by Fred Abramson on July 5, 2011
Image by cmiked via Flickr
When starting a business, you probably need to finance part of it. After looking at you own pocketbook, which usually includes any savings, raiding your retirement account or if you are lucky any inheritance money from Aunt Matilda you probably need more money. There are two sources of outside funding: equity investment and loans.
Loans: The Pro’s and Con’s.
You probably don’t need me to tell you what a loan is. If you want to open a lemonade stand, your parents lend you $10 with interest of 2% and you promise to pay them back with interest at a later date.
While your dad was able to simply open his wallet to provide you with an infusion of $10 when you were eight, he might not be able to lend you a more hefty sum now. One step is to contact a commercial lender. I have the name of a fantastic bank lender that could help you out. However, the bank needs to make sure that it will be paid back. This requires security, often in the form of a mortgage. Bank loans often require a personal guarantee, which means that you are responsible if the business fails.
The big plus of obtaining a loan as compared to selling an equity stake is that if your business becomes successful and your profit is larger than you interest payment, you keep everything in the future and do not have to share them with investors.
If you have equity investors, you do not have to repay the investment that your investors put into your company if your business fails. However, you can also be subject to a lawsuit by your investors if they think that you misinformed them. Since an equity investor is a shareholder in the company, they may also require a voice in the running of the business.
The Law Office of Frederic R. Abramson represents start-up businesses in New York. If you have a question regarding equity investments and loans feel free to contact me at 212-233-0666.
by Fred Abramson on September 27, 2010 · 1 comment
President Obama signed into law today the Small Business Jobs Act. If you are an entrepreneur or run a small business, there are a number of key provisions that can help.
- Successful SBA Recovery Loan Provisions will be extended. The extension of these provisions provides the capacity to support $14 billion in loans to small businesses. That’s a big wade of cash which your business may be able to tap into.
- Maximum Loan Size for The Largest SBA Programs will be more than doubled. This could help to provide greater access to working capital loans that small businesses use to purchase new inventory and take on their next order, which could help small business owners create new jobs.
- A New $30 Billion Small Business Lending Fund. I am really interested to see how this is going to work. Currently, many small businesses are having difficulty obtaining access to capital because banks have cut off their credit. This provision would provide incentives to small banks to lend to small businesses.
- An Initiative to Strengthen Innovative State Small Business Programs – Supporting Over $15 Billion in Lending. I am not sure how this will play out.
- Eight New Small Business Tax Cuts – Effective Today:
- Zero Taxes on Capital Gains from Key Small Business Investments.
- Extension and Expansion of Small Businesses’ Ability to Immediately Expense Capital Investments.
- Extension of 50% Bonus Depreciation.
- A New Deduction of Health Insurance Costs for Self-Employed. This is huge for self-employed individuals. If you are self-employed, you can get a deduction for the cost of health insurance for yourself and your family members in calculating your self-employment taxes.
- Simply deduction for cellphone bills. You can now deduct the full cost of your cellphone without providing documentation about each and every phone call.
- An Increase in the Deduction for Entrepreneurs’ Start-Up Expenses. Entrepreneurs can deduct from their taxes for this year from $5,000 to $10,000 (with a phase-out threshold of $60,000) in expenditures.
- Limitations on Penalties for Errors in Tax Reporting That Disproportionately Affect Small Business. If your business get audited, this should help.
What do you think of this bill? What more (or less) do you think the government should do to help small businesses.
The Law Office of Frederic R. Abramson represents small businesses in New York State.
