Why Banks Deny Loans to Small Businesses

Starting a business is one of the most rewarding, yet difficult endeavours to undertake. The road to profit is very challenging. Business owners need a great deal of money to launch their venture. They depend upon commercial lending for financing. However, many times loan applications are rejected by banks.
Here’s a list of reasons a business loan can be rejected.

  • Bad credit

    Even though not everyone has the best credit, as far as lenders are concerned, this just isn’t an excuse. Poor credit is simply a sign that a borrower, or their business, does not prioritize repaying their debts. Credit score of the borrower is very important criterion for money lenders to decide whether to accept or reject a loan offer. Most banks typically won’t loan to a business owner whose personal credit score isn’t above a certain threshold (typically about 680).

  • Not enough collateral

    All business loans require collateral. Unfortunately not all businesses have sufficient collateral to support the size of the business loan they wish to borrow. Another obstacle is the price depreciation of certain collateral. Know the value of your collateral before you ask the bank for the loan.

  • Under-capitalization

    Borrowers often make the mistake of under-capitalizing their business loan application. Your personal and professional resources including fixed assets, retained earnings, and the even an owner’s equity, can be attached if required to secure repayment of the debt. Do your homework; know what capital you have on hand. Know what you can pledge and use to grow your business and repay the bank’s loan.

  • Cash flow problems

    Lenders see no reason to offer money to a business that has serious cash flow problems. Banks want to see that businesses have enough money to make monthly loan payments in addition to covering rent, payroll, inventory and other costs.  After all, if a business isn’t even making money to begin with, then there is no need to hand it a business loan in the hope that is generates growth. There has to be adequate cash flow available to repay a loan. Most bank term loans are not ideal for start-ups or very young businesses. They typically look for a few years of revenue generation. Start-ups can apply for SBA loans (which are loans made by a bank with a portion guaranteed by the US government). Most large banks have SBA loan departments, so be sure to check with your local branch.

  • Lack of preparation

    Many businesses simply aren’t savvy about the application process and believe they can walk into a bank, fill out an application and get approved for a loan. Before applying for a bank loan, businesses should have a written business plan, financial statements or projections, personal and business credit reports, tax returns and bank statements. They should also have copies of relevant legal documents including articles of incorporation, contracts, leases, and any licenses and permits needed to operate.

  • Difficult conditions

    Even if a business has excellent collateral, credit, and is well run, there is still the possibility that it will soon face industry-specific difficulties. For example, a lender may be hesitant to lend a business loan to a transportation company in the wake of rising fuel costs. The lender may expect that the soaring costs of fuel are just going to overtax the transportation company and make it difficult to grow or generate a profit. Outside influences are always considered prior to a loan approval or decline. They can include industry experience of a borrower, a business’s location, local or regional economic trends, competitors etc. In addition to these, seemingly unrelated factors, such as local climate conditions, may also influence an applicant’s approval or denial.

These reasons are warning signs to look out for on the road to getting a business loan. Even if borrowers achieve success and borrow business loans, they still have to successfully run their business and payback their lender. While not all ideas need financing to get started, getting a business loan is a great aid to launching a new company.

Legal Requirements to Start a Business

Many different elements go into starting a new business. One of the primary requirements for setting up a business is to abide by the legal requirements set by federal, state and county rules and regulations. Abiding by these rules allows you to start your business off on the right path to help you avoid legal issues regarding the business structure in the future.

Here is the list of legal aspects you need to consider for start-up. Depending on your situation and type of business, hiring a tax accountant and/or good attorney with specific experience in your industry can help you.

  • Business name

    Before you start printing out business cards, make sure the great new name you thought of isn’t infringing on the rights of an already existing business. You can perform a free search online that looks at business names registered with the Secretary of State — that will tell you if the name is available in your state. Then, take your search to the next level and conduct a no-conflict, free trademark search to see if your name is available for use in all 50 states.

  • Register a fictitious business name/DBA

    A DBA (Doing Business As) must be filed whenever your company does business under a different name. If you’ve got a sole proprietorship or general partnership, a DBA is needed if your company name is different from your own name. For an LLC or corporation, a DBA must be filed to conduct business using a name that’s different from the official Corporation or LLC name you filed.

  • Incorporate Your Business or Form an LLC

    Forming an LLC or corporation is an essential step to protect your personal assets (such as your personal property or your child’s college fund) from any liabilities of the company. Each business structure has its own advantages and disadvantages, depending on your specific circumstances. Three popular options are: the LLC (great for small businesses that want legal protection, but minimal formality), S Corporation (great for small businesses that can qualify), or C Corporation (for companies who plan to seek funding from a VC or go public).

  • Get Federal Tax ID Number

    To distinguish your business as a separate legal entity, you’ll need to obtain a Federal Tax Identification Number, also referred to as an Employer Identification Number (EIN). Issued by the IRS, the tax ID number is similar to your personal social security number and allows the IRS to track your company’s transactions. If you’re a sole proprietor, you’re not obligated to get a Tax ID number, but it’s still good practice as you won’t have to provide your personal social security number for business matters.

  • Learn about employee laws

    Your legal obligations as an employer begin as soon as you hire your first employee. You should spend time with an employment law professional to fully understand your obligations for these (and other) procedures: federal and state payroll and withholding taxes, self-employment taxes, anti-discrimination laws, OSHA regulations, unemployment insurance, workers’ compensation rules, and wage and hour requirements.

  • Obtain business permits and licenses

    Depending on your business type and physical location, you may be required to have one or more business licenses or permits from the state, local or even federal level. Such licenses include: a general business operation license, zoning and land use permits, sales tax license, health department permits, and occupational or professional licenses.

  • File for trademark protection

    You’re not actually required by law to register a trademark. Using a name instantly gives you common law rights as an owner, even without formal registration. Since you’ve spent untold hours brainstorming the ideal name, and you’ll be putting even more effort into cultivating name recognition, you should consider registering your trademark for proper legal protection.

  • Open a bank account to build business credit

    When you rely on your personal credit to fund your business, your personal mortgage, auto loan and personal credit cards all affect your ability to qualify for a business loan. Using business credit separates your personal activities from that of the business. To begin building your business credit, you should open a bank account in the name of your company, and the account should show a cash flow capable of taking on a business loan.

If you are a start-up owner or have plans of becoming one, we at TheGongzuo.com are eager to assist you. Our experts will provide you guidance regarding your financial or legal matters. Do contact us today!

Why Women Don’t Start Business?

According to the Global Entrepreneurship Monitor (GEM) report, only seven women start businesses for every ten men. There is a big “confidence gap” between male and female entrepreneurs.

Here are the main reasons why women hesitate to start their own businesses:

  • Women are less confident

    About three-quarters of both male and female entrepreneurs start businesses to pursue an opportunity, but men show more positive perceptions about opportunities and their own capabilities, as well as lower fear of failure. Women are inclined to take fewer risks.

  • Women use their savings, men get loans

    On an average, women start their businesses with a median amount of $8,000; men had $30,000. Women were also more likely to use their own cash or borrow from family members, while men got bank loans. With fewer funds to start a business, women have little or no scope for taking necessary steps.

  • Men are more likely to know other entrepreneurs

    It seems contrary to the general norm of women as social connectors and men as isolated individualists, but men are more likely to have robust professional networks when starting their businesses. They were also more likely to already know someone who had branched out on his own, providing them with a valuable source of information.

  • Content with life

    Women are content to live their lives peacefully, calmly without any stress brought about by starting a business.  For most of the women, money is not a motivator. And if it is, they feel that they can get it from their jobs working within an organization, instead of starting a new venture.

  • Responsibility of managing family

    Women always have to struggle to balance career and families. Starting a business involves a lot of dedication. Women feel they cannot devote that much time while handling household responsibilities.

Best US Cities for Startup Businesses

When we think of tech start-ups, Northern California region comes to our mind. Companies in Silicon Valley area receive the largest share of funding from venture capitalists, but there are several other promising cities around the country to launch tech start-up.

The following ranking is based on start-up survival rates, available talent pool, day-to-day start-up costs etc.

  1. Austin, TX – Austin has topped the list, becoming alternative to Silicon Valley. It has a smaller population and that is  great for quality of life. It has the necessary talent available needed for tech industry.
  2. New York, NY – This is city is very much open for business. Internet businesses are thriving in Manhattan. NYC’s mass transit system is a big plus in its digital success.
  3. Seattle, WA – Seattle has great universities producing engineering and IT graduates. So, it has the highest density of tech talent. This is the biggest advantage for entrepreneurs.
  4. Denver, CO – It has comparatively low office rents, affordable for budding CEOs and CFOs. It has smaller population, so people enjoy great quality of life.
  5. Atlanta, GA – It has great public transport and subway system for commuters. Low cost of office spaces is good news for start-up owners. They get more money in hand to expand their business or to hire quality workforce.
  6. San Francisco, CA – Here, over half of the population holds a Bachelor’s degree. This is fantastic as it means there is a good spread of academic qualification and experience throughout the city to aid recruitment. Major downside is, it is the costliest place to open a new office.
  7. Washington, D.C. – Academic talent pool is larger than most of the cities. This is fantastic news for anyone looking for a more academically qualified workforce, or looking for specific qualifications that come out of advanced degrees.
  8. Miami, FL – Miami has one of the most thriving local business cultures of the entire Top 10 cities of this list. It can attract many different businesses from different sectors. It can attract many different businesses from different sectors.  Miami is blazing ahead in terms of number of new company formations.
  9. Los Angeles, CA – It has second lowest transportation cost among the top cities listed here – good news for employees needing to get to their workplaces and the bosses who need to get them there early. LA is great place to start and grow business. It has a high rate of new entrepreneurs.
  10. Houston, TX – Houston is the best city in terms of office prices. Being highly populated, it gives great local market for businesses. It has a wide variety of skills available, which is a big plus.

How To Design Start-up Business Plan?

Launching a business without a plan is like going on a road trip without a map or GPS to guide you. Whatever may be the type of your start-up business, you have to have a business plan in place. Its real value lies in the process of researching and thinking about your business in a systematic way. Another advantage of having a start-up plan is that, you can present it to the investors to give them a clear idea about your business.

Start-up plan is nothing but the “to-do” list of everything to start your business. Once you list out the actions that need to be taken, assign a responsible person for every action and write down the deadline by which it needs to be completed. Any task without a deadline will never get completed.

Review the following steps to write your start-up plan:

  • Mission statement – This is your reason for starting your business. Maybe you want to provide a specific service that’s missing in your community. Your mission statement should explain your reasoning in a few clear and effective sentences.
  • Your own background and information – Add a section about yourself, mentioning your qualifications and experience.
  • Employees’ information – List the names of your employees, if you have already identified them or else you may write the titles, job descriptions, the responsibilities they would be handling etc. You may also include the salaries and benefits you are planning to offer to your staff.
  • Market study – This includes the description of market that you are targeting. It includes either the geographical locations or people of particular age groups.
  • Competitors – Besides their name and business type, note a brief reasoning as to why each business is considered competition. End with why your business will overcome the competition and be successful.
  • Partners – These would be the distributors, vendors and contractors that you may need to hire as part of your business.
  • Description of your product/service – Be specific about how you plan on producing or providing the product or service, and how you will deliver it. You will also need to explain the methods you will be using to sell the product or service and what modes of marketing your will implement.
  • Financial section – This includes information about your credit status, sources of funds, business expenses and projected sales and profits.

It typically takes several weeks to complete a good plan. Most of that time is spent in research and re-thinking your ideas and assumptions. Be sure to keep detailed notes on your sources of information and on the assumptions underlying your financial data.

If you need any help in launching your business, register at TheGongzuo.com for free. We have mentors and advisors to help you in every single task – from building your start-up plan to market your product/service.

Start-up Advice for Women Entrepreneurs

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More and more women are starting their own businesses and getting aware of the opportunities available outside their 9-to-6 jobs. But, for women it is challenging to focus on their new mission, as they have to struggle to strike work-life balance.

Here are the few tips that may help them to start a new business:

  • Find your passion – You are going to spend long hours working for your business, so pick an industry that you don’t just like, but are passionate about. When you are passionate, it shows, and your enthusiasm and belief in what you are doing translates to your customers, sparking their enthusiasm about what you are offering.
  • Keep your home and work life separate – It is important to set aside time for both personal and work lives, in order to give each the attention it deserves. Set specific office hours and unless there is an emergency, stick to them. Train yourself to work during office hours and do not accept calls or check emails after hours. Your customers and clients will also conform to your schedule as long as you stick to it.
  • Don’t pay attention to any disadvantages – Don’t put any energy into wondering if you have different challenges than any other leader or business owner because you are a female. If you are good at what you do, that’s all that matters.
  • Be positive, flexible and patient – It takes a good amount of time to build a business. Continue to have a positive outlook and don’t stop believing in yourself. There has never been a successful business owner that hasn’t run into some challenges!
  • Don’t let the lack of confidence or fear hold you back – Women are generally more afraid of failure than their male counterparts. Moreover, cultural traditions also discourage women from taking leadership positions. Women are less confident than men in starting businesses. Don’t let the fear of failure stop you from being an entrepreneur.
  • Believe in yourself – Actually, women have better communication and consulting skills, are more caring and loyal towards their organisation and peers and, compared to men, are less competitive, confrontational and aggressive, and less driven by money. They are far more dynamic and capable than previously believed. So, believe in yourself and be a leader!
  • Get the right support – Seek out networking groups, coaches and mentors that will not only cheer you on, but challenge you to take your business to the next level. Network with other businesswomen in your field that can give you an eagle’s view of what’s working and what’s not.

If you are dreaming of setting up your own business, log on to TheGongzuo.com. We will help you in launching your start-up.

Tech Jobs with High Salaries

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Everybody knows tech industry pays well. But specifically which jobs will put you in higher income tax bracket? Check out these tech jobs with enviable salaries:

Software Architect – Designs complex software applications. Average salary – $130,000
Software Development Manager – Project leader for software projects. Average salary – $123,000
Solutions Architect – Designs and engineers complex software or computer systems. Average salary – $121,000
Analytics Manager – Performs business and financial analysis to help the company measure its success and predict its needs. Average salary – $115,000
IT Manager – Manages a company’s technology infrastructure. Average salary – $115,000
Product Manager – Helps run the teams that design and market a product. Although a product manager isn’t a tech-specific job, it’s a major role at many tech companies. Average salary – $114,000
Data Scientist – Helps a company find insights out of heaps of data. This is one of the super-hot fields within IT. Average salary – $105,000
Security Engineer – Designs, deploys and monitors systems that secure a company’s network, software and other assets. Average salary – $102,000
QA Manager – Performs tests to make sure a product, service or software performs like it should. Average salary – $101,000
Computer Hardware Engineer – Designs computers and all sorts of other electronic devices. Average salary – $101,000
Database Administrator – A company’s database is among the most important bits of software it owns, keeping track of customers, transactions, and inventory. A database administrator runs it. Average salary – $97,000
UX Designer – A “UX” designer, or “user experience” designer are the ones who make sure the product looks and feels good and functions in a way that is easy for people to use. Average salary – $97,000
Software Engineer/programmer – Every company needs them, from the tech companies building software to sell to others, to the enterprises building apps for their own internal use. Average salary – $96,000
Sales Engineer – The technical resource for the sales force that helps them make sure bids and contracts meet the customers’ technical specifications. Average salary – $91,000