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Changes For Business Finance and Working Capital Loan Programs

As business owners develop their small business loan plans for future financing and refinancing throughout the United States, there is an increasing awareness that there have been significant business finance changes that cannot be ignored. Some of these measures are likely to end up being permanent, and even the temporary commercial mortgage loan and working capital loan changes are expected to be in place for an extended time due to the severity of the current financial climate.

A reduction in commercial lenders as well as stricter standards for acquiring commercial loans and commercial mortgages has been the net result from business finance changes. Unfortunately there has also been no shortage of misinformation about the availability of commercial funding.

A significant reduction in business lending activity overall is perhaps the most dramatic change. This has been due to several events occurring almost simultaneously. Several major commercial lenders have gone out of business altogether. Many banks have stopped commercial finance lending while continuing consumer lending. Numerous business lenders have enacted stricter standards for the commercial financing transactions they are still willing to consider.

It remains to be seen how many changes will be permanent or temporary. But from a practical perspective, commercial borrowers are left with no choice but to adapt to the changing business finance environment. Business owners must be prepared to operate within a more complicated climate for commercial mortgage loans and small business loans regardless of how long the changes might be kept in place.

What should borrowers do about this? A primary option that business owners should explore involves looking beyond their local market area for help with commercial loans. To accomplish this, it should be helpful to contact a commercial financing expert operating throughout the United States.

In addition to fewer business lenders to choose from, there are two other significant changes which must be anticipated by business owners before seeking new commercial loans. First, more collateral for virtually all business finance funding is being demanded by many commercial lenders. Second, most lenders have cancelled or are about to eliminate unsecured lines of credit (usually called working capital loans) for many businesses.

One effective commercial financing strategy for overcoming the combined obstacles of more collateral, fewer lenders and reduced unsecured credit lines is to consider business cash advance programs based on future credit card processing transactions. This is proving to be one of the few sources of business funding that has not been adversely impacted by recent events. To learn more, it will be advisable to discuss the potential with a business finance expert who can provide advice about business cash advances as well as other small business financing solutions.

It is increasingly obvious that many banks will continue to modify their business lending programs in response to changing conditions. This means that another key change issue for working capital financing and commercial mortgages is the likelihood that more changes will be forthcoming in the near future.

To adequately prepare for future commercial finance changes that might (or might not) occur is a daunting task for a business owner. A commercial financing expert familiar with Plan B contingency financing for small business loans will prove to be a valuable resource for any borrower wanting to seriously deal with both current and future changes impacting the financial health of their business. By having a candid conversation with a commercial loan expert, business owners should be more capable of implementing an appropriate strategy for the vast changes which have recently occurred or are about to become effective for most business financing and working capital finance funding.

In Search of Perfect Form – Case Study in Choosing Business Type

Choosing the right form for your business has a wide array of effects, including but not limited to:

  • what you can treat as deductible expenses
  • how you file tax returns
  • whether you are legally responsible for mistakes made by someone else
  • how insulated your personal assets are from business liabilities

People often do business as a sole proprietor if they are in business alone, providing something relatively straightforward, with practically no risk that anyone would ever sue. Sole proprietors include Schedule C in their personal tax returns every year, but not an entire separate tax return. It takes minimal fuss: get some business licenses, and maybe register a Doing Business As (DBA) name for the business with the state, county and/or city. On the whole, of all forms of business, this is the least hassle.

But if anyone does sue the business, or if your business gets into financial trouble, there is no boundary between you and the business. Your personal bank accounts, real estate, cars, etc. are on the line. You also cannot take in a partner to help you grow the business.

Although I am not an attorney or accountant, because of my experience I am sometimes asked for suggestions about choosing a form of business. When I asked for guidance myself, lawyers answered with a bias toward legal solidity, without enough regard for accounting and reporting complexities their choices impose. Accountants answered with a bias toward tax efficiency, without enough regard for liability or asset protection issues. To make a good decision, you need to know both angles so you can determine which business form fits best.

Faced with this question, I provide an outline of what I regard as the high points. The person who asks me still needs to consult a legal professional to make a final decision, but they have a clearer notion of what to ask their attorney.

Case Study

Recently I was asked for advice about the right business form for a doctor who believed he was a sole proprietor. Two other doctors joined his practice. Because all three share the same religion, the doctor accepted them on a handshake, with no formal agreement.

After a while, the new doctors left, set up their own practice elsewhere in the same building, and took a large number of his patients with them. To get through the resulting crunch, his wife has been handling the reception desk and other clerical duties. It occurred to the doctor and his wife that perhaps they need to handle the business side of his practice differently.

Obviously, his business form is not the only problem, but this case study is confined to that issue.

When the doctor accepted partners, he formed a general partnership without realizing it. If he shares resources with other doctors without setting up a formal business, that forms a general partnership. In this business form, each of the doctors is liable for any mistakes made by the other doctors and their personal assets are at risk. In other words, if any of the doctors terribly harmed a patient, the patient could sue all three doctors for everything they own.

A case similar to this situation is often cited as an example. A few dentists decided to share a receptionist and waiting room without making formal business arrangements. They did not realize that made them a general partnership until one of them got into trouble and the others found themselves pulled in. The same thing would apply in any similar sharing situation, such as mechanics who share a garage and set of tools without setting up a formal business. It is perilously easy to accidentally create a general partnership in the eyes of the IRS and courts, and the consequences can be financially and legally ruinous.

This doctor was lucky. Nothing terrible happened while the other doctors worked with him, and he is wisely looking at what changes he should make instead of simply going back to his previous structure.

Options On the Table

Now that the doctor is on his own again, he could work as a sole proprietor again. But considering that doctors are at high risk of getting sued, he probably should at least have either a corporation or a limited liability company (LLC) to insulate personal belongings somewhat from any lawsuits that happen in his professional life. After all, he is not the only person relying on those assets. His wife could lose everything, too, simply because he has not protected personal assets from professional risks. (For reasons outside the scope of this article, limited partnership was not under consideration in this case.)

Although giving the business a more formal structure involves extra cost and bother, there are some compensations. In addition to better asset protection, it is easier to take appropriate business deductions on tax returns when using a well suited business form. As the doctor ages, he may want to bring another doctor into the practice again, or sell it when he is ready to retire. Having a joint practice or selling his practice will be much cleaner when it is a corporation or LLC.

The main reason for choosing a corporation would be depth of legal precedent. LLCs are newer and have much less case law behind them.

If Choice is a Corporation

Personally, I thought a corporation would not be the best fit in this instance, but for some people it would be. A “subchapter C” (normal) corporation leads to double taxation on some income–the corporation pays tax on its profits, and the owner (the doctor) pays tax again on any profits that are paid out to him as dividends. For this reason, if he chose to incorporate, I suggested a “subchapter S” corporation. C-corporations can have more owners, issue more than one class of shares, hold more retained earnings, and own more kinds of assets or other businesses. Those abilities are important for large companies but are not factors for his medical practice.

After forming the corporation, he would file a form with the IRS declaring subchapter S status. When times are bad, losses would “flow through” from the S-corporation to his personal tax return, up to the amount in any one year that he uses to “capitalize” the company when he forms it. In one of my businesses, I only capitalized with $1000. When I had a bad year, that loss stretched out $1000 per year on my personal tax return as a deduction until it was used up.

When times are good, he would pay himself a salary from the corporation at a rate that is appropriate for his profession. If there is more profit in the company, that “flows through” to his personal tax return and is taxed as his income, but no payroll tax is due on it. This is a tax break he does not get when he does business as a sole proprietor.

If Choice is Limited Liability Company

LLCs are designed to combine the liability insulation of a corporation with tax treatment like a partnership. What happens to income is similar to what I described for S-corporations, but LLCs have extra advantages. For example, S-corporations cannot deduct the cost of insurance premiums for health, life and disability insurance or medical care for owners of the business. LLCs can, providing a valuable tax break.

If the doctor’s wife stops working in the business and the marriage is rock solid, the LLC can also provide some asset protection. This is priceless if someone files a lawsuit against the doctor.

The way liability protection works with LLCs is not the same as with corporations. Incorporation is supposed to insulate owners from liability, but small oversights in running the corporation or small details in a situation can allow a plaintiff to “pierce the corporate veil” and put the owners’ other assets at risk. When set up carefully, the LLC can protect personal assets better, with less likelihood of making a mistake that shatters the protection.

This is why I thought LLC would fit the doctor better than incorporation. He wants to stay focused on patient care. LLCs keep asset protection and tax features intact more easily.

The LLC would be set up with the doctor as the managing member. That gives him all the liability for the business. His wife would be a limited member. These roles and their liability traits are similar to limited partnerships, an older business structure of operating partners and limited partners that was not considered in this case. Limited members are not allowed to perform work in the business and have no liability for the business.

Control of the business would be entirely the doctor’s. His wife would never do anything in the business. The doctor would own just a small percentage of the business, and his wife would own nearly all of it. (This is why he should only choose the LLC if he has absolute trust in his marriage.)

If somebody won a malicious lawsuit, they could only pursue the small portion that the doctor owns, because all the liability belongs to the managing member(s). The large portion owned by his wife would be untouchable because she would have zero legal liability for the business – since limited members do no work in the business, they are not liable for actions of the business.

Some people believe this is only a dodge to evade responsibility. The reason for doing it is not to deny justice to someone who has a legitimate complaint–the doctor’s malpractice insurance should take care of legitimate claimants. The reason for asset protection is to guard against malicious lawsuits, which become more common in a bad economic climate, and to protect his wife from financial ruin because of something in which she had no hand.

Further Possibilities

In case you think losing it all could never happen to you, I am personally acquainted with a few former landlords who lost their entire real estate portfolios because they operated as sole proprietors. They had no asset protection. Each of them lost a lawsuit filed by a tenant about one building, and the court judgement took all their buildings. I also once lived in the same apartment building as a woman who supplemented her income by repeatedly staging slip-and-fall accidents, for which she always accepted out-of-court insurance settlements, until someone tipped off the authorities. Such people really are out there!

There are additional steps this couple can take for asset protection if they own a lot (say, $500,000 or more) of other assets outside the business. That would involve forming at least a separate limited partnership or separate LLC in the same manner as I described for the active business LLC, and transferring assets into it. Ownership and control would be divided in the same manner used for putting the doctor’s medical practice into LLC form. The idea behind doing that is to protect most of the assets from lawsuits that might be filed in a personal context because someone believes the doctor is rich. For example, this would protect the doctor’s home and bank accounts against the slip-and-fall con artist if she staged one of her falls at his home.

In this case study, limited partnership was stricken from the list before we began, so the case study does not compare all available business forms. We also did not consider trusts or foundations, which are appropriate for some people with high net worth. Even if you think you learned enough here to decide what business form you should use, you should still talk it over with a professional because I have only touched upon high points, not all the many pitfalls and nuances of each business form I mentioned.

In the event that you have a complex tax situation or you want to include especially strong asset protection, I suggest consulting a “tax attorney.” That is the most direct way to get both the legal and financial angles dealt with neatly, and attorney-client privilege applies.

Finding a Top Online Business Opportunity

In this economic downturn and with limited funds available and looking for a top on line business opportunity or changing from the one presently in to enable you maximize your investment returns is something to be done with caution. We are mostly confused and intimidated by the large information available to us on the Internet and do not know how to get round to making the right choice, so this article will attempt to guide you to making the right choice.

In my journey into on line business, I ran into the same problem and fell into the trap of believing everything advertised not only did I loose money, I ended up been more confused than I started out with in the first place.

Some of the programs or opportunities promoters did not understand what they were marketing for when you ask the support staffs any question, the answer you get beats your imagination. The only thing they know is to tell you to buy another product. They are there to make sales for their bosses and not to assist you. I must at this junction warn that “Not All That Glitters That Is Gold”.

Below are the things to look out for in an on line business opportunity:

1. The Marketing System: You might want to ask “What is the Marketing System? Or What Do We Mean By Marketing System?” This refers to the system put in place to market the business opportunity. The top on line business opportunities have moved away from the “Old School” philosophy of the “3 Foot Rule”, “Chasing Families and Friends, Prospecting Strangers in Shopping Malls, Buying Leads & Cold Calling Trying to Convince People to Join Your Business….to the “New School” Philosophy of Building Your Business Online, through showing your prospects how to get into positive cash flow quickly through provision of valuable information using the principles of “Attraction Marketing”.

It teaches you how to learn and apply Attraction Marketing and List Building principles; make upfront cash flow through the training programs and tools you provide through affiliate programs to your prospects; building of trust and respect with your prospects by offering them value; building of long term residual income without pitching and convincing people, the greatest is promoting yourself. This is because; this is your business and not the site that you are promoting.

This are among the many things you should find in a good top on line business opportunity system. If your marketing consists mainly of promoting your business opportunity, through a replicated business opportunity site, you will join the 95% of all Network Marketing reps who spend more money on their business than they actually make.

2. The Compensation Plan: A top on line business opportunity, that promotes the same compensation plan opportunity for both the old entrant and the new, is what you should seek. Do not look for those that offer a higher compensation plan structure to the old entrant and a lower one to the new bies. Do not look for those who practice the pyramid system. Be careful, Read between the lines.

3. Training: The on line business opportunity that offers a proper step by step guide that is workable is what you should seek. Most top on line business opportunities offer free training and have up to date back office and highly skilled support staffs to meet the needs of every entrant no matter the level of their computer educational ability. Do not fall for those who say they are offering you free training that is based on buying products on a daily basis. They don’t add value to your business knowledge but rather deplete your purse. So look for those that have value to your business knowledge.

Look also, for an on line business opportunity that have proper mentorship from scratch. Someone with a history of success that you can relate to and interact with. My mentor is one of the success of my business.

4. The Community: To join an on line business opportunity, you need to know the make up of the community. Who are the promoters of the business opportunity; what is their success rate; Do members feel welcome or are they outsiders and what reputation do they possess within the industry are among the many things you should look out for.

Do not get sentimental when checking out this for your success or failure might be hinged on this. Nobody wants to associate with anything that is not workable or is shun by the society. We want to walk on the path of success. If we can take the time to check out the neighborhood we want to live in we should be able to check out our business investment opportunities.

Finally,

5. The Product: What is the product the on line business opportunity is promoting. Is in bulk or e-information or what. The product, promoted by the top on line business opportunity varies from industry to industry and what you choose to promote is also very important.

A lot of top on line business opportunities trainers try to advice people to go for non bulk items to avoid the problem of bulk carriage, shipping charges, damages among other things. The other reason the trainers advice against bulk products, is due to the low compensation rate. The choice of the business opportunity you make is a matter of your own personal choice.

Also and most importantly the quality of the product you promote is also very important to your success, nobody would like to promote an obsolete or slow moving item or a poor substandard product.

Given the above, the success or failure of your choice of on line business opportunity depends on the choice you make. You need to be very careful for like I said earlier, “Not All That Glitters That Is Gold”. I learnt the hard way when I was choosing my own on line business opportunities and lost a lot of money, before I finally found one that have surpassed my expectation. I have learnt a lot from my present programs and so the pain of my initial loss when searching for a top on line business opportunity have been wiped off.