NEWSLETTER
December 2022
Interest Rates: The Real Cost of Doing Business
Becoming well-versed in the subject of interest rates can be a real asset to your business. Interest rates vary and definitely affect the cost of doing business.
With interest rates on the rise, consumers pay more interest to lenders and your business may find customers have less disposable income to spend. Businesses with variable interest rate loans may find themselves in tough situations and it may be difficult to take out new loans to manage expenses or expand the business.
Funding Strategies Conference Presents
The Real Cost of Doing Business
A $29.99 Value!
Register for FREE by 1/31/22 using the code INTEREST23
Tune in for tips and strategies to help offset rising interest rates and get a better understanding of how interest rates really affect your business.
By participating in this webinar, you will learn:
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Details about different types of interest rates
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How to use interest rates to your advantage
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How to manage loans during interest rate hikes
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Do interest rates really matter?
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Variable or fixed rate loans and what’s best for my business?
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Funding trends for the next 18 to 24 months
Funding and Taxes: End of Year Information You Need to Know
December is a good time for strategic business tax planning before 2023 arrives. Companies need to file key tax forms by the end of the year. These may include employee and contractor earnings and Social Security or Medicare taxes. As an SME (Small to Medium Enterprise) owner, you’ll also want to get your business finances in order soon, so you don’t face a time crunch at the end of the year or miss out on possible tax exemptions and deductions.
Make sure your critical financial records are up to date, including: the company balance sheet (equity, assets, and liabilities), income statement (revenue, expenses, and profits) and cash flow statement (cash movements).
These documents give an accurate picture of your business’s current financial state. You can compare them to past years to gauge company profitability. You, or your accountant, can begin to develop a smart tax strategy and estimate upcoming tax bills, based on your business income.
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If your business has grown, you may want to make planned capital investments or upgrades—such as new software, computers, equipment or inventory—before December 31st to reduce your business income. If revenue is down, you may want to postpone investments until next year when the business may be more profitable.
You may be able to defer outstanding invoices or payments to increase or reduce next year’s income and tax bill. A company can claim tax exemptions for obsolete inventory and uncollectable debts, but you need to figure out if your business has items which qualify.
Another exemption business owners often overlook is retirement plan payments. If you don’t have a plan, you can set one up before December 31st and this year’s payments will still qualify. Don’t forget to include business expenses, such as a home office, vehicle, travel, employee expenses, charitable donations and equipment depreciation, which qualify for tax deductions.
The federal Small Business Administration (SBA) website contains an online guide to federal and state tax obligations. The Internal Revenue Service (IRS) also offers small business tax information on the IRS website. If you’re preparing your own taxes, these sites may be helpful.
Sources:
Business News Daily: Get Business Taxes in Order: https://www.businessnewsdaily.com/8580-year-end-tax-prep.html
Funding Circle: End of Year Tax Tips: https://www.fundingcircle.com/us/resources/end-year-tax-tips/
Guidant Financial: Small Business Year End Checklist: https://www.guidantfinancial.com/blog/small-business-year-end-checklist/
The Internal Revenue Service: Tax Information for Business: https://www.irs.gov/businesses
Patriot Software: Year End Tax Planning: https://www.patriotsoftware.com/blog/accounting/year-end-tax-planning-for-small-business-owners/
Small Business Administration: Business Tax Guide: https://www.sba.gov/business-guide/manage-your-business/pay-taxes#section-header-0
The Risks of Using Personal Credit for Business Loans
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New SME (small to medium enterprise) owners often mix their business and personal finances. According to a 2020 Federal Reserve Small Business Credit Survey, nearly all (88%) of small businesses owners relied on their personal credit history to obtain initial financing for their company—and it’s often required by lenders for newer businesses. Their reasoning is that if you can manage your own finances well, you’ll manage your business finances equally as well.
While blending finances may be necessary when starting a small business, it’s not a good practice to continue as the business grows. As a business expands, it’s likely to take on more debt and liability. If the owner is using personal credit to guarantee business loans, they will be responsible for that debt if the business fails. They can lose personal assets, be vulnerable to lawsuits, be forced into bankruptcy or receive a poor personal credit score.
If an owner is taking out loans on personal credit, their business can’t successfully build a solid credit history, may not qualify for loans or may have to pay higher interest rates. The company will have an “incomplete” credit score as the business entity doesn’t have a history of successful repayments. Potential lenders and investors can’t get an accurate picture of business revenue, debt and overall financial health, which can undermine the owner’s ability to find financing or partnerships.
In addition, certain types of financing or credit may only be available to a company, not an individual. This can include higher credit limits, lower insurance premiums, better lease, freight and interest terms, and the ability to bid on and win contracts. An owner may also miss out on certain business tax credits or exemptions if they use personal credit for loans.
Resources:
Beacon Funding: https://www.beaconfunding.com/blog/article/risks-of-using-your-personal-credit-for-your-business
Dun & Bradstreet: https://www.dnb.co.uk/resources/personal-vs-business-credit.html..html
Fed Small Business: https://www.fedsmallbusiness.org/survey/2020/report-on-employer-firms
Seek Capital: https://www.seekcapital.com/blog/how-does-personal-credit-affect-business/
How Does Compound Interest Work on a Loan?
If your company is seeking funding, it’s important to discuss the topic of interest. To put it simply, interest is the price you pay to borrow money. When lenders offer money in the form of a loan, they profit off the interest, which is the fee paid in addition to the original loan amount.
Interest can be either simple interest or compound interest. Compound interest is basically interest on interest. It can be compiled daily, monthly, or annually. When compounding occurs, the interest is added to the original loan amount. With compound interest, the interest per period is based on the principal balance, plus any outstanding interest already accrued.
There are benefits and drawbacks to compound interest. It can provide lower interest rates, but it’s also riskier than simple interest. In speaking of compound interest specifically related to a loan, compound interest means you end up with a higher total to pay off.
Increased payment rates can lessen the interest in a compound loan. So, the quicker you pay off the loan, the less of an impact the compound interest will have. If you can increase the frequency of your payments, it lessens the compound interest, thus decreases the final owed amount.
As a borrower, monthly compound interest often has a lower rate than annual options, but you’ll want to commit to an option that enables you to pay off the loan the quickest.
About. Seth Block CPA
Seth Block is a founder and board member of ThermoCredit, LLC. Seth has been working with the management and development of service based companies for more than 30 years. In his time with ThermoCredit, Seth has coordinated the funding for hundreds of companies in the Communications and Technology verticals. Prior to starting ThermoCredit,
Seth was a cofounder at Smoke Signal Communications,
one of the largest pre-paid competitive telecommunications carriers in the US. At Smoke Signal, Seth was CFO for two years and Senior Vice-President for 5 years. Seth’s areas of expertise are corporate development, consulting, regulatory affairs, provider relations, start-ups, and delivering funding solutions for hard to finance companies. Seth holds a degree in Accounting from Southwest Texas State University and is a licensed Certified Public Accountant.
Seth is a well known and respected speaker at industry events, sharing insights about funding and funding options. During his career Seth has been involved in hundreds of business funding opportunities, with a total value in excess of one billion dollars. He is also the author of the soon to be published book about business finance.
“I’ve been in the world of finance for a while and I’ve acquired the business acumen to be able to share what I’ve learned. Most companies have financial leadership that understands accounting, but not the nuances of funding. There are significant differences between Banks and Credit Unions when it comes to financing. The SBA has 11 different programs. How do you know which one to utilize or even if you should utilize them? Schools teach about debt and equity, but I created The Funding University to teach companies how to leverage debt and equity in the real world, using easy to understand methods. There’s a big difference between what we learn in school and how the world of finance really works. The Funding University is here to close that gap.”
—Seth Block, Founder and Host of The Funding University
