Small businesses are privately owned enterprises, corporations, partnerships or sole proprietorships that have less total revenue and employees than a conventional large business or corporation. The majority of small businesses today were started in the early 1990s. They are primarily composed of people with entrepreneurial minds, driven to build a business from the ground up. As with most successful businesses, there are rules that must be followed in order for the small business to operate profitably. The owners must follow certain principles or laws that govern small business financing.
The following are some selected characteristics of small businesses that provide information on the legal requirements and regulations that are unique to these businesses. Small Business Finance is regulated by a variety of laws. The Small Business Administration provides information on the most commonly implemented business finance regulations through its site. Many state financial institutions also have information and resources available to help finance small businesses. Check with your local banks and county offices for specific finance regulations for small businesses.
A sole proprietor is not controlled by any one individual or entity. A sole proprietor is the only person that owns a small business. In contrast to a corporation, which consists of a board of directors, a sole proprietor does not have a management team. A sole proprietor does not need to submit audited financial statements to the IRS. A sole proprietor cannot be held responsible for the actions of any other entity besides the individual that owns it. The IRS treats all small businesses the same way and treats all income and expenses the same as other businesses.
A partnership is formed by more than one individual or entity. Partnerships do not need to have separate finance departments. The Small Business Administration provides information on how to select a partnership that meets your business needs. Whether you are starting a small business from scratch or trying to expand an existing business, a partnership can meet your needs.
When you begin searching for a lender to finance your small business, consider looking into the possibility of establishing a local business. There are advantages to this option. One advantage is that you can apply for financing for your business using funds from your own pocket or your family’s savings account. Another advantage is that local small businesses enjoy many additional benefits such as lower rates. One disadvantage to working with a local lender is that you may not meet the qualifications for certain small business loans.
For the most part, the lender will determine the small business loans that qualify based upon your personal credit history, income and business experience. Lenders also want to know that you will be able to repay the loan. They are particularly cautious about lending to new small businesses because they are less likely to earn significant profits. New small businesses also usually take longer to establish than established small businesses and may require longer repayment periods.
There are numerous benefits to working with a local lending institution. Most local banks offer better rates than other lending institutions. Lenders have relationships with payroll companies, accounting firms and vendors. A bank understands how important it is to keep track of employee compensation. Additionally, local small businesses employing a substantial number of employees tend to have a steady cash flow, which is helpful in meeting payroll requirements. Working with a local bank also provides the benefit of dealing directly with management and providing references to past clients.
Many small businesses employ a limited number of employees. If you own a small business and have a choice between keeping your business free of both your finances and employees (because you have enough money to pay your bills) and hiring someone to manage it while you concentrate on your own business, hire a corporation. This will make your taxes simpler and your life easier. Additionally, if your corporation has no employees, your tax burden will be reduced.