How Much Does the IRS owe Your Small Business?
Small business owners deserve a pat on the back. They’ve made it through one of the worst recessions in our country’s history and even though many believe we are now on the uptick, the challenges aren’t over for everyone.
The American Recovery and Reinvestment Act provided relief and opportunities for some small business owners. Now there’s a little more help.
In November 2009 a bill was signed into law – the Worker, Homeownership, and Business Assistance Act of 2009, which provides an additional boost for small business owners who experienced a loss in 2009 ,but had taxable income in one or more of the past 5 years. The new law allows a small business with a Net Operating Loss (NOL) in 2009 to apply that to taxes paid between 2004 and 2008, providing the business owner with a potential infusion of cash in the form of a refund.
This law applies to Eligible Small Businesses, or ESB’s, as defined by the Internal Revenue Service. In general, the definition includes corporations, partnerships and sole proprietorships with annual sales of not more than $15 million.
As with any personal or tax related matter, make sure you consult your tax professional to see how this law applies to your specific business.
Resources:
- Loss Carryback Calculator
- 5-Year Carryback of 2008 and 2009 Net Operating Losses (NOLs) for Eligible Small Businesses (ESBs) on IRS.gov
- Instructions for Corporations from IRS.gov (Form 1139)
- Instructions for Individuals, Estates, and trusts) from IRS.gov
Your small business credit underwriting questions answered – Part 2
This is the second of a two-part post that answers your small business credit underwriting answers. I recently caught up with Mike O’Connell, Direct Capital’s Credit Manager, to have him answer questions asked by our blog readers and Twitter followers. You can learn more about Mike in the first post.
Dave: The media has been full of news about how difficult it is to get small business financing, from your perspective why is it more difficult to get financing today than it was 2 years ago?
Mike: Financing has been more difficult to obtain over the last 12 months than the earlier part of 2008. Lenders have reacted to the collapse of the housing market, unemployment rates, increasing loan defaults, etc. by adjusting their practices. The natural lender response under these conditions is to tighten up the credit window. As a result, business owners looking to expand or replace their equipment are being asked for additional information in order to determine credit worthiness. This is a balancing of the lenders and obligors looking for financing, assessing the appropriate risk by industry and credit. While some banks have tightened up substantially on lending, Direct Capital has remained consistent with its lending practices and will continue to offer small businesses the opportunity to maintain and build their companies.
Dave: What kinds of things are an absolute must for business owners to do to set themselves up with the best possible chances for credit approval?
Mike: When looking for financing for one’s business, it is critical to convey to the lending institution the need for the asset; additionally what this equipment will allow you as a business owner to accomplish. The 5 W’s truly fit into this area: who, what, when, where & why.
Who will be getting the financing? One would think an obvious answer, but often times the collateral will be used by a third party or another business; very important details to know as a lending institution.
What will it be used for? A bulldozer for example moves dirt, pretty straightforward, but the real question here is what will it allow our potential lessee to do? Complete jobs more quickly perhaps.
When will the need for the new equipment be? Is it a long term need or only a short term.
Where will the financed equipment be located? Headquarters, third party location maybe?
And lastly why – what is the core reason for the equipment?
Dave: If a small business owner doesn’t get approved, are there any options at that point?
Mike: If initially a business owner is not approved for financing, there are several steps that can be taken in order to be proactive with one’s lending potential in the future.
First, be absolutely certain that all accounts or tradelines are handled as agreed with personal and business debt obligations. Time is the best asset to re-establishing credit and showing repeated timely payments.
Second, it may be worth your time to re-evaluate your immediate needs. Maybe you or your business applied for financing on a piece of collateral that required $150,000 in lending, however you were turned down. Is there an option to find a used or less expensive piece? Where you or you business may not have qualified for over $100,000 in financing, maybe you are able to secure $50,000 to $75,000.
Lastly, be sure to know what is being reported on your personal credit report. Information unknown to you as a business owner can cost you money. If there is an erroneous collection account reporting on your credit report, and you are unaware of it – then immediate steps should be taken to contact the credit reporting agencies to correct any and all misinformation.
If you have other questions you would like answered, leave them in the comments below.
Download our free guide to 2010 tax laws affecting small business
Photo Credit: alexanderdrachmann
Your small business credit underwriting questions answered – Part 1
This is the first of a two-part post that answers your small business credit underwriting answers. I recently caught up with Mike O’Connell, Direct Capital’s Credit Manager, to have him answer questions asked by our blog readers and Twitter followers.
Dave: What is your role on the Direct Capital team and how long have you been with the company?
Mike: I have been with Direct Capital for more than 10 years now. Initially I came on board as a credit analyst and over the years moved into the Credit Manager position. My main responsibilities include overseeing the credit department to ensure Direct Capital is giving every company that is looking for financing, the opportunity grow their business. I work with each of the underwriters to ensure financing transactions are put together in the best interests of the client and Direct Capital.
Dave: What are the main components you look at when underwriting an equipment financing transaction?
Mike: When underwriting an equipment lease; there are several key areas we review. Initially, we make sure the deal itself makes sense. Is an auto repair shop acquiring a new lift? That makes sense. Conversely, is a restaurant looking to acquire a new bulldozer? – That one does not pass the smell test; our concern here is potentially there may be a second venture being started or pursued, adding an extra element of risk to the transaction. From there, we review the lessee’s credit worthiness, company’s time in business, the asset and the price of that asset. Additionally, a business geographical location can impact the risk of a deal. Unemployment in Iowa City, IA is 4.0% vs. El Centro, CA is very high at 30%. Every deal is truly unique and special; the same underwriting principles are applied to each transaction.
Dave: Is there anything you see in common on the applications that don’t get approved?
Mike: There are common themes of transactions that do not get approved. The most common of course is credit history. Now more than ever, one’s lending history will have the biggest impact on their ability to secure financing. A company’s tenure is also very important; a business that is just starting out, as opposed to a business that has been in operation for twenty years will be viewed differently.
Dave: Is there anything the borrower can do prior to submitting their application to help prevent their application from getting declined or insure they get the best possible terms?
Mike: There are a few things a business owner can do in order to give their company the best chance of acquiring lease financing. The equipment use & justification are key areas that underwriters place focus on. Also, will the new assets be used to handle additional production? Or will the new asset be used to replace an older machine that is no longer operational. What is the value of the asset? For example, a bulldozer or CNC machine holds much more value than a software only deal, or office furniture.
If you have other questions you would like answered, leave them in the comments below. We’ll cover the rest of the questions Mike answered in next week’s post. Stay tuned!
Download our free guide to 2010 tax laws affecting small business
Photo Credit: Xurble
Direct Capital contributes more than $4,000 to Haiti relief efforts
Direct Capital recently announced that we raised more than $4,000 for Doctors Without Borders, a medical humanitarian organization that is currently providing aid and relief to Haiti’s earthquake victims.
The Direct Capital team raised more than $2,000 through its monthly Denim for Donations fundraising program and the company matched those donations for a total contribution of $4,034.
Each month, we hold a “Denim for Donations” through which employees donate cash or goods and in return are given the option to wear jeans for the day. A different charity is selected for each Denim for Donations Day and 100% of the donations go to the designated organization.
“Given the terrible tragedy Haiti experienced recently, we felt Doctors Without Borders was the perfect organization to support this month,” said John Land, Direct Capital’s Director of Human Capital Management. “We connected with their ability to provide such a direct and immediate impact to help those who need it most. I’m proud of how our employees stepped up and we as a company enthusiastically matched their effort. ”
Recent recipients of Denim for Donations collections include Toys for Tots, Seacoast Family Food Pantry, New Hampshire Make A Wish Foundation and the Children’s Literacy Foundation.
Photo Credit: The U.S. Army
State of the Union for Small Business
Most small business owners will agree that 2009 was a tough year and they look forward to a true economic turn-around in 2010. Regardless of your political leanings, most agree that an important component to the success or failure of the economy in 2010 is government policy and initiatives. So, let’s take a look at the President’s State of the Union from the small business owner’s perspective.
Below are a four of the proposals and initiatives President Obama discussed and what it means for the small business owner.
“I’m proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small business the credit they need to stay afloat.”
Access to credit is vital to the small business owner, during good and bad times. Not only does it help businesses stay afloat during tough times, but it also affords businesses the ability to take advantage of opportunities. A recession and the resulting recovery inevitably comes with it plenty of opportunity. Don’t limit yourself to the local community bank. Diversify your business debt to include long and short term loans, equipment leasing, business cash advances, lines of credit and mortgages. Use each one when appropriate and get some advice when you need to about the best type of financing to use for your project or investment.
“I’m also proposing a new small business tax credit — one that will go to over 1 million small businesses who hire new workers or raise wages.”
Hiring new workers or raising wages will typically happen after revenues begin to increase, which happens after consumer confidence rises and they begin spending money again. Small business owners may not want to hire additional staff just to get the tax credit, unless it makes financial sense. However, the idea of a proposal that increases hiring and wages is news that will hopefully help raise consumer confidence, which in the long run is good for everyone.
“Let’s also eliminate all capital gains taxes on small business investment, and provide a tax incentive for all large businesses and all small businesses to invest in new plant and equipment”
The future success of our economy not only depends on the confidence of consumers, but also of small business owners to build the confidence to begin investing again into their business. Proposals like this, if they make it through the legislative process, could help raise the confidence level of this important group.
“We’re launching a national export initiative that will help farmers and small businesses increase their exports, and reform export controls consistent with national security.”
You don’t have to be a big company to take advantage of the world market we live in today. If you aren’t selling your goods and services out of the US yet, check out these resources from Business.gov on Getting started in exporting. You may be surprised to find a new market you didn’t know existed for your product or service.
Is there anything else you heard in the State of the Union that will affect your small business?
Looking to buy off-lease or repossessed equipment?
Photo Credit: Rennett Stowe
Leasing confidence on the rise – good news for small business
The economy is a giant waterfall and small business finance providers – in many respects – sit at the bottom of that waterfall.
- The confidence of finance companies can’t improve until the confidence of small business owners improves and, in turn, they begin to invest in their businesses.
- The confidence of small business owners, however, can’t improve without their customers buying more goods and services.
- And, consumers don’t buy goods and services until they become confident in the direction of the economy.
So, overall it is good news for everyone that finance companies are beginning to express confidence in the economy.
Everyone is aware of what a difficult year 2009 was for virtually all industries. However, Direct Capital has stayed optimistic through the turmoil by refusing to participate in the recession. Our persistence and performance led to the renewal and addition of three financing facilities in 2009 (something that was unheard of in our industry last year).
While we’d like to take credit for the improvement in the Equipment Leasing & Finance Foundation monthly confidence index (shown below), the real credit belongs to small business owners who are now beginning to display their confidence by buying equipment and investing in their business. As shown below, this activity is boosting the confidence of the equipment finance industry as reflected by the index’s 4th quarter boost. In January, however, the Index flattened out to remain virtually unchanged. 
Looking at the details behind the survey, there are some notable items that suggest reason for optimism in 2010 (their summary is available on the Lease Foundation’s website):
- 42.5% of equipment leasing executives believe conditions will improve through the first four months of 2010, up from 31.1% in December
- In December, approximately 2/3 of respondents believe conditions will remain the same. In January this dropped to 55% with much of that change shifting to a belief that conditions will improve.
- Only 2.5% believe conditions will worsen.
Let us know if your confidence mirrors the survey results discussed here.
Looking to buy off-lease or repossessed equipment?
Must Read Small Business Online Resources
Do you get overwhelmed with the amount of content being created on every topic imaginable? The amount of information on topics important to small business owners alone could make your head spin on a daily basis.
To help shorten your path to the good stuff, below are several sites that regularly publish high quality content geared towards the topics most important to a small business owner (outside of this blog of course!).
In addition to a summary of each resource, at the end of each section is a link to the corresponding Twitter account. Most of the content for each of the resources discussed below is also available on their Twitter feed. To make it easier, Direct Capital has created a Twitter list called Small Biz Resources that will show you the feed from all these sources.
- Business.com – In particular, I find their Answers forum is a great resource to find answers to common small business questions ranging from financing to legal to marketing and everything in between. Also, don’t miss the opportunity to establish yourself as a thought leader in your industry by answering questions for which you are a subject matter expert. Answers.Business.com on Twitter
- Small Business Trends – If you’ve done any small business research online you’ve likely come across the fantastic resource put together by its editor, Anita Campbell. The articles featured by the experts who contribute to the site are always timely, well written and packed with useful information. Small Business Trends on Twitter.
- Business.Gov – For new businesses, Business.Gov answers many basic questions like how to register a Doing Business As (DBA) and how to establish an LLC, Corportation or other legal entity. Also very useful is the community forum – similar to the Answers.Business.com forum - which brings together many people answering questions for small business owners. Business.Gov on Twitter.
- LinkedIn - This popular business networking site has lots of great tools. While the discussions section of LinkedIn Groups can be helpful, many of the them have turned into 1-way postings by members pushing their products or service srather than the 2-way discussion they were intended for. For a more useful LinkedIn experience, jump over to LinkedIn Answers and post your question there, answer a question or search their database of already answered questions. LinkedIn on Twitter.
- Small Business Radio Show – Jim Blasingame pulls in some great resources to cover relevant topics for the small business owner and you’ll likely walk away with something valuable from his insightful commentary. He also does regular audio interviews with guests knowledgeable on small business topics who he refers to as Jim’s Brain Trust and also maintains a small business knowledgebase. Jim Blasingame on Twitter.
- The Franchise King Blog – Joel Libava is a franchising expert whose blog provides great information on not only franchising but on small business ownership in general. He has a straight forward and entertaining approach that makes for good reading as well as great advice that you don’t have to work at to pull out. The Franchise King on Twitter.
- NFIB – The National Federation of Independent Business site is great for keeping up on what is happening around small business issues in the political arena, both nationally and on a state by state basis. They also publish helpful general knowledge articles focused on small business topics. Membership in the NFIB is required to access some resources but there is plenty of content available for free. NFIB on Twitter.
Did I miss any? What other resources do you use?
Looking to buy off-lease or repossessed equipment?
Photo Credit: http://www.flickr.com/photos/bull3t/ / CC BY-SA 2.0
5 Steps to Get your 2010 Small Business Financial House in Order
Is your small business financial house in order?
2010 is upon us. Hopefully by now you’ve prepared your strategy, broken it up into goals for the year and now back into the grind of the day-to-day tasks that help move you towards those goals. Before you get too deep back into the tactical execution of your business tasks, I urge you to make sure your financial house is in order, or you at least have a plan to get there.
2009 was one of the most challenging years for small business owners to access credit. Whether you plan on trying to access credit or not in 2010, you and your business will benefit by taking a few simple steps to make sure you focus on increasing the net worth of your business before December 31, 2010.
- Check your personal credit: A regular check of your personal credit report will help to insure there are no errors or potential issues. Make sure your debts, payment history and personal information are accurate. In the event you need financing, you don’t want a lender to be the one to tell you about a late payment or debt that isn’t really yours.
- Check your business credit: A check of your business credit should include a review of your Dun & Bradstreet file. This will include D & B’s business credit rating, known as a Paydex, along with a listing of owners, industry and other pertinent details. Incorrect information on this report can delay or prevent you from getting financed.
- Check your Secretary of State listing: Depending on your state, these typically need to be renewed every year and most lenders will require it is up to date before extending an offer for financing.
- Update your personal financial statement: Not all types of financing (such as equipment leasing) will require this document. However, it is not just a good document to have on hand if you do need it for financing, filling out a personal financial statement can help to show where you should focus your financial attention in 2010.
- Create your 2010 Financial Statement Now: What do you want the financial picture of your business to look like at the end of 2010? What does your 12/31/10 Balance Sheet look like? What is your net profit? Setting these targets today will bring you closer to making that financial picture a reality. Commit to yourself that every financial decision in 2010 must bring you closer to these goals, or don’t do it.
What other steps have you taken to make sure your financial house is in order?
Looking to buy off-lease or repossessed equipment?
Photo Credit: H Dickins
Is your industry on one of these lists?
We’ve tried to help keep a positive outlook on the economy and the promise it holds for both current and future opportunities. We also tend to be very analytical data junkies around here and are constantly looking at the latest information that will help us and our customers position themselves for the future. So, you can imagine our excitement when the latest employment projections data for the US Bureau of Labor Statistics (BLS) were released!
Looking at the big picture, the future is bright according the the BLS. The total projected employment increase from 2008 – 2018 is 15.3 million, or 10.1%. Compare this to the 10.4 million increase (7.4%) that the US experienced from 1998 – 2008. Good news! However, depending on what industry you are in or sell to, the news isn’t all good. The top 10 industries with the largest projected declines in employment are:
- Department Stores
- Semiconductor and other electronic component manufacturing
- Motor vehicle parts manufacturing
- Postal service
- Printing and related support services
- Cut and sew apparel manufacturing
- Newspaper publishers
- Support activities for mining
- Gasoline stations
- Wired telecommunications carriers
One observations that stands out is that manufacturing sector industries make up 40% of the list.
Those industries expected to gain the most in employment over the next 10 years include:
- Management, scientific and technical consulting services
- Offices of physicians
- Computer systems design and related services
- Other general merchandise stores
- Employment services
- Local government, excluding education and hospitals
- Home health care services
- Services for the elderly and persons with disabilities
- Nursing care facilities
- Full-service restaurants
The big standout on this list is the number of medical related industries (4).
So what do we do with this information? Everyone has to answer that question for themselves, however, as you the small business owner know there is opportunity in every situation. Look closely at this list and determine how your business can begin to position itself for any trends you see.
What opportunities do you see?
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Photo Credit: Wikimedia
Reflect and Be Thankful
This time of year for many of us is a time of reflection and to be thankful for everything we have. Sometimes it’s easy to take for granted many of the things we don’t think twice about most of the time - things like our health, a roof over our head, food on the table or presents at the holidays.
One of my favorite things about working at Direct Capital is the support we give to local philanthropic and social services organizations. As you reflect on 2009 and look forward to 2010, take some time to be grateful and consider contributing to organizations that help those less fortunate. Find an organization that you connect with and inspires you.
To help give you some ideas, below is a list of organizations Direct Capital has helped in 2009 along with links to their donation pages:
New Hampshire Make A Wish Foundation
Children’s Literacy Foundation
Are you a non-profit on the New Hampshire seacoast? Contact us to be the beneficiary of our Denim for Donations program.
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Photo Credit: Per Ola Wiberg
