Owning a business is a great thing to do. You will get to spend your days working and not worry about being a financial drain on your family. But before you can own a business, you need to start with some business planning steps. A business needs to have a plan for marketing and sales, financial strategy, and building up a business plan. Once you know what you need to do as a business owner, it is time to take the next step – choosing a business loan.
Small businesses are privately owned entities, sole proprietorships, or partnerships that have fewer employees and less yearly revenue than a large corporation or business. Most small businesses do not have many employees or sales to speak of; however, there are a few exceptions. Some examples of small businesses with a low annual revenue but high-earning employees include restaurants, boutiques, independent bookstores, hotels, and shops.
As you begin your search for financing, it may be helpful to take a look at the definition of a small business when you begin your search. The Small Business Association provides a definition of small businesses on their Web site. The definition states that the SBA defines “a business that has fewer than two employees when compared with the number of employees that would be included in a comparable firm.” The SBA goes on to state that the definition should be used as an individual assessment instead of a blanket definition for all companies.
The SBA also provides data on SBA-insured small businesses. The list includes all corporations and partnerships with one or more SBA-insured conditions. Some examples are government contractors, subcontractors, transportation companies, and nonprofit organizations. To determine if a business meets the definition of small businesses for your state, you can check with the SBA’s Web site, which lists each condition and the definition for that condition. You can also find additional resources on the SBA’s Web site to get your state’s definition of small businesses.
When considering funding, you will also want to consider the definition of small businesses for your local environment. In most regions, a business must have a minimum of one employee to meet the criteria of a small business. Many cities and states require annual employee counts. For these purposes, there are many different resources available online. In your research, make sure you find the local government’s employee count requirements before setting your budget.
Another way to determine if a business is a small business is to determine how many annual receipts it receives. You will want to obtain the year-end figures for your small business from the annual receipts. If the annual receipts do not show a large profit, it may be necessary for you to obtain funding to add employees. However, some cities and counties require annual receipts in order to receive assistance. If your city or county requires annual receipts, find out if this will be a factor when determining your funding.
Some of the factors considered when determining your small business status are the number of licenses held by the corporation or sole proprietorship, the average annual receipts, and the government contracts that are available to the corporation. A corporation is considered a small business when it has fewer than one hundred owners. Many cities and counties have the sole proprietorship or business unit ownership requirement. For these situations, the government contracts are often the only option for obtaining financing. Most cities and counties require the owners to obtain at least one business license in order to apply for a government contract. Therefore, if you have only one owner, you will need to obtain a license in order to qualify for these contracts.
The government’s definition of small business is usually based on the 38.5 million in average annual receipts. The definition of small business for the purpose of applying for a business loan may use slightly different criteria, such as the number of employees. However, most financial institutions, including banks, credit unions and commercial lenders, look at the ratio of assets to liabilities. If your business does not have an adequate level of assets to provide an acceptable level of income, you will not qualify for a loan.