Five Fundamentals of the CTA that Small Businesses Need to Understand Now

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As part of the 2021 National Defense Authorization Act, small businesses will now need to comply with the new Corporate Transparency Act (CTA). This is meant as an additional preventative measure against money laundering and funding of terrorist organizations.  

Small business owners will need to provide basic identifying information and comply by January 1, 2022. It’s important to comply as the penalties are significant and raise daily until the information is provided. Don’t forget to put this new requirement on your calendar!

This is a guest post by Laura Sims of PilieroMazza PLLC.

On January 1, 2021, Congress enacted the 2021 National Defense Authorization Act. In an effort to strengthen the fight against money laundering and the funding of terrorist activities, it included broad amendments to the U.S. Anti-Money Laundering Act, the most significant of which was the Corporate Transparency Act (CTA). 

The CTA will greatly impact the way businesses are formed and how they operate, and it will require regular reporting practices that businesses need to prepare for before the CTA takes effect. Below are five fundamentals of the CTA that small businesses need to understand now.

1. What is the CTA?

The CTA is legislation that requires privately held U.S. businesses to report certain identifying information for all beneficial owners of such businesses to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). The CTA was passed to identify and prevent formation of shell companies with no legal U.S. connections that were created solely for illicit financing purposes, including money laundering and terrorist organization funding. 

To provide greater transparency into who owns and controls small businesses in the U.S., the CTA will require each beneficial owner of qualifying entities to report his or her full name, date of birth, current address, and unique identification number, such as social security number, passport ID number, or driver’s license ID number, to FinCEN, unless exempt. Under the CTA, a “beneficial owner” is any individual who directly or indirectly owns or controls at least 25% of the ownership interests of, or exercises substantial control over, a qualifying entity.

Some of the individuals exempt from beneficial owner reporting include:

  • Creditors of entities unless the creditor independently qualifies as a beneficial owner;
  • Employees of entities if the “control” over the entity is based solely on their employment status;
  • Minor children, if their parent / guardian information is reported; and
  • Those who own or control interest in an entity solely through inheritance.

2. Who is subject to the CTA?

All privately held business entities either formed or registered to do business under the laws of any State or jurisdiction in the U.S., unless exempt, will be subject to the CTA reporting requirements.

A few examples of exempt entities include:

  • Non-profit organizations;
  • Publicly traded companies, banks, credit unions, and other financial institutions heavily regulated by government agencies, such as the Securities and Exchange Commission; and
  • Companies with over twenty (20) full-time employees with reported gross receipts or sales over $5 million on the previous year’s tax returns and an operating physical office address in the U.S.

3. When does it go into effect?

The start date for reporting requirements under the CTA are tied to when the Treasury adopts regulations under the CTA, which must take place no later than January 1, 2022. All qualifying U.S. business entities formed after the regulations are adopted will be required to report at the time of formation. 

Qualifying business entities formed before the regulation adoption date will be required to submit reports no later than two (2) years after the regulation adoption date. All businesses, whether formed before or after the regulations are adopted, will be required to update any change in their previously reported information within one (1) year of such change.

4. How will this affect businesses?

The most obvious answer is that qualifying entities will need to completely and correctly submit required beneficial owner information to FinCEN within the applicable reporting window and ensure that any changes in the previously reported information are updated in a timely manner. In many instances, business entities will need to start collecting the required information from beneficial owners well in advance of the reporting deadline. 

All qualifying entities will need to build beneficial owner information collection into their regular operations with the realization that, where there are multiple qualifying beneficial owners, the reporting and update deadlines might be logistically burdensome. Similarly, future business transactions, such as mergers and acquisitions, may need to include additional due diligence and representations and warranties specific to a target entity’s CTA reporting.

5. Why is it important, and what should you do to prepare?

Under the CTA, failure to report beneficial owner information, reporting incorrect information, or failure to update previously reported information will have serious consequences. These may include civil penalties up to $500 per day until the violation is corrected, as well as criminal fines up to $10,000 and imprisonment up to two (2) years. 

While CTA regulations are not mandated until January 1, 2022, business entities should stay informed about regulatory insights released before the regulation adoption date to ensure that all required information is properly collected and submitted when reporting is due. 

Finally, there are still ambiguities in several critical aspects of the CTA, including how ownership and control will be determined, as well as what the reporting requirements will be for certain partnerships and trusts. Because of these ambiguities, privately held business entities should work with legal counsel in advance of the CTA regulation adoption to fully understand whether they will be subject to the reporting requirements, and if so, what those reporting requirements will be.

If you have questions about how the CTA could impact your business or would like to learn more, please contact Laura Sims, the author of this blog, or any member of PilieroMazza’s Business & Transactions Group or Corporate and Organizational Governance Group.

This post originally appeared on the PilieroMazza blog at https://www.pilieromazza.com/5-fundamentals-of-the-corporate-transparency-act-impacts-on-small-businesses/ and was reprinted with permission.


Strategic Planning for the Small Business

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For small businesses, the strategic planning process is multi-faceted. We have to think about where the company is, and where it needs to be, as far as its capabilities, infrastructure, and direction, but we also have to think about strategic planning in terms of growing the business and growing revenue. And though they’re very much tied together, you have to have a direction in order to focus your growth.

As a small business, it’s imperative to figure out your areas of expertise and focus, before you say we’re going to go out and grow, and by how much. What are you going to grow? A new capability? Maybe. It could be part of your corporate strategic goal to add this capability to your repertoire. Or, maybe, you’re going to expand your existing capabilities because you’re very good at them, and you want to leverage your strengths.

Strategic planning is an iterative process. It is important to take care of your overarching strategic plan before you plan your growth, because your areas of growth and the things you want to accomplish should be governed by the overarching goals of your company. 

In a series of posts, we’ll look at these different areas of strategic planning and what you need to consider. 

Strategic planning is not a point of time, but your plan is continuously revised as you get new information, and as things change in your organization. It’s always a working plan, and a work in progress.


9 “Pieces” to Diminish Cyber Risk for Small Companies, Part II

This is a guest post by Stewart Wharton, TAPE VP of Operations.

Mr. Wharton is a cybersecurity expert, having spearheaded the cyber capability at TAPE and serving in a variety of cyber roles, including Defense and Intelligence Cyber Sector Lead, at KPMG and with the Office of the Chief of Naval Operations N6 as the Deputy Chief Information Officer for Information Assurance and Enterprise Architecture.

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In Part I of this post, Stewart “Stu” Wharton explained that defining and communicating your company’s cyber risk management regime is central to your company’s overall cybersecurity strategy. He noted that even if you are outsourcing this task, corporate leadership must be aware of the risks. 

He has already discussed network security, user education and awareness, and malware prevention. In today’s post he will reveal the rest of his 9-piece plan to diminish cyber risk for small businesses.

4. Removable media controls. Make a policy to control all access to removable media. Limit media types and use. Scan all media for malware before importing onto the corporate system. Removable media bring three main risks: 

Data security – Because removable media devices are typically small and easy to transport, they can easily be lost or stolen. In fact, every time you allow an employee to use a USB flash drive or other small storage device, your organization’s critical or sensitive information could fall into the wrong hands. What’s more, even if you encrypt your removable storage devices, you will not be able to recover lost files once the USB flash drive or other device is lost.

Malware – Simply put, when employees use removable media devices, they can unknowingly spread malware between devices. This is because malicious software can easily be installed on USB flash drives and other storage devices. In addition, it just takes one infected device to infiltrate your company’s entire network.

Media failure – Despite its low cost and convenience, removable media is inherently risky. This is because many devices have short life spans and can fail without warning. As such, if a device fails and your organization doesn’t have the files backed up, you could lose key files and data.

5. Secure configuration. Apply security patches and ensure to maintain the secure configuration of all systems. Create a system inventory and define a baseline build for all devices. Web server and application servers are two entry points for configuration vulnerabilities in your organization’s network. According to the Open Web Application Security Project® (OWASP), these security vulnerability types happen through:

Improper file and directory permissions

Unpatched security flaws in server software

Enabled or accessible administrative and debugging functions

Administrative accounts with default passwords

SSL certificates and encryption settings that are not properly configured.

6. Managing user privileges. Establish effective management processes and limit the number of privileged accounts. Limit user privileges and monitor user activity. Control access to activity and audit logs. How can you mitigate the risk of privileged account abuse? To tackle the threat of privileged users in accordance with industry best practices, you need the following:

Efficient privileged account management – Ensure that privileged users in your information technology environment have only the access rights they need to do their jobs.

Control over access to privileged user accounts – Protect your privileged accounts from unauthorized use with strong password management and techniques such as multi-factor authentication.

Privileged user monitoring – Gain visibility into the actions of privileged users to catch abuse or external attacks quickly and limit the damage. Simply letting users know that user activity monitoring is in place can also go a long way toward deterring misbehavior and even preventing accidental misuse, since users are likely to be more careful about their actions.

User behavior analytics – Identify the privileged users with the most suspicious behavior so you can respond in time by discovering and investigating anomalies in user behavior patterns.

7. Incident management. Most small business do not have the means to establish complex incident management processes. Some simple steps to take include:

Establish an incident response and disaster recovery capability 

Develop a simple communications plan to ensure to contact all stakeholders 

Make sure to include third party vendors as part of your plan

As part of your training of employees, test your incident management plans.  

8. Monitoring. Establish a monitoring strategy and produce supporting policies. Continuously monitor all systems and networks. There are a variety of continuous monitoring software available both for on premise and in the cloud. Once you have the monitoring capability you can analyze logs for unusual activity that could indicate an attack. This may seem like overkill for a small company, but consider these eight reasons why small businesses should implement a network monitoring system:

Visually document your growing network 

Do more with less

Monitor from anywhere

Troubleshoot issues more easily

Plan for future growth 

Improve network security

Track trends without hours of data digging

Improve the bottom line

9. Home and mobile working. Especially with the advent of COVID-19, remote working is becoming more the norm than an exception. Develop a mobile working policy and train staff to adhere to it. Apply the secure baseline and build to all devices. Protect data both in transit and at rest.

I hope these simple pieces will allow you to take the actions necessary to make your small business more secure. I will follow up with a piece on how small companies can achieve compliance with National Institute of Standards and Technology NIST 171 standards and the Department of Defense’s Cyber Maturity Model Certification (CMMC) process.


9 “Pieces” to Diminish Cyber Risk for Small Companies, Part I

This is a guest post by Stewart Wharton, TAPE VP of Operations.

Mr. Wharton is a cybersecurity expert, having spearheaded the cyber capability at TAPE and serving in a variety of cyber roles, including Defense and Intelligence Cyber Sector Lead, at KPMG and with the Office of the Chief of Naval Operations N6 as the Deputy Chief Information Officer for Information Assurance and Enterprise Architecture.

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Regardless of the type of small business, cyberattacks are virtually inevitable. While the bad news is that 81% of cyber-attacks happen to small and medium-sized businesses, the good news is that 97% of these attacks are preventable by implementing recommended security practices and raising security awareness among employees. 

Recognizing this fact, businesses across the globe are willing to spend more on cybersecurity that ever before. According to research firm Cybersecurity Ventures, the cost of cyber-crime will exceed $6 trillion worldwide this year.

Defining and communicating your company’s cyber risk management regime is central to your company’s overall cybersecurity strategy. To maximize the effectiveness of your regime, senior leadership must support efforts.

Many companies cannot afford a chief information officer or a chief information security officer to lead cybersecurity tasks and strategy. In many cases, companies may outsource information technology infrastructure with very little corporate oversight. Even in the case of outsourcing, corporate leadership must be aware of the risks. 

So where should a small company start? 

If you are a small company looking to solidify your cybersecurity posture, I’ve created a simple 9-piece approach for creating a cyber risk management regime. I use the term “piece” instead of “steps” because you can implement these strategies in almost any order. When implementing these pieces, assess the risks to your corporate information and systems with the same vigor you would for legal, regulatory, financial, or operational risks. 

Here are the 9 pieces:

  1. Network security. Protect your networks from attack. Defend the network perimeter and filter out unauthorized access and malicious content. Monitor and test security controls. To perform this step, you must know what operating systems and devices you have and ensure to keep up to date with the latest version and patching. Encrypt your data in transit and at rest and use strong passwords. 
  1. User education and awareness. Produce user security policies covering acceptable and secure use of your systems. Include in staff training. Maintain awareness of cyber risks. The Small Business Administration offers free online cyber awareness training
  1. Malware prevention. Produce relevant policies and establish anti-malware defenses across your organization. Some typical anti-malware practices include:
    1. Backing up or archiving business data is essential to recover from cyberattacks, theft of devices, or loss of equipment or media resulting from a flood or fire. Archiving data is also quite easy since the rise of cloud storage. Cloud storage is a simple, fast, and an affordable way to back up your data. Saving your data in the cloud means that your business is protected from certain serious cyber-attacks such as ransomware. Why is this so important for your business? A ransomware attack encrypts all your data and files, making them inaccessible to you. Cyber criminals will demand money in exchange for unlocking these files, ranging from $100 to $2,000 for each infected system. This form of extortion can be devastating on a small business when several or more computers are infected by ransomware. 
    2. Making your business data useless when it falls into the wrong hands is an effective protection strategy. You can do this by encrypting your data. Full-disk encryption software is available from all major computer and mobile operating systems to encrypt all the data you manage and make sure all your company devices have this software activated and updated. When you use data encryption, you must take measures to protect encryption keys from corruption, loss, and unauthorized access. You must also manage activities such as changing keys regularly, controlling and managing how to assign keys and to whom. Small businesses that do not have information technology staff with data encryption skills should consult with professional information technology services providers to identify and deploy their data encryption needs and solutions.  
    3. Conducting regular risk assessment involves identifying, analyzing, and evaluating risk and ensuring that you have picked appropriate cybersecurity controls to protect your business from cyberattacks. 
    4. Consider buying cybersecurity insurance. Cyber criminals work tirelessly to find more targets and breach different security defenses. They can harm any business, even the most security conscious. According to research conducted on data breaches in 2017, the global average cost of one data breach incident was $3.6 million. To mitigate the losses due to data breaches, it is imperative for businesses to invest in cyber-security insurance. 

Continue reading Part II of this post to learn Stu’s other cybersecurity tips.


Small Business Start-Up Infrastructure

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What should a small business’s back office look like, and how should it function? I sat down with TAPE’s Executive Vice President/General Manager Ted Harrison and we put some thoughts together.

A small start-up business has evolving needs as they begin and grow their business. These needs are ever changing but here are just a few functional areas that will need some attention and thought from the beginning. 

IT: Information technology is probably an easy thing to keep simple in the beginning. Each employee should have their own email on a company domain name (e.g., tape-llc.com), and this can be set up fairly cheaply. 

You can implement a shared cloud-based suite for collaboration such as Google Drive or Apple iCloud. These solutions are often enough to support a very small business’s needs. You can also take advantage of the benefits of Microsoft Office 365, which can grow with you. 

As the company begins to grow and protection of IP against cyber threats becomes more important, you will want to look at investing in an IT network either through outsourcing or internal support. (CMMC is just around the corner!)

F&A: In the beginning, your finance and accounting needs can be managed through QuickBooks or other rudimentary finance software. 

When payroll and AP become more complex and the company requires bank capital to operate, management by a dedicated accountant will become necessary. 

Once the accounting department grows to several people, it will be time to consider oversight by a controller. Outsourcing this function may be most cost effective in the early stages as you grow. 

HR: The human resources function can be outsourced from the beginning, if needed, to ensure that all Federal and State regulations are satisfied. It is fairly inexpensive to outsource the recruiting function. 

Once requirements increase including payroll, recruiting, and employee relations, it may be beneficial to have an HR director to manage the function. 

Contracts: A small company can often rely on expertise from the SBA, PTACs or other small business support entities, but once contracts grow it will be beneficial to have a dedicated contracts manager to ensure compliance with FARs and DFARs.

Your small business’s infrastructure will grow and change as your business evolves. Pay attention to where you’re feeling stretched so you can get the right support in place well before it’s needed.


How to Apply for a Small Business Line of Credit

If you’ve determined from Part 1 that a line of credit is right for you and your business, all that’s left is to apply. Here is a step-by-step guide from Stuart Blake of BlueVine.

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1. Find out if your business is qualified

Ultimately, the most accurate way to find out if you qualify for a business credit line is to apply — but you wouldn’t want to apply to many lenders only to get rejected or receive a disappointing offer.

To get a quick pulse on if you’re qualified for funding, consider the factors below:

Credit score

Most lenders will look at your personal and/or business credit score to figure out the riskiness of your business. The stronger your score (680 is usually the cut-off for banks), the more options you have. However, just because you have a weaker credit score doesn’t mean you won’t be able to qualify for a business line of credit at other lenders.

Monthly/annual revenue

To determine whether you can pay back your credit line, lenders will look at your monthly or annual revenue from your income statements as well as the trajectory of your revenue over a period of time. Your annual revenue is one of the most important metrics lenders look at; when they see your sales grow month after month, it shows that you know how to run your business and execute on your business plan. This not only makes lenders more likely to lend to you, but also makes them more likely to gradually increase your credit line to support the growth of your business.

Business history

When you apply for a business line of credit, lenders will ask you how long your business has been in operation. Banks look for businesses that have been around for at least two years. If you’re a new business (between three to 12 months old), online lenders are a better option because they’re more willing to take on the risk of lending to younger businesses.

Different types of credit lines

There are many types of business credit lines. One major difference is credit lines with short or long repayment terms.

  • Short repayment terms are credit lines with six to 12 months repayment terms. These terms are ideal if you’re looking to pay off your line of credit faster and want to potentially save more in interest.
  • Long repayment terms are credit lines with repayment terms over 12 months. Longer repayment terms make sense if you need more time to pay off your credit line or want lower monthly payments.

Short-term business line of credit

If you’re looking for a business line of credit with short repayment terms, it’s worth applying to online lenders. Online lenders are generally a better option for businesses that are looking to save time on the application process and want access to funds on-demand. Additionally, since online lenders offer shorter repayment terms, the requirements aren’t as rigid.

When you apply to an online lender you will usually get a decision within one to two business days. To apply to an online lender follow these steps:

  1. Apply online: for lenders that have shorter repayment terms, they typically have an online application process that takes at most five minutes to complete.
  2. Upload your statements: online lenders don’t require much documentation; at most, you’ll need to upload three months worth of bank statements. If they need more information, they may ask for your tax returns and/or a debt schedule.
  3. Get a decision: once you’ve submitted an application, you should get a decision within one to two business days.

Long-term business line of credit

If you want to get a business line of credit with longer repayment terms, you should apply to a traditional bank. Here are the steps you’ll need to take:

  1. Check your credit score and business financials: to qualify for a bank line of credit you should expect to have a strong credit score of at least 680 and stellar business financials (stable cash flow, high revenue, and little to no existing debt). You may want to consult with a finance professional beforehand so that you have a clear picture of your business’s financial health.
  2. Get all of your documents together: When applying for a business line of credit with longer repayment terms, you must be prepared to submit a lot of documentation. This includes historical financial statements, balance sheets, tax returns, P&L statements, and income statements.
  3. Apply and wait: Once you’ve sorted out your documents, all you have to do is apply and wait. Some banks such as Wells Fargo still require you to visit a branch in order to submit your application. After you apply, expect to wait at least a couple of months to get a decision.

2. Compare your business line of credit options

Now that you have a general idea of how to apply for a business line of credit, your next step is to understand the major pros and cons of each type of popular lender:

Traditional bank lines of credit

Getting a line of credit from traditional banks are highly sought after because of their affordability and terms. If you manage to get a line of credit from a bank, you probably should accept the offer. But securing a line of credit from a bank is a lot easier said than done. To qualify for a line of credit, traditional banks often require at least two years of business history and $250,000 in annual revenue.

A good first step to securing a business line of credit with a bank is to contact the bank you have an existing relationship with. However, you should note that most banks have a time-consuming application process. If you have a hard time getting accepted by traditional lenders but still want reasonable rates and terms (like Bank of America or Chase) you might want to consider a line of credit from your local credit union or community bank.

Online lender business lines of credit

For those who don’t have the time or resources to spend filling out a traditional bank application, online lenders are a better option. In order to qualify for a business line of credit, most online lenders will ask you to complete the entire application online. The best part is that most online lenders don’t require sky-high credit scores or extensive financial records.

Once you submit your application, these lenders use a combination of both automation and manual underwriting to get you an offer. This means you can get a decision on your application within one to two business days. The interest rates are slightly higher with online lenders because they get the funds they lend to businesses from capital markets which is more expensive. But their application and approval processes are typically much faster.

Business credit lines from credit unions

Credit unions are member-owned and not-for-profit. This means that each member of a credit union has equal ownership and that any earnings made will go back to improving their products and services, which means lower rates and generally better products for their customers. To join a credit union, you usually must qualify for their field of membership, pay a small fee, and use your account frequently. Fields of membership vary depending on the credit union. Some credit unions are community-based, which only requires you to live within a certain area, and others are occupation-based.

A major drawback of credit unions is ease of use. Most credit unions have fewer branches and ATMs, which can make drawing funds a hassle. Additionally, credit unions don’t have strong mobile and online banking capabilities like online lenders and banks.

3. Know the minimum requirements

The following table is a broad overview of the minimum qualifications for each lender. As you can see, traditional banks are the hardest to qualify for, followed by credit unions and online lenders. Please note that the information here is not definitive; you should use it as a benchmark to gauge where your business stands the best chance of getting a business line of credit.

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4. Understand the total cost of interest rates and fees

Annual percentage rate (APR)

When it comes to rates, it’s often thought that APR is the only rate to keep an eye out for, but that simply isn’t true. APR, or annual percentage rate, is an annualized percentage of the original loan amount plus the additional fees.

While knowing the APR is important, in some cases knowing the simple interest rate – the amount of interest you pay as a portion of the loan – makes more sense and may be cheaper. For instance, if you plan on borrowing money for less than a year, calculating the simple interest rate would give you a clearer picture of how much the loan would cost you than an annualized rate.

Simple interest rate

The simple interest rate is the interest you’ll pay to the lender on top of the loan you’re borrowing. You can use this formula to calculate simple interest rate:

Simple interest rate = Total interest charged / Loan amount

So if you are charged $100 in interest fees on a $10,000 six-month loan, you would pay a 1% simple interest rate.

Other lender fees

Here are some of the most common fees that lenders charge to use a business line of credit.

  • Draw fees: Draw fees cost between one to two percent of the total draw amount. They are charged on each draw that you take.
  • Payment processing fees: Payment processing fees are incurred depending on how fast you want funds deposited in your bank account. A wire transfer can get you funds within hours but usually costs between $15 to $35. The ACH method is usually free of charge but takes about two or more business days to complete.
  • Late fees: When you pay late or fail a payment, you may be charged with late fees. Late fees usually cost a low percentage of your credit line but can add up quickly.
  • Termination fees: If you decide to end your line of credit at any point before the full term of your loan, you may have to pay a termination fee of one to two percent of your credit line.
  • Prepayment fees: Some lenders will actually charge fees if you pay your draws off early. These fees range from 3 to 5 percent of the loan principal. The good news is that many online lenders offer no prepayment fees.

5. Gather your financial documents and apply

The last step to get a business line of credit is to gather your documents and wait for the right time to apply. Here are some of the documents and type of information you’ll be expected to submit to a lender:

  • Personal information: to verify your identity, lenders will require you to submit information about yourself. This includes your full legal name, social security, criminal record, and educational background.
  • Bank statements: many lenders require at least one year of bank statements; alternative lenders are the exception to this and need only three months of statements.
  • Financial statements: to determine the financial strength of your business, you’ll need to submit important financial statements such as your P&L sheet, cash flow sheet, and balance sheet.
  • Information about other stakeholders: if you own less than 50% of the business, you must provide information about any additional stakeholders.
  • Legal documents: depending on the lender you apply to, you will be expected to submit one or more of the following: business licenses and registrations, business formation document, business tax ID, contracts with third parties and/or UCC filings.
  • Debt schedule: if you have any existing debt, some lenders will expect you to provide a debt schedule. This shows all your business’s outstanding loans, credit, and payment schedule.
  • Tax returns: lenders will require you to show personal and business income tax returns over the last three years.

After you’ve applied, all you need to do is wait. Applying when your business is doing well is a smart way to increase your chances of getting a business line of credit, as well as getting a higher credit line amount.

See Part 1 of this blog post.

This post originally appeared on the BlueVine blog at https://www.bluevine.com/how-to-get-a-business-line-of-credit/.


Before You Apply For a Small Business Line of Credit

This is a guest post by Stuart Blake of BlueVine.

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Having available cash on hand is crucial for businesses of all sizes, and a business line of credit is often a great way to get that cash. A credit line can help when you have unexpected cash flow gaps or when you want to take advantage of opportunities that arise. That’s why so many business owners have turned to a business line of credit—according to a 2017 study by the Federal Reserve, a business line of credit was one of the top three most popular financing options amongst business owners who applied for financing.

But how easy is it to actually get a business line of credit? Your chances of getting a credit line largely depend on a few things: your qualifications, the lender, and type of credit line you want.

Most line of credit lenders require businesses to have at least a few years of history and healthy revenue numbers to qualify for a line of credit. Larger lines of credit may require additional requirements, such as collateral.

This can all seem intimidating — especially if you’re a new business. To make the process easier, we’ve laid out five straightforward steps to securing a business line of credit.

  1. Review your credit score and finances. Your credit score and financial history are a big part of your business line of credit application. A higher credit score will give you a better chance of getting approved.
  2. Compare your options. Compare your lending options (link to Part 2) to get an idea of how well you qualify for a business line of credit.
  3. Check the requirements. Traditional banks tend to be harder to qualify than other types of lenders.
  4. Know the cost. Some lenders are more costly than others. Make sure you know your interest rates and fees upfront from your lender.
  5. Gather documents and apply. When you’re ready, gather and submit your documents and business information, and you’re done!

Why consider a business line of credit?

A business line of credit is a convenient form of financing for businesses that want a flexible way to cover working capital expenses or finance growth opportunities. Whether you need funds to pay rent, cover payroll, purchase equipment or take on a new project, a business line of credit can create a cash cushion when you have cash flow gaps and want to keep your business running smoothly.

Business lines of credit are inexpensive to maintain, especially compared to other forms of financing (think term loans or merchant cash advances). Keeping one open costs virtually nothing—and just like how a personal credit card works, you’re only responsible for paying interest on the amount you draw.

Common business line of credit application mistakes

1. Not having a clear idea why you need the funds

You should always have a game plan when applying for a business line of credit or any form of financing. When we speak to potential clients, we want to make sure that the financing we’re offering fits into a longer term plan for the business.

Sometimes business owners obtain financing without a long-term strategy. Some businesses have applied for financing with us two months after getting a short-term loan with another lender. That limits what we can do for them because now they’re more leveraged. It affects what we could offer them. When there are liens on a business that might limit our offer. From what could have been a $50,000 credit limit, we’re now looking at $20,000.

2. Rushing through the application

If you’re a small business owner, it’s a given that you wear many hats and work very long hours. So when there’s a desperate situation and you need funds quickly, it may be tempting to rush through as many credit line applications as possible. Sadly, this can hurt your chance to obtain financing.

Simple errors can cause you problems, such as a typo in the EIN [employer identification number] or using the incorrect business address.

That’s why you should set aside at least an hour of your day to really focus on the application.

TIP: Make sure you list the best contact number or information. There are times when business owners put down the main business line or email even though they typically don’t answer calls on that line. So lenders end up not being able to get a hold of them, leaving business owners wondering why they haven’t gotten a response.

3. Being dishonest on the application

You may be tempted to over-state your financial standing on your application. Bad idea.

Lenders know that sometimes businesses are in a desperate situation. But don’t try to fudge the numbers, because that typically gets exposed in the end through their underwriting process. And once the lender finds out, it can really hurt your chances of getting a line of credit.

So keep this in mind: never compromise the integrity of your business.

Ready to get a line of credit?

A business line of credit is one of the most convenient forms of financing for businesses. Before applying, it’s important to consider your business’s financial health, know the rates, understand your options, and gather the appropriate documents. Make sure your application stands out by having a web presence, inputting the correct information, and being honest about your business financials.

See Part 1 of this blog post here.

This post originally appeared on the BlueVine blog at https://www.bluevine.com/how-to-get-a-business-line-of-credit/.


Trends in Government Contract Financing

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This is a guest post by Katie Bilek of Republic Capital Access.

Small businesses face a unique set of financial challenges as federal government procurement has evolved over the past few years. Here are some recent trends that stress small businesses:

Awards too large for a company’s financial wherewithal

The nature of the federal contracting environment has led to many out-sized contract awards to small businesses. It’s not uncommon for us to see a contractor win work that is at least 3 to 4 times the size of their existing portfolio of contracts. In many cases, this may be the result of desired efficiency, where a contracting officer chooses to merge multiple legacy contracts into a single vehicle.

More frequently, contracts are “flipped” from full and open to a small business preference (such as HUBzone, SDVOSB, etc.) to achieve set-aside goals, introducing the potential awardee to what was previously a large business task, most likely at the high end of their NAICS ceiling. It is important to have a financial institution that is prepared to triple or quadruple the size of your existing financing upon contract award.

Cost of pursuing indefinite delivery, indefinite quantity (IDIQ) and blanket purchase agreement (BPA) contracts

While multi-billion (or trillion) dollar contract ceilings sound enviable for any small business owner, IDIQ/GWAC and BPA contracts are merely a license to hunt. We have seen many small businesses expend nearly all of their resources and cash reserves to win large IDIQ contracts. When they finally pursue task orders and hire key personnel in advance of execution, many lack the capital to perform the work.

Focus on cash flow projections and choose a financial partner who can provide financing based upon the creditworthiness of your government customer and contract, not your balance sheet.

Requirement to have financing in place in order to be compliant with bid

We have seen increasing scrutiny on the part of contracting officers to make sure small businesses can demonstrate financial capability to execute the contract in compliance with the FAR.

Many solicitations now require a financial capability letter from a financing institution citing the solicitation, description and a financing facility equal to at least three months’ worth of billings in. Your financial partner should be able to provide this commitment letter at no cost for future contract awards.

Challenges related to financing joint ventures

Unpopulated joint ventures are a popular teaming vehicle, yet the unpopulated joint venture structure itself often struggles to qualify for stand-alone financing without significant capital contributions or guarantees from its participating partners. Even when the JV partners maintain their own bank lines of credit independent from the JV, those banks are often unwilling to extend credit to the JV as an external entity.

Find a financial partner who will underwrite the unpopulated joint venture without requiring capital contributions from either party. This is done via non-recourse receivables financing.

Surges and volatility of product procurements

For value-added resellers, the federal fiscal year-end results in the lion’s share of revenue. For our small business friends holding NASA SEWP, CIO-CS and other contract vehicles, a combination of receivable and vendor financing is critical to executing large product orders.

While vendor credit programs can be affordable sources of financing, not all small business balance sheets can support 8-figure product orders on vendor credit alone; the non-recourse sale of receivables to pay vendors and manufacturers completes the financing package that allows resellers to execute during peak seasonal times. Choose a financial partner with a vendor financing solution with adequate availability for your largest product orders.

Loan sharks in sheep’s clothing

The prevalence of online, financial technology (FinTech) loans is startling. These fast money products are basically like an electronic version of payday loans for businesses, usually priced well above 30%.

They dress their virtual storefronts up in any manner of ways: the jeans-and-t-shirt, San Francisco techies; the self-proclaimed veteran lovers invoking images of patriotism, the Buy by Midnight! used car salesmen and the not-so-subtle cash advance lenders.

All of these lenders hawk financial products that are priced higher than most small business government contractor margins can support. Beware of online lenders, and always read the fine print; even if they tell you “It’s only 9%!” share the proposal with a banker who can shed light on the real math.

Republic Capital Access (RCA) is a specialty finance company for government contractors. RCA’s product offering includes non-recourse receivables financing, unbilled (mobilization) financing, financial commitment letters, joint venture financing, term loans and more. Katie Bilek currently serves as senior vice president of Republic Capital Access. She is also co-founder of govmates and board member of the National Veteran Small Business Coalition. Katie lives in Alexandria with her husband Beau and son Jackson.

 


7 Steps for Innovators Wanting to Work with the Feds

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This is a guest post by Eileen Kent, The Federal Sales Sherpa.

1. Reach out to a Procurement Technical Assistance Center who can help your connection register with the federal government – it’s free, and SAM.gov is the site. If you want to learn more about it, listen to this episode of my blog talk radio show. It’s not rocket science – but it’s the first step a company needs to take first before approaching anyone in the federal government.

2. Find basic training if you’re dabbling in the market and doing it yourself. For a small investment (often under $100 and sometimes free), attend a few SBA-sponsored local events or PTAC-sponsored local events, or listen to some of my connections’ webcasts, podcasts, and webinars (including The Federal Sales Sherpa Show).

3. If you’re serious about this market, purchase one-on-one training from federal sales experts who have “been there/done that” – and can customize the material for your business and your services. This is only for those wanting to stand up a team member – or hit the ground running. It’s refreshing and time saving to hear a non-government sponsored training – because an expert giving you the training will tell you the realities of what it truly takes to win federal contracts.

My training is called, “The Federal Sales Game-How to Play to WIN!” but others have something similar. You and your team need to learn the difference between the goals of the contracting officer and your customer on the inside – the END USER – who will need what you sell. You need to find and capture their attention, imagination, pain, needs, and perceived solutions. You also need training on clearly understanding contracting vehicles. What is a GSA Schedule, IDIQ, BPA, GWAC? What are set asides, 8(a), SDVOSB, HUBZone, EDWOSBs? Know the difference and understand the power of having these contract “bridges” or partnering with someone who does.

4. Build a strong capabilities statement, with provable, quantifiable best values. Follow this document up with several past performance/case studies ready to present in a capabilities briefing, stand-up field meeting, or webinar.

5. Perform a competitive analysis of the data, which is available at your fingertips WITHOUT BUYING A SUBSCRIPTION. Know how to use all the tools available to you that can uncover which agency buys what you sell, from whom and with what contract vehicle, so you know who to approach, what to say and how to differentiate yourself from their current provider.

Only buy a subscription when you understand the data you’re looking at and you plan to DO something with the intel uncovered. One client of mine just got a renewal for a subscription which is $20k a year now for them. Stop the madness! Wrap your head around the intel and stop living in it. It’s time to take that intel and DO something with it, such as make decisions about which contract vehicles (like GSA, Seaport-e, GWACS and such) to keep and which to drop.

6. Build a federal sales action plan focused around the 3-5 agencies who buy what you sell. Stop stumbling around the public bid sites and randomly bidding on contracts you think are “perfect for us.” Start developing relationships and finding the end users and program managers making decisions about purchasing like-products/services as yours and execute that plan.

What do I mean by execute? Simple. Call. Email. Ask for directions. Call again. Email. Email. Call. Email. Visit. Present. Follow up. Call again. Check in. Follow through. Ask for referrals. Email., Call. Share an article or a whitepaper. Call again, and again, and again. Develop comfortable relationships with federal clients who start to share with you what’s really happening, and whether or not they need you now or later. If they don’t need you now, who would they call on if they were you? This is a long-term process of relationship building and you can’t hire a 100% commission sales person or a consultant to do it for you. This needs to be someone who is involved with your company – invested. You need the A-Team out front. Customers don’t want to talk to someone who represents you – they want to talk to YOU.

7. Train your team on proposal writing and have a standby proposal consultant ready to help if you have a sudden need to respond to an RFP/RFQ. But understand the process so you don’t waste a dime on misunderstandings between you and your proposal team. You need to have a strong bid/no bid process so you don’t waste a minute on a loser. You need to understand win themes, evaluation criteria, the past performance you need to submit which fits the opportunity perfectly, the technical, and more. If you don’t, get training and find a strong proposal team. Put this statement on your wall: We Only Write Winning Proposals.

About the author: Eileen Kent is The Federal Sales Sherpa and helps companies one-on-one with training on the federal sales game, a deep dive competitive analysis on who buys what you sell from whom and with what contract vehicles and then she builds you a custom federal sales action. If you’re serious about this marketplace and ready to hit the ground running, contact Kent at 312-636-5381.


8(a) Program Versus GSA Schedule – What’s a Small Business To Do?

A pretty african american business woman at her company

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This is a guest post from Tonya Buckner of BucknerMT Management & Technology, Inc. 

One of my fellow scholars from the Goldman Sachs 10,000 Small Business Program called me recently to inquire about the difference between the 8(a) Program versus GSA Schedule, and why BucknerMT recently elected to get a GSA Schedule instead of pursuing the 8(a) Program. Below is what I shared with her:

8(a) Program versus GSA Schedule

It is important to understand that the 8(a) Program and GSA Schedule serve two totally different purposes. The first is a business development program to assist in growing your business and the second is a negotiated contracting vehicle for the government to purchase their services.

Both are great tools to grow your business. In fact, the SBA encourages 8(a) contractors to consider participating in the GSA Schedules program to increase their sales.

As you determine the next step for your business, here are a few things for you to consider:

  • The 8(a) Business Development Program is a business assistance program designed to assist small disadvantaged businesses compete in the marketplace. It is a two-phased program over nine years – a four-year developmental stage and a five-year transition stage.
  • 8(a) program participants are consistently encouraged to “ensure you build a pipeline prior to entering the program.” Meaning, it is to critical to build relationships with both potential clients who may use your services, as well as graduating 8(a) companies who are potential partners. The goal is to maximize your time in the program.
  • Having a GSA Schedule contract simplifies the acquisitions process because terms and pricing are negotiated up front. That makes it the contracting officer’s vehicle of choice. Getting a GSA contract gives you that prestige of being an approved vendor.
  • The greatest benefits of being a schedule holder are that there is less competition, access to exclusive eBuy opportunities, and the average award period is two weeks. As well, GSA Schedules can be negotiated for as many as 20 years with step increases in rates.
  • As a GSA holder, you will receive a listing in GSA Advantage and GSA eLibrary. However, you must also actively market your schedule to potential buyers, i.e., put it on your Capability Statement and all of your company’s digital media, and notify current and potential clients, your peers, OSDBUs, etc. We also shared our news in a blog post.

Both the 8(a) program and a GSA Schedule are great tools to grow your business. We are positioning BucknerMT for the 8(a) program, however we made a business decision to pursue the GSA IT70 Schedule first. This decision allowed us to position ourselves for prime opportunities and, most importantly, it is the method by which our target clients purchase their services. In the meantime, we are focusing on building our pipeline to maximize our time once we are in the 8(a) program.

Lastly, it is critical to understand and remember that both the 8(a) program and the GSA Schedule give you a license to fish, but neither guarantee opportunities. Working with the government is complex, but if you are willing to put in the effort, it is also very rewarding.


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