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Janice France-Pettit: Financial planning for small business growth

Union Bank

Posted: May 30, 2013 2:00 a.m.
Updated: May 30, 2013 2:00 a.m.
Janice France-Pettit Janice France-Pettit
Janice France-Pettit

 Owning a small business can be challenging at times, but the appeal of being your own boss and reaping the rewards of your creativity and hard work can be a powerful motivator to strike out on your own.

According to the U.S. Small Business Administration, about half of all new establishments survive five years or more and about one-third are in business 10 years or more. Being prepared for financial challenges and opportunities can help you build a successful venture.

Following is information about financial planning to help you purchase or grow your business and is the third in a four-part financial planning series.

Few potential business owners are able to start or purchase a business with savings alone and must raise additional capital. Loans from family, friends or investors may be an option, but there are other ways to finance your business:

A conventional business loan from your bank or a private lender may be an option. These loans are usually for an agreed-upon amount that is dispersed in one lump sum upon loan approval and must be repaid with interest on or before a fixed date.

In some cases, a business loan may carry interest-only payments with the principal balance due at the end of the loan term.

A business line of credit is a short-term loan that allows a business owner to borrow money against a credit line as needed. It differs from a conventional loan in that the borrower can withdraw funds over a period of time without having to apply for a loan each time, and interest is paid only on the amount of money that is withdrawn.

The SBA does not lend directly to small businesses, but backs small-business loans made through local banks and agencies. The government provides its bank lending partners a guarantee that the loan will be paid even if the business fails.

Because these programs are backed by the federal government, they often offer flexible underwriting on loans and lines of credit.

Diversity lending programs are also available through the SBA to assist businesses owned by women, minorities, and/or disabled veterans with their financing needs. These programs promote sustainability in the business community.

When you are ready to grow your client base, government contracts may be a lucrative prospect to pursue.

Federal, state, and city governments designate a certain amount of work to be outsourced to small businesses.

For example, the federal government reserves contracts that fall between $2,500 and $100,000 for certain small businesses, including minority-owned, women-owned and veteran-owned businesses.

The SBA provides a certification process to assist small businesses in securing government contracts and offers step-by-step instructions on how to register a business in the Central Contractor Registration, a government-maintained database and the primary source that federal agencies use to learn about prospective vendors.

Whether you are ready to retire or move on to the next opportunity, when the time comes to sell your business, take steps to help maximize proceeds from the sale and ensure a smooth transition.

To begin this process, it is wise to identify an exit strategy team consisting of legal, tax and accounting, banking and SBA loan specialists that can guide you through the process.

Determine early on what your business is worth in today’s market by meeting with your advisors and identifying possible opportunities to maximize the value of your business before the sale.

The column is co-authored by Janice France-Pettit and Luis Dominguez. France-Pettit is a senior vice president and regional manager for Union Bank. Her column reflects her own opinion and not necessarily that of The Signal. The foregoing article is intended to provide general information about financial planning for small businesses and is not considered financial or tax advice from Union Bank. Please consult your financial or tax advisor.



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