Frequently Asked Questions

I have a business that is in need of working capital. What are the requirements for a commercial bank loan?

In the current economic environment, commercial banks have stringent lending standards for loans. Here is a guide to the requirements for small business loans:

In Business – Require that the business be in operation for a minimum of 6 – 24 months, depending on the lender.
Loan Amount – Based on a percentage of revenue, from 10 – 15%, depending on the size of the loan.
• Interest Rate – It is usually a variable rate, such as the Prime Rate, plus a fixed interest rate margin.
Loan Collateral – Pledge all personal assets, up to 100 – 150% of the loan, depending on the lender.
  Some lenders also require the spouse to co-sign the loan.
Owner Investment – Investors are expected to have a given level of personal cash investment in the business.
  A minimum of $20,000 is often cited, depending on the lender.
Business Plan – Require a clear and credible plan to repay interest and principal when due.
Owner Credit – Require a minimum credit score of 680.
Owner Personal Guarantee – Investors with an ownership interest of at least 20% are expected to personally guarantee the loan.

I own a successful business that has grown each year for a number of years. However, for the past few years, it has become increasingly difficult to maintain positive momentum. I have tried several remedies to get back on track, but to no avail. What can I do?

The ever-changing landscape of business can stress even the most successful of small companies. The traditional approach to business stress is to apply tactics, based on past experience, to emerging business issues. However, when this approach isn’t working, it is necessary to proactively develop new strategies and action plans.

A strategic planning process can provide a small business with the following benefits:

• Facilitate strategic thinking about the strengths and weaknesses of the business in its current state and identify
  the forces of change that present future opportunities and threats.
• Articulate a clear mission and vision for the business.
• Develop strategies and action plans that enable the business to fulfill its mission.
• Assess the capacity of the business to provide the resources that are necessary to complete the action plans.

I am the owner/operator of a home improvement business. I do business under my legal name and have done so for a number of years. I hear a lot about the need for a business such as mine to have a legal structure that will protect my personal assets against lawsuits. What options do I have?

You are asking the right question about how to protect yourself from business liability. In addition to liability exposure, a defined legal
structure can impact income taxes, legal formality and management control. Because you enter customer homes and perform services that may cause harm, a formal legal structure is a necessity, not a luxury.

Here are the legal structures that are available to you and your business:

Sole Proprietorship – A business owned by a single individual. This is not a legal entity under the law, but rather an extension of
  the individual who owns it. Since the business and the individual are considered to be the same entity, the owner is subject to
  unlimited liability for claims to the business.
“C” or “S” Corporation – A corporation is a separate legal entity which exists apart from the owners. The shareholders are provided
  with limitations on the pass-through of liabilities of the business. However, the courts may find owners who have engaged in
  wrongful conduct, negligence or fraud to be personally liable.
Limited Liability Company – A legal entity formed under state law that has many of the characteristics of a corporation, including
  limited liability protection.