Guidant Financial Group Blog

There is a higher rate of entrepreneurs starting businesses today than we’ve seen in the past decade and a half, this according to the “Kauffman Index of Entrepreneurial Activity”, an annual index known as a leading indicator of new business creation in the United States.

A recent Inc. article highlighted this trend of economic independence. More and more people are taking direct control of their financial futures and becoming self-employed.

A deep recession and a shaky job recovery have persuaded many would-be entrepreneurs to put the corporate world behind them and set a new course for financial independence. A new vision for startup growth offered by both public and private sectors are encouraging this trend to continue.

This entrepreneurial spirit is at the heart of what Guidant is all about. We thrive on helping those seeking to finance a small business or franchise. We hold more top honors than any other industry provider, including national excellence awards from the Inc500, Small Business Administration and the U.S. Chamber of Commerce.

Check out our 401k Small Business Financing Structure to learn how you can invest your own retirement funds into starting a small business or franchise without any taxes or penalties.

Guidant Financial Group's co-founder, David Nilssen is conducting a small business and franchise financing webinar on Thursday, November 12 at 10:30 AM (PST). He will candidly discuss the most common way that a new small business or franchise owner is a financing or funding these transaction. Learn about:

• SBA Loans
• 401(k) Small Business Investing
• Unsecured Loans
• Home-Equity
  

Learn how to layer financing options and understand the most common mistakes people make when applying with lenders. If you want to learn more about small business or franchise financing - REGISTER FOR THIS WEBINAR.

The stimulus package backed by President Obama passed the House without any Republican support last week, and it is now being debated in the Senate. Many parts of the package are controversial, and Republican leaders say that it will likely not pass in its current form. It could be a while before the President signs off on any stimulus plans.

Though we must wait for any outcome to be certain, it is never too early to examine parts of the bill and how they may stimulate businesses and the economy. One of the less controvesial initiatives is explicitly designed to do just that: an allocation of $430 million to the Small Busines Administration to revive its ailing loan programs.

According to an article last week in the Washington Business Journal, "The bill would increase the government guarantee on the SBA's 7(a) loans, and empower the agency to make loans directly to small businesses, a function that now is performed by private-sector lenders."

As credit has tightened, jobs have disappeared and fears have risen, lenders have been cutting back on ditsributing loans—even ones deemed far less risky than the toxic investments that have caused major losses in the last year. Loan activity has dropped dramatically from the beginning of the fiscal year with no sign of slowing yet. However, "The legislation would encourage lenders to start making 7(a) loans by temporarily increasing the amount guaranteed by the government from...[which] would make the loans less risky for lenders and free up capital for additional loans." President Obama also has called for the SBA to make direct loans and for lower fees on SBA loans.

Costly program fees have driven away lenders, many of whom have been forced to draw back loans across the board in the wake of the subprime mortgage crisis. To make these loans more profitable, the SBA has allowed lenders to charge higher interest rates. This could be bad news for borrowers, but the weakened economy has also lowered demand for these loans and competition will still exist between lenders for creditworthy businesses and entrepreneurs.

For those interested in obtaining SBA loans, Guidant Financial Group is an excellent place to start. Of course, many business owners are still only just learning about financing their business debt-free using their own retirement funds through 401(k) small business fianancing. Both options may be worth exploring.

In a tight lending market, financing a small business or franchise can seem impossible. Entrepreneurs are finding that it often requires multiple sources of capital to get a project running. The search can be a time-consuming and costly effort, and sometimes a particular kind of financing just isn't right for a project. Here is a short list of sources of capital that entrepreneurs should consider:

Self financing through one's retirement assets: This is first on our list for obvious reasons (it's our business, after all), but it's also the only option on this list that does not result in debt. Too often, entrepreneurs and franchisees believe that only their cash assets and home equity can be tapped for a business, but one's own retirement funds can be used through 401(k) small business financing. It's already the account holder's money, so there is no debt and no outside investor. One only needs the right account to access these funds.

Borrowing from banks: Borrowing from a bank is still the most well-known financing option, but franchisees and business owners know that many banks are hesitant to make any loans to new projects in the current economy and that over time these loans have a huge cost. Despite this, banks are convenient for mid-sized to large loans.

Borrowing from private lenders: Private lending or peer-to-peer lending (P2P lending) is an option for those who need smaller loans or just a little more than is available through other means of financing. These loans usually cap at about $25,000 on the high end, and they can come with high interest rates, though these rates are occasionally better than what the bank might offer. As always, it depends on the project and the lender. NuWire Investor published a summary of some of the P2P lending platforms out there. You may want to check it out.

Getting SBA loans: SBA loans are guaranteed in part by the Small Business Administration, which improves the odds of getting approval. However, they require much more paperwork than other loans and the turn-around time can be three months or longer. Furthermore, new business are less likely to be approved than established ones. For larger projects, the time investment to apply may be worthwhile. One can also find short-term SBA microloans for amounts not exceeding $35,000.

Finding investors: Whether friends and family, partners, accredited angel investors, venture capitalists or even potential clients and customers, this can be the cheapest option in the short-term, but matters are usually less straightforward. Personal relationships, ownership and management issues and end agreements need to be carefully considered. Truly independent entrepreneurs may find some of these complications to be more trouble than they are worth, and loans and self-financing remain a better option.

Business owners can also lower costs by leasing equipment rather than buying an office full at the outset. There are many financing options available to entrepreneurs and franchisees and utilizing a combination of them can make all the difference in getting a project to take flight.

Small business owners whose businesses performed at a loss in 2008 may be eligible to receive emergency refunds within weeks of President-elect Obama’s inauguration. According to a recent BusinessWeek article, business owners who can report a net operating loss (NOL) for the last year will be able to offset income from the business for the last five years instead of the standard two. This could qualify owners of formerly profitable businesses to receive substantial refunds. The Section 179 first-year expensing deduction limit is nearly doubling from $133,000 to $250,000, and these benefits combined could help a struggling business reinvigorate its operations within a few months.

This is great news for all business owners who have seen profits fall and credit tighten in the last year. The increased Section 179 deduction is also great for business and franchise owners who are just starting out. For some, of course, the refunds alone may not suffice to fully recapitalize a business. If that is the case, 401(k) small business financing may provide the additional funds to stabilize a business for better results in the New Year.

The number of loan-guarantees by the Small Business Administration (SBA) reportedly shrunk 57% during the last quarter (ending Dec 31) last year—YIKES!

In addition, a survey of loan officers by the Federal Reserve shows that 75% of banks have tightened their underwriting requirements and 90% were charging more for loans. Again ... YIKES!

If fewer entrepreneurs are being approved for business capital and the cost of obtaining that loan is more expensive, then how can a new business be capitalized?

Consider investing in yourself! There is a way (through Guidant’s 401(k) Small Business Financing vehicle) to invest in a business with your IRA or 401(k) without penalties. In addition, there are no underwriting requirements—you either have the money, or you don’t. Also, you can use your IRA and 401(k) funds as the down payment for a loan if you want to buy a bigger business! Lastly, you get to invest in something that you own, control and can build.

How have your stock market investments performed? If you are like most Americans, then probably not too well. A small business may be an interesting investment alternative worth considering!