Are you one of the millions of small business owners in the United States?
Or are you considering starting your own company?
Just as with consumers, it's important for small business owners to make sound financial decisions so they can grow and prosper. FDIC Consumer News offers these tips for small business owners on topics ranging from financing your operations to managing your accounts.
Get a head start with business experts who can help you. The U.S. Small Business Administration (SBA) provides education and counseling through a variety of programs and partners. The SBA's help includes online training, Web chats for small business owners, and referrals to local classes and confidential counseling. Topics range from writing a business plan to qualifying for a loan.
In addition, don't hesitate to ask a banker for advice on financing and interest rates and for referrals to other local resources that can help you build your business. It also can pay to use the services of a small business counselor or attorney to make sure you comply with licensing, tax, insurance or other regulatory requirements. Other topics to address include the pros and cons of different ownership structures (such as becoming incorporated) and when you may need to request an employer identification number (EIN) from the Internal Revenue Service.
Establish a positive track record for your business. Just as credit bureaus maintain a record of your personal credit history, companies track how businesses handle their finances. "One way to establish and maintain a good credit history for your business is to make timely payments to your suppliers and vendors in the company's name," said Luke W. Reynolds, Chief of the FDIC's Community Outreach Section. "This can pay off when applying for a bank loan or negotiating how quickly you have to pay suppliers." Lenders also will likely review your personal credit report as an indicator of whether a business you own will repay a loan promptly.
Do your research to get the right loans at the right time. Whether you're just starting a small business or expanding to take advantage of new opportunities, obtaining financing can be vital to building a strong and thriving organization. The SBA is committed to helping small businesses obtain financing. Working closely with a wide range of lending partners across the country, the SBA has a variety of programs that address the borrowing needs of small businesses.
Be careful with credit cards for your company. "Interest rates on credit cards are usually much higher than on business loans," said Ron Jauregui, an FDIC Community Affairs Specialist. "So if you do decide to finance your company using credit cards, make sure you know the APR — the Annual Percentage Rate — and other key terms of the card."
Also, he said, if you plan to use a credit card for business expenses, consider obtaining a card in your company's name. Doing so will help you keep track of those expenses. And, for big-ticket business expenses (such as costly equipment) that you don't plan to pay in full by your credit card's due date, consider a bank loan at a lower interest rate instead of financing it at the credit card's higher interest rate.
Take advantage of the different banking services available. If you don't already have a checking account for your business, consider opening one. A bank account will help you record and monitor business expenses and ensure that the cash is safe from loss or theft. "Even if you already have a business account, occasionally do some comparison shopping to ensure you are getting a deal that makes sense to you," advised Reynolds.
Some institutions may also offer software or other tools that allow you to deposit checks remotely over the Internet. Institutions also often provide options to pay employees via direct deposit, which can save your business money and time compared to issuing paper checks.
Understand the FDIC's insurance coverage for your business deposits. Money that your business has on deposit with a bank is insured separately from your personal accounts at the same institution if the funds are in an account opened in the name of a corporation, partnership or other legal entity. But if you operate your business as a sole proprietorship, your business' funds are insured together with your personal deposits at that same institution in the "single account" category (those in your name alone and not including certain Individual Retirement Accounts), rather than being insured separately. However, if a sole proprietorship uses an account owned by two people — typically a husband and wife — "the FDIC would insure their business accounts under the 'joint account' category along with any other funds they own together at the same bank that are joint accounts," advised Martin Becker, an FDIC Senior Deposit Insurance Specialist.
Under current law, through year-end 2013, the maximum total FDIC deposit insurance coverage is $250,000 for single accounts, $500,000 for joint accounts (up to $250,000 for each owner's share), and $250,000 for business accounts.
Take steps to protect your small business from online fraud. The FDIC has seen an increase in reports of unauthorized electronic transfers made from bank accounts held by small businesses. "Most of the incidents occurred because the small business' online banking IDs and passwords were compromised," said Kathryn Weatherby, a fraud specialist at the FDIC. "This may happen when a small business owner's computer becomes infected with malicious software — often called malware — that logs the keystrokes of the person at the computer and records valuable information."
To protect against malware and other online threats, Weatherby said, small businesses should ensure that their internal networks are secure and that their anti-virus and security software is up to date. They also should monitor and reconcile accounts frequently, perhaps even daily, and immediately report unusual activity to their financial institution.