What Business Owner’s Can Do To Gain Capital
Banks aren’t lending-despite reports the economy is getting better. So, what does this mean for small business owners and people trying to start their own business? Basically people are going to need to get a little creative when it comes to getting money from banks. If you don’t have a perfect credit score, you have some work cut out for you.
So why aren’t the banks lending? One reason is Congress won’t let them. The government gave banks money to bail them out, but told them not to repeat their mistake of giving loans to undesirable candidates. That seems reasonable, but it really is a vicious cycle. With the downturn in the economy, more people are losing their jobs, which means they aren’t making any money. Few businesses are hiring due to less spending etc. so people can’t find work. These people decide to start their own business, but can’t get a loan because they don’t have a job.
So what can you do as a business owner (new or already established) to get some capital for your business? One thing you can do is to look into business cash advances. These cash advances are given to businesses that sell a portion of their future profit in exchange for capital they will receive now. They are similar to payday loan companies–where you get a cash advance for your paycheck, but you end up paying a little more than you borrow.
Another thing you can do is work on your credit score. With a debt management program, you can work with your creditors to get out of debt and slowly restore your credit. Doing this will open the door hopefully for banks to start lending again.
Bank of America for example has promised to lend $5 billion to small businesses this year, which could start a domino effect for lending. If Bank of America can prove to other banks lending to small businesses aren’t as risky as they think they are, we could really be seeing some improvement in 2010.
I guess we will just have to wait and see what happens, but for now there are options out there for small business owners and entrepreneurs such as business cash advances as well as a debt resolution program. It might just take a little more creativity and thinking outside the box to get the capital you need.
January 17th, 2010 at 8:07 am
Owner’s does not have the apostrophe - it should be simply Owners.
January 20th, 2010 at 12:15 am
hi there.
January 21st, 2010 at 1:50 pm
Disagree,
Banks have kept tarp money to bolster their phoney reserves, so it is not a case of not lending to high risk companies, they are not loaning to anyone, period, but they are cash rich enough with taxpayers money to pay out hundreds of millions in bonus money.
Simply put, everyone should move their accounts to either small local banks, or credit unions, but take your money and your business out of the tarp banks, I would not use a bank again if my life depended on it. They are all whores, they lost billions, and gov. bailed them out at our expense, and people should be fed up.
My credit lines on my personal and business accounts were eliminated unless I agreed to pay twice and three times the rate I was paying. Citi when from 6.15% to 29.9% with no reason other than they wanted to force my hand to close account. They are all whores who have ripped us all off for billions in fees, and now interest rates are through the roof while they have interest free fed window money.
Banks Suck,
February 9th, 2010 at 12:00 pm
This is a very nice article….i mean if not all but there are a few points that i can bring into practice to build up some capital…..thanks
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March 24th, 2011 at 8:50 am
Building capital is a major step in developing a strong base for any small business. One option is to provide small business stock (§ 1244 stock) in exchange for capital funding. Granted that this is only available to “qualified small businesses” as defined by the Internal Revenue Code in § 1202(d), it may be just what you need to get your company off the ground, while providing the shareholders with special tax treatment if they acquire your small business stock over other companies’ common and/or preferred stock. The incentive to the shareholders, they are eligible to receive ordinary loss treatment up to $50,000 ($100,000 for married individuals filing jointly) per year under § 1244. The treatment is also available to individuals, to the extent of their share of the loss, who during the time of insurance were partners in the partnership at the time the stock was originally issued. This is a much better opportunity than having to take the normal capital loss treatment to offset other capital gains or ordinary income to a limited extent.
In order for the shareholders to take advantage of the ordinary, rather than capital, loss your business must meet a few qualifications. The major requirement is that the aggregate amount of money and other property received by the corporation for stock, as a contribution to capital, and as paid-in surplus, does not exceed $1,000,000. This test is made at the time the stock is issued and must be acquired directly from the corporation. If the amount of stock issued exceeds the $1 million limitation, the corporation must designate which of its shares issued in the year the limitation is exceeded qualifies under § 1244. This designation must be made by the fifteenth day of the third month following the close of the corporation’s tax year. Secondly, during its 5 most recent tax years before the loss, this corporation must have derived more than 50% of its gross receipts from other than royalties, rents, dividends, interest, annuities, and gains from sales and trades of stocks or securities. More on the defining of a small business stock and the limitations may be found in section 1244(c) and (d) of the Internal Revenue Code.
Hopefully your shareholders will never have to use the loss treatment of the § 1244 stock, but it can be useful in getting investors who risk their funds to do their investing with you. On the other side of the coin, Congress has recently extended Section 760 of the Tax Relief Act of 2010 which provides shareholders the capability of being able to exclude 100% of the capital gain on the qualified small business stock if acquired after September 27,2010, but before January 1, 2012 and held for at least 5 years. Now you have another great way to build capital thru investors or partners!
Best Regards,
Christopher Taylor
Aspiring Accountant
August 10th, 2012 at 5:00 pm
Ladar Cleaning Service start up
http://www.indiegogo.com/ladarofmistartup
Ladar Cleaning Service is a woman owned and operated Commercial cleaning services. The purpose of this is to help bring in some capital to buy cleaning equipment