, step by step. These elements include:

Executive Summary
Market Analysis
Company Description
Organization
& Management
Marketing & Sales Management
Service or Product
Line
Funding Request
Financials
Appendix

Yes, that’s right, the “Appendix.” That one might have gotten under your radar but if you read the SBA website – that you paid for with your hard earned tax dollars – you will learn why the Appendix is an important part of any business plan.

So, enough for now, and I’ll see you on the other side of the SBA’s guide on how to write an effective Business Plan - found at this link.

SORRY – NO FREE LUNCH

Free money from the Government to start or expand your business? NOT!!!

There are plenty of adds in magazines and on the web proclaiming that for a small fee the advertiser will help you to obtain a Federal Grant to start or expand your business. Well, here is what the Federal Government has to say about that:

'The federal government does not provide grants for starting and expanding a business.

“Grants from the federal government are only available to non-commercial organizations, such as non-profits and educational institutions in areas such as, medicine, education, scientific research and technology development. The federal government also provides grants to state and local governments to assist them with economic development.

Some business grants are available through state and local programs, non-profit organizations and other groups. For example, some states provide grants for expanding child care centers; creating energy efficient technology; and developing marketing campaigns for tourism. These grants are not necessarily free money, and usually require the recipient to match funds or combine the grant with other forms of financing such as a loan.

If you are not one of these specialized businesses, both federal and state government agencies provide financial assistance programs that help small business owners obtain low-interest loans and venture capital financing from commercial lenders.”

Business.Gov (Small Business Grants)


So, before you and over your hard earned cash to someone who guarantees to get you federal grant money for your business, ask them if they are talking about getting money for a commercial venture or for a non-commercial organization.

If you are looking for funding for a qualifying organization, then you may wish to take a look at the Federal Government’s grant webpage: Grants.Gov.

I’M FROM THE GOVERNMENT AND I’M HERE TO HELP YOU?

Most people cringe when they hear that phrase, because when the “Feds” get in involved, things often go badly wrong.

But not always.

If you read my previous post, you will recall that I closed by saying the before you went scouting around for financing, you needed to have a BUSINESS PLAN. The term Business Plan can give an entrepreneur a pain more annoying than a tooth ache. But Business Plans are a reality in the world of finance. It’s Simple, when you deal with banks and professional lenders – No Plan = No Loan.

But take heart, a Business Plan is not rocket science and it can be done without a great deal of pain. AND HERE’S THE GOOD PART: The Federal Government Really Can Help You With This!

Let me introduce you to the SBA’s “Small Business Planner.” This is a series of web sites that can take the small business owner from “Soup to Nuts” in planning and running his business.

In my last post, I think I may have gotten your attention with an article about financing your business. Now that I have gotten your attention, let me bring you back to reality. Financing will do you no good, if you do not have a sound business plan. A fool and his money are soon parted, and if you go into business without a plan, you may just be that fool.

And even before you try to write your business plan, you need to know what you are doing and why. The SBA has plenty of helpful information that can guide you along the path to establishing your small business and their Small Business Planner is a great place to start. It has everything from start to finish with a small business. And remember, at some point there will be a "finish." And whether you will be around to see it or not, you should plan for it.

Here is a list of the topics covered by the SBA Small Business Planner:

Plan Your Business
Get Ready
Write a Business Plan

Start Your Business
Find a Mentor
Finance Start-Up
Buy a Business
Buy a Franchise
Name Your Business
Choose a Structure
Protect Your Ideas
Get Licenses and Permits
Pick a Location
Lease Equipment

Manage Your Business
Lead
Make Decisions
Manage Employees
Market and Price
Market and Sell
Understand Fair Practice
Pay Taxes
Get Insurance
Handle Legal Concerns
Forecast
Advocate and Stay Informed
Use Technology
Finance Growth

Getting Out
Plan Your Exit
Sell Your Business
Transfer Ownership
Liquidate Assets
File Bankruptcy
Close Officially

As you can see, the list is quite extensive; but for now, we are only going to focus on the section titled "Plan your Business" and we will use the SBA website as a guide while looking at other helpful sites to simplify or fill in the gaps.

A COUPLE OF FINAL NOTES FOR THIS POST

Before you get too far into the Small Business Planner, you should take a moment to look at the
SBA Business Assessment Tool. Being an entrepreneur is not for everyone, and this Assessment Tool can help you to decide if being a small business person is for you. You don’t want to go through all of the trouble to start a business, and get it funded only to find out that you don’t like it. This Assessment Tool is pretty straight forward, and is well worth the effort it takes to complete it.

Finally, there is a SBA Business Plan Tutorial and a SBA Business Plan Template available for you provided by the SBA using these two sites helps you to understand what you are doing and why you are doing it (in terms of a Business Plan); and the Template helps keeping you from having to reinvent the wheel.

There is plenty to explore in the SBA’s Small Business Planner, and in future posts I will explore some the specific items.

START-UP CAPITAL FOR YOUR SMALL BUSINESS

So you know what type of business you want to go into and you know what type of business structure your business will have. Regardless of whether you want to go into business with a Sub S corporation or a LLC or some other entity, you will need money to get it off the ground.

What we are talking about is “START-UP CAPITAL”

The U.S. Government’s Small Business Administration offers the following advice:

“Before seeking financial assistance, ask yourself the following:

“Do you need more capital or can you manage existing cash flow more effectively?

How do you define your need? Do you need money to expand or as a cushion against risk?

How urgent is your need? You can obtain the best terms when you anticipate your needs rather than looking for money under pressure.

How great are your risks? All businesses carry risks, and the degree of risk will affect cost and available financing alternatives.

In what state of development is the business? Needs are most critical during transitional stages.

For what purposes will the capital be used? Any lender will require that capital be requested for very specific needs.

What is the state of your industry? Depressed, stable, or growth conditions require different approaches to money needs and sources. Businesses that prosper while others are in decline will often receive better funding terms.

Is your business seasonal or cyclical? Seasonal needs for financing generally are short term. Loans advanced for cyclical industries such as construction are designed to support a business through depressed periods.

How strong is your management team? Management is the most important element assessed by money sources.

Perhaps most importantly, how does your need for financing mesh with your business plan? If you don't have a business plan, make writing one your first priority. All capital sources will want to see your business plan for the start-up and growth of your business.

The also want the reader to know:

Not All Money Is the Same
There are two types of financing: equity and debt financing. When looking for money, you must consider your company's debt-to-equity ratio - the relation between dollars you've borrowed and dollars you've invested in your business. The more money owners have invested in their business, the easier it is to attract financing.

If your firm has a high ratio of equity to debt, you should probably seek debt financing. However, if your company has a high proportion of debt to equity, experts advise that you should increase your ownership capital (equity investment) for additional funds. That way you won't be over-leveraged to the point of jeopardizing your company's survival.



Equity Financing
Most small or growth-stage businesses use limited equity financing. As with debt financing, additional equity often comes from non-professional investors such as friends, relatives, employees, customers, or industry colleagues. However, the most common source of professional equity funding comes from venture capitalists. These are institutional risk takers and may be groups of wealthy individuals, government-assisted sources, or major financial institutions. Most specialize in one or a few closely related industries. The high-tech industry of California's Silicon Valley is a well-known example of capitalist investing.

Venture capitalists are often seen as deep-pocketed financial gurus looking for start-ups in which to invest their money, but they most often prefer three-to-five-year old companies with the potential to become major regional or national concerns and return higher-than-average profits to their shareholders. Venture capitalists may scrutinize thousands of potential investments annually, but only invest in a handful. The possibility of a public stock offering is critical to venture capitalists. Quality management, a competitive or innovative advantage, and industry growth are also major concerns.

Different venture capitalists have different approaches to management of the business in which they invest. They generally prefer to influence a business passively, but will react when a business does not perform as expected and may insist on changes in management or strategy. Relinquishing some of the decision-making and some of the potential for profits are the main disadvantages of equity financing.


Debt Financing
There are many sources for debt financing: banks, savings and loans, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. State and local governments have developed many programs in recent years to encourage the growth of small businesses in recognition of their positive effects on the economy. Family members, friends, and former associates are all potential sources, especially when capital requirements are smaller.

Traditionally, banks have been the major source of small business funding. Their principal role has been as a short-term lender offering demand loans, seasonal lines of credit, and single-purpose loans for machinery and equipment. Banks generally have been reluctant to offer long-term loans to small firms. The SBA guaranteed lending program encourages banks and non-bank lenders to make long-term loans to small firms by reducing their risk and leveraging the funds they have available. The SBA's programs have been an integral part of the success stories of thousands of firms nationally.

In addition to equity considerations, lenders commonly require the borrower's personal guarantees in case of default. This ensures that the borrower has a sufficient personal interest at stake to give paramount attention to the business. For most borrowers this is a burden, but also a necessity

This information can be found at the following SBA website on start up capital


How Stuff Works has a very useful web site that explains in greater detail HOW START UP CAPITAL WORKS . This How Stuff Works website is a cluster of multiple web pages that walks the reader through start-up financing, as well as having a Glossary. Capital Needs, Types of Capital, Using Personal Funds, Borrowing from Friends and Family and Getting a Business Loan are just some of the topics covered at this website.

Inc. Magazine also has an on-line article on Start-Up Financing that cover quite a bit of ground. The language in the Inc. Magazine article is a little more sophisticated than that in the How Stuff Works article, and it may be more suitable for individuals with a higher degree of experience in business.

Lastly, I would like to mention the Entrepreneur Website . It is short and concise and gives a quick overview of the topic and reading this may be helpful for understanding the other articles.


Money is the life’s blood of any business and if you do not have it to start your business then nothing will happen. You should not be deterred by the perceived obstacles to obtaining the necessary capital to start your business; you just need to know where to go for expert advice and then have the discipline to follow it.

Finally, I would like to direct your attention to a statement by the SBA that I quoted earlier in this article:
”Perhaps most importantly, how does your need for financing mesh with your business plan?”

Before you can finalize your decisions about your start-up financing, you need to have A BUSINESS PLAN

Most sources of financing will not even consider investing in your business if you do not have an intelligent Business Plan. And Business Plans will be the topic of my next Post. So until then, Keep Up the Entrepreneurial Spirit!