Seven Ways to Prepare for an Economic Slowdown

From the Puget Sound Business Journal

Small-business owners can take comfort in how the Puget Sound economy keeps humming along. Employment for non farm jobs in King County grew 3.4% in the fourth quarter, over the same period in 2017, according to the county’s Office of Economic and Financial Analysis. Retails sales rose 6.3%. Permits for single family houses were up 9.8%. That’s good news for all businesses, which rely on the economy’s multiplier effect.

Yet this is exactly the time business owners should be shoring up balance sheets and closely examining cash flow in preparation for an unexpected downturn. After all, the bull market is a record 10 years old, and volatility is back. Companies that practice fiscally conservative measures now will fare much better down the road than those that don’t. Consider these seven ways to help safeguard your company from tough times:

1. Build reserves. It’s a basic piece of advice, but owners often don’t set aside enough cash during the good times. You need to be consistent in building reserves for your company, when cash flow is strong.

2. Open a line of credit. Business lines of credit are great for covering gaps in funding needs, taking advantage of buying opportunities, and using as a resource during slow economic times. Line limits are based on revenue, so it’s always a good idea to establish your line needs when times are good rather than during a down cycle, when clients have pared back orders and sales.

3. Reduce floating-rate exposure. While credit lines are good to have, often small businesses use them to finance capital purchases due to the immediate availability of funds. That’s fine, but refinance those balances with term loans. The interest rates on lines of credit are variable and adjust with the market. Shifting to fixed rate term loans reduces overall interest rate exposure and eases your cash flow during challenging economic times.

4. Pay down debt. Now is a good time to reduce obligations. If cash flow is strong use it to pay down principal. Think about potential investment: do you really need that piece of equipment if a slowdown were imminent?

5. Cut expenses. Take a hard look at your costs and cut back where appropriate. Employee
costs are a big-ticket item, so make sure and take good care of your top performers and evaluate any under performers not adding value. Lead by example as the owner and pare back your own salary and
distributions to show employees you’ve got skin in the game as well.

6. Diversify your receivables. If you only have a few clients and one goes under, you’ll face a serious reduction in cash flow. Work to get new customers by concentrating on your core business – and
doing it really well – rather than expanding into new lines of product.

7. Develop a succession plan. If you plan to sell your company in the next five years, think about doing it sooner than later, while things are still good. One way is to sell to an insider. Banks can lend money to a partner, so he or she can buy you out, but generally institutions require two years of some form of ownership in the business. So bring an employee into the ownership structure now.

While these are all basic business principles, they’re harder to put into practice because they all take
time and effort. But following them will help set you apart from the competition. In the process, make
sure your banker understands your needs as well, and use your banker as a key resource to help prepare for tougher times.

By BANKRATE STAFF JANUARY 3, 2019

Claudia Ramos, graphic designer and illustrator from North Hollywood, California, dreams of turning her side business, Claudia Ramos Designs, into a full-time gig. Her dreams are specific: She’d like to see her work and that of other Latina artists sold in her very own shop. Ramos, who was born in El Salvador, currently works for Hasbro as a fashion graphic designer by day and (after her seven-year-old daughter goes to bed) on her side business by night.

Soon after, Ramos’ designs were featured in a wedding magazine, and she opened her Etsy shop.

“It all started using my own money,” she says. “It’s all been out of my own pocket. I’ve never reached out for anyone to sponsor me or reached out to a bank for a loan.”

Ramos’ entrepreneurial spirit is common among the Latino population in the United States. Her Latino counterparts, who make up a full 18 percent of the U.S. population, reached a population of nearly 58 million in 2016, according to Pew Research Center.While the 2018 Stanford Graduate School of Business Latino Entrepreneurship Gap reported that just six percent of all businesses were owned by Latinos in 1996. Today, that number has more than doubled to nearly 13 percent.
Despite these figures, most Latino-owned businesses remain small, with 98 percent reporting less than $1 million in revenue per year.
As a whole, national banks fund Latino businesses less often than for entrepreneurs from other ethnic groups. According to the 2017 Stanford Graduate School of Business State of Latino Entrepreneurship Report, only 12 percent of Latino firms who employ more than one person received bank loans, compared to 18 percent of white-owned firms, 15 percent of Asian-owned firms and 14 percent of black-owned firms.

The importance of Latino entrepreneurs

Though they face constraints, immigrant Latino entrepreneurs make important contributions to the economy, generating $36.5 billion annually in business income.

According to the U.S. Small Business Administration Office of Advocacy, roughly 1.2 million of the 12.2 million business owners in the United States are immigrant Latinos. In fact, the Harvard Business Review reported that immigrants from all over the world constitute 15 percent of the general U.S. workforce, but they account for around a quarter of U.S. entrepreneurs. Almost half of Hispanic-owned companies are owned by women, according to census data.

Eighty-six percent of immigrant-owned firms with at least $1 million in annual revenues are owned by millennials (under age 34) who came to the U.S. as children, according to “Insights” by Stanford Business. On a larger scale, Latino immigrants are twice as likely as the native-born population to start a small business, according to the United States Hispanic Chamber of Commerce.

Small Business Majority reports that DREAMers don’t shy away from entrepreneurship, either. Those protected under DACA work at small businesses and start their own small businesses in droves.

Financial challenges as a Latino entrepreneur

“I feel like I’m not making a lot, but I feel like I have to learn more marketing strategies,” Ramos says, noting that social media – Instagram in particular – has changed since she first started her business in 2013. “A lot of people don’t see you on Instagram unless you have 5,000 followers. It’s all about numbers. I’ve been giving out giveaways, and I haven’t been selling that much.”

There are a few concrete reasons why most Latino-owned businesses remain small, and Mary Vazquez, community advocate for Point West Credit Union in Portland, Oregon, has seen them all:

• Funding gaps: Only 12 percent of Latino firms received bank loans compared to 18 percent of white-owned firms. Often, national banks are not willing to take on the risk of smaller firms. In addition, many Latino business owners report they feel unqualified to apply for a bank loan at a national bank. They defer to their own capital, friends, family and credit cards. They tend to use banks or credit unions, venture capital or angel investors as a last resort.
• Lower credit scores: According to Biz2Credit, the average credit score for Latino entrepreneurs is below 600, a lower credit score than what is required by many banks.
• Lack of awareness of different funding sources available: Many Latinos tend to resist seeking outside funding, including venture capital or angel investors. The U.S. government’s Small Business Administration guarantees loans, but Latino entrepreneurs access these at lower rates than they borrow from national banks, according to ARF Financial, a restaurant and hospitality lender.
• Lack of traditional identification: Banks do not often offer products or services to people with Individual Taxpayer Identification Numbers (ITINs), which are tax-processing numbers issued by the Internal Revenue Service for those who do not have a Social Security number.
• Language barriers: Low literacy and English proficiency among some Latino immigrants can be a root cause of Latinos not accessing banks or other financial institutions.
• Lack of bank services: Often, banks or other financial institutions lack services to help Latino entrepreneurs, including linguistically-appropriate services. Foreign-born entrepreneurs are also more likely to be denied bank loans.
• Fear and mistrust of the government and established institutions: Culturally, community and family are important to this demographic, and it’s an easier leap for many Latinos to borrow from family or friends before approaching financial institutions for funding.
• Low collateral value: Banks and other financial institutions are hesitant to grant anyone money without real property, business inventory, cash savings or deposit or other types of collateral. Immigrants new to America may not have enough collateral to qualify for loans.

The solutions to many of these financial barriers start with accessible financial education.

“They need to find a personal coach that can assist them with any of their questions without them feeling like they’ll be rejected or a bother to those institutions,” Vazquez says of the Latinos in her Portland community. “We see those stories every day.”

In 2007, Vazquez was the only Spanish-speaking teller at Point West, but today, almost half the staff at Point West is bilingual and bicultural. She recalls a client, Sara Rodriguez, who felt comfortable with Vazquez because of her Spanish-speaking ability.

Vazquez suggested Rodriguez open a business using the credit union’s help. A stay-at-home mom of four, Rodriguez had no credit and no Social Security number. She did have an ITIN, so Point West issued Rodriguez a $500 loan to pay for permits and ingredients to start her tamale cart, Sara’s Tamales. Over time, Rodriguez received two additional micro-loans from Point West.
Vazquez points to Rodriguez’s story as a victory and says that other credit unions should follow suit. “We actually renovated our website and it’s bilingual, in Spanish and English. Thirty percent of our staff members speak Spanish. Our call center is Spanish-speaking, and we’re one of the few, if not the only one in Oregon who does ITINs,” she says.

Funding your business as a Latino immigrant

Next year, Claudia Ramos plans to attend the #WeAllGrow Latina summit in Long Beach, California, to help her answer questions about what’s been elusive in the success of her business. “[The business owners at the conference] have the same goals: to grow and help each other. With what’s going on politically, it’s what we have to do to help each other,” Ramos says. “It’s part of our culture, too. To start my own little shop, I would feel more comfortable going to my family. Family is always there for you.”

She recalls a time when her cousin needed help funding a surgery, and she and her family members all chipped in to help. It’s the same with starting a business, Ramos explains. “You lean on family and friends before the bank.”

Vazquez, whose own family is from Mexico, agrees.

“Many times, I’ve seen personally and professionally how the Latino community is always asking friends and family questions about finances. If they have an idea for a business, they always ask a family member or a friend; they never really ask professionals,” she says. “They’re scared of being rejected, or they feel they don’t have the right to explore other options.”

She says that it can be a frightening prospect, particularly for those from another country, to dive into the complex process of obtaining funding.

Considering your funding options

While asking family and friends is often a more appealing option for Latino entrepreneurs, taking the risk of getting funding from a financial institution can help set up your business for success.

A list of pros and cons for various funding options are listed below. Note that regardless of legal status, Latinos can use the business name and number (EIN) to access business credit without having to disclose immigration status.

• Business loans

Loans specifically intended for a business purpose. Banks, credit unions, SBA loans and microloan programs can all be business loan options.

Pros: Business loans usually have lower interest rates, and using a business loan rather than a personal loan separates personal and business finances.

Cons: You must qualify for any type of business loan, and requirements vary. Most business loans require a high credit score.

• Crowdfunding

You can set up an online campaign and raise money from a large number of people.

Pros: Crowdfunding is low risk, and you can tap into a larger audience via social media.

Cons: Marketing is imperative; you have to deliver what you’ve promised to backers and there is often a crowdfunding platform fee.

• Angel investors

Individual financial backers who provide private capital for small or large businesses.

Pros: The money provided isn’t a loan; angel investors typically have lots of experience in your business of choice (they’re often established by entrepreneurs themselves).

Cons: Any equity you build will partially go to your angel investors; angel investors expect to make money and help make business decisions.

• Venture Capitalists (VCs)

A person or firm that invests in small companies using money pooled from investment companies, large corporations and pension funds.

Pros: Venture capital can help your business grow quickly, offer business expertise and provide support with legal and tax matters, among other areas.

Cons: VCs expect to make money and often intend to make decisions about your business.

• Small business grants

Money given to a person, business or corporation from federal, state, county or local governments, or private businesses or corporations.

Pros: Grants do not need to be repaid and they’re easy to find online.

Cons: Paperwork is time-consuming, there is tough competition, eligibility is strict and there are also specific rules you have to follow.

• Specialty lenders

Friends and family are some examples of specialty lenders.

Pros: Friends and family trust you and care about your success.

Cons: You could lose money and jeopardize a valuable relationship. Always be sure to document the family member or friend’s role in the business.

• Credit cards

Business credit cards can help entrepreneurs keep expenses separate while allowing them to pay off larger purchases over time.

Pros: It’s easier and more convenient to qualify for a credit card, rewards are offered and you can build credit. Credit cards also give you a financial cushion when accounts receivables are behind.

Cons: Credit cards are more expensive, have higher (and fluctuating) interest rates, personal legal liability, security issues and offer less protection compared to consumer credit cards.

Credit unions and business loans

One demographic-specific possibility is to access a Latino credit union like Point West Credit Union in Portland. A Latino credit union allows applicants to provide foreign identification, offers English and Spanish materials, financial education services and is able to focus on serving local Latino communities.

“You don’t have to have a Social Security number to bank or get a loan with us. That’s the promise we’ve made to our community,” says Vasquez. “Everyone who comes to our door receives the same service or rates. It’s based on your credit.”

Many Latino credit unions offer the same promise, and here’s a complete guide to Latino credit unions across the United States: (See List at https://www.bankrate.com/credit-cards/building-business-as-latino-entrepreneur)

Latino and minority business grants

Latino and minority business grants are another way to fund a business, and a local Hispanic chamber of commerce is one place to start. For example, the Hispanic Chamber of Commerce of Metropolitan St. Louis showcases a list of grants on its website. Business owners can also research grants online using the following links:

• Grants.gov
• USDA Rural Business Enterprise Grant Program
• National Association for the Self-Employed
• FedEx Small Business Grant Contest
• Minority Business Development Agency
• National Minority Supplier Development Council
• SBA 8(a) Business Development Program
• Operation Hope Small-Business Empowerment Program

Credit cards

A business credit card could be a great way to boost the buying power of a business. A credit card gives business owners access to a revolving line of credit to withdraw cash and make purchases – as long as it’s used wisely.

Some tips for using business credit cards include setting spending limits, watching for any strange transactions, and to be careful with large expenditures – and to remember that interest rates are often higher for credit cards than many other sources of funding, including business loans.

Dreams for the future

Ramos never stops thinking about her someday-shop. “That’s my dream and I’m going to keep working hard to get to that point. In my situation, I’m the breadwinner. I’m the only one who’s making money right now. I don’t have the luxury to concentrate on doing this full time.”

Vazquez says that despite fledgling business and entrepreneurial numbers across the U.S., Latinos have more opportunities than ever before. Latinos continue to push past financial or other restrictions: According to Biz2Credit, the number of credit applications from Latino-owned businesses rose 22 percent over the past 12 months.

Vazquez will tell anyone that the door to Point West is always open, and Vazquez herself can often be found greeting anyone who comes through the credit union’s entrance. “Even if you aren’t a citizen, you’re all welcome to come here,” she says.

Other resources:

• Society of Hispanic Professional Engineers: Empowers the Hispanic community to realize its fullest potential and impact the world through STEM awareness, access, support, and professional development.
• United States Hispanic Chamber of Commerce (USHCC): The United States Hispanic Chamber of Commerce (USHCC) actively promotes the economic growth, development and interests of Hispanic-owned businesses. The USHCC advocates on behalf of 260 major American corporations and serves as the umbrella organization for more than 200 local chambers and business associations nationwide.
• Prospanica: Prospanica offers annual career and professional development conferences, connects thousands of Hispanics to graduate programs, subject matter experts, corporations, and each other.
• Association of Latino Professionals for America (ALPFA): In addition to offering networking and professional leadership development opportunities, ALPFA aspires to be the business partner of choice for companies seeking to hire and develop Latino talent.
• Dreamers Ventures: Dreamers Ventures is a platform and multi-city tour that brings knowledge, capital and access to opportunities to America’s fastest growing entrepreneurial segment to turn their dreams into reality.

Resources for Latinas:

• Ellevest: An investment resource specifically for women, Ellevest offers goal-based planning and saving, plus additional female-first advising services, including one-on-one career coaching and financial strategy.
• Hispanic Women in Leadership (HWIL): HWIL is a service organization committed to promoting the advancement of Hispanics and women in the areas of education, professional interaction, leadership training, mentorship and the perpetuation of the Hispanic culture.
• Latinas Think Big Network: Dynamic summits, career advice and mentoring, educational programs, and access to supportive and influential networks drive the Latinas Think Big Network.
• Latina Entrepreneur Academy (LULAC): LULAC is a part of the Women’s Empowerment (WE) Initiative designed to train, motivate and inspire women – especially those of Hispanic descent – to build their own businesses or enhance their existing ones.
• #WeAllGrow Latina: #WeAllGrow Latina connects a community with opportunities for growth. A network of digital influencers, hyperlocal events and an annual summit propels growth through brand partnerships and community development.

Original Post: https://www.bankrate.com/credit-cards/building-business-as-latino-entrepreneur/

Lack of funding can lead to unique challenges for disabled business owners

By Andrew Paniello  |  Published: January 17, 2019

In 2017 the United States Congress quietly made the move to decrease provisions that enable the Small Business Administration (SBA) to make special loans to entrepreneurs, including individuals with disabilities. In addition, the SBA has stopped processing new loan approvals since Dec. 22 due to the government shutdown, affecting many small business owners throughout the U.S.

Though there are still several reasonable financing options available to those with disabilities, many in the community are affected by this news, especially considering the unique need of many handicap people to start their own businesses.

According to the most recent estimates, roughly 20% of Americans have at least one disability. But while some disabilities can make it difficult to complete certain tasks, many people with disabilities have still been able to accomplish remarkable things. Disabled people are a significant portion of the American workforce and many have gone on to start small businesses of their own.

Even if you currently have a low credit score as a consequence of lost income, starting a business of your own may be much more doable than you’d initially assume. In terms of possible wealth, life satisfaction, and career development, small business ownership can be incredibly rewarding.

Successfully running a business will require hard work, market awareness, and adequate sources of funding. In this article, we will provide useful resources and tips for starting a small business as a disabled entrepreneur and the first steps you can take to actually get there.

The benefits of starting a small business

The Social Security Administration defines a disability as a condition that results in: “The inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or has lasted or can be expected to last for a continuous period of not less than 12 months.”

SSA disability benefits are often not enough to cover all living expenses. Medical bills, medications, therapy and assistive devices costs can pile up on top of ordinary living expenses like housing, utility bills and transportation. This makes it vital in some cases for people with disabilities to create alternative ways of income.

Entrepreneurship offers the level of flexibility and freedom that many disabled individuals have been searching for. By creating your own business, you may be able to work from home, make any adjustments to your working space as needed and receive extra income to cover living expenses. There are many advantages for those with disabilities to start a business:

• Flexibility: Ability to create your own schedule and working conditions
• Financial Stability: Extra income to cover medical and housing costs and a sense of financial independence
• Well-being and happiness: Owning a business can provide one with a sense of purpose and self-worth

On the other hand, starting your own business is not without risks. Most new business owners will need to contribute at least some of their own capital up front and even those who don’t may face long-term financial consequences if their business is unsuccessful. Furthermore, Congress’ silent reform of the Small Business Administration in 2017 has made disability-specific small business loans more difficult to access.

Still, even in the face of possible obstacles, the benefits of starting a new business are quite apparent. As a result, tens of thousands of individuals with disabilities are likely to start their own businesses within the next calendar year.

Programs designed for disabled entrepreneurs

For those who do qualify as disabled, there are several programs that can help.

These are just a few of the programs specifically designed for disabled entrepreneurs:

• 8(a) Business Development Program: Despite other cuts to SBA programs, this particular program is designed to help “socially and economically disadvantaged people”, which includes those with disabilities. Resources include access to education, training, and special government contracts.
• DOBE Certification: This certification is given to any business that is majority owned by individuals with verified disabilities. Being certified may result in increased access to funding programs, various business aid programs, and increased visibility in the community.
• Medical grants: By decreasing the cost of medical expenses connected to your disability, you can start your business with less debt. Furthermore, having less debt may increase your credit score and also give you access to other sources of funding.
• PASS Program: This is a vital federal program that is designed to help individuals with disabilities enter into the workforce. PASS helps individuals with a variety of different tasks including transportation, getting supplies and equipment, and creating a disability-friendly work environment.

These programs are designed to make it easier to start a business. Determining the details of your business—funding, necessary materials, operations, etc.—in advance, you will be much more likely to get your business off the ground and running.

Developing a business plan

Regardless of what type of business you are planning on creating, it will be very important to come up with a detailed business plan. Your plan should describe the goals of your business and how you plan to accomplish these goals. Any effects of your disability should also be accounted for.

Familiarizing yourself with the unique challenges of being a disabled business owner can be very beneficial. It may also be helpful to talk to people who have already established themselves within your industry or who have made the decision to start other businesses of their own.

When attempting to define your business’ long-term objectives, many business owners find the “SMART” Goal model to be quite useful. Your goals should be:

• Specific: What is your business hoping to achieve?
• Measurable: How will you measure whether or not you’ve succeeded?
• Attainable: Are these goals something that you can realistically achieve?
• Relevant: How are your long-term objectives related to your business?
• Timely: When is the deadline for completing your first set of goals?

If it is your first time starting a business, you may also want to consider using business models that have worked exceptionally well for people with disabilities. For example, choosing to start a franchise may give you access to certain company benefits or choosing to start a business connected to any personal skills may help you quickly establish a competitive advantage.

Building credit and funding your business

Unfortunately, many disabled individuals who have not worked in a while can likely have imperfect credit scores. Disability income from the government is often insufficient, which frequently results in endless cycles of debt. If you have a good credit score, financing a business should be quite easy. With a poor credit score, financing will be a bit more difficult but is still certainly possible.

Anyone with a bad credit score (or who has claimed bankruptcy in the past decade) can begin improving their score in several different ways. Start a new (presumably high-interest) line of credit and always pay your bills in full and on-time, this will help gradually increase your score. Consolidating and settling old debts, closing delinquent lines of credit, and making payments early may all also be quite helpful.

It is important to keep business and personal expenses separate to protect your personal finances and keep everything organized. Opening a business credit card is a great way to keep track of your business expenses and also build up your business credit score.

Evaluating your funding options

Regardless of what your current credit situation may be, there are likely many reasonable options for you to fund your business with:

Business loans: These loans are intended for a specific business purpose. Loans from banks, credit unions and SBA are all sources for small business loans.

Certifications: Obtaining a small business certification from the government documents that your business has a special capability or status, which can help you compete in the marketplace.

Small business grants: A certain amount of money given by the federal government, private businesses and/or corporations with no expectation that funds will be paid back.

Venture Capitalists: An investor or firm who provides capital for startups or high-risk companies.

Crowdfunding: This involves setting up campaigns (most of the time online) to raise money from a large number of people.

Business credit cards: Credit cards specifically designed for business owners.

These are just a few of the ways that people with disabilities help fund their business. The six methods listed above are very rarely mutually exclusive—it may be in your best interest to explore all of the available methods and then choose a funding strategy that combines multiple options at once. Funding won’t be all you need in order to start a successful business, but it will certainly be an important step in the right direction.

The bottom line

Regardless of the challenges that may come from having a disability, there are still plenty of extraordinary things waiting to be accomplished. With a quality business plan, reliable source of financing, and clear vision for the future, you may be able to quickly begin a successful business of your very own.

Accessibility notice

Our “Fully Accessible Guide to Starting a Business as a Disabled Entrepreneur” was written and designed to meet the needs of our readers with disabilities. This content was created for complete interpretation by all readers, including those who utilize voice assist and other assistive technologies.

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