The Federal Reserve Bank of Boston has launched their Cares Act-related Main Street Loan programs. These 95% FRB guaranteed facilities are aimed at higher-end small and mid-sized businesses that were performing well before the Covid 19 economic disaster. Certain non-profit organizations are also eligible. They are available through participating banks. Not all banks have signed up at the time of this post.
Most businesses will vie for the “New” or “Priority” loan options that start at $250 thousand ranging to $35 million or $50 million. These are five year floating rate term loans. The interest rate is either one or three month LIBOR plus 3.00%. At this week’s current rates, that would create an interest rate slightly below 3.25%. Interest payments are deferred for the first year and principal payments are deferred for the first two years. Full loan amortization occurs during years three through five.
Eligibility is tied to a borrower’s 2019 EBITDA. From the two loan types above, the borrowing amount is either 4X’s 2019 EBITDA less existing loan amounts and unused credit lines or 6X’s. The remaining amount calculated must exceed the $250 thousand threshold. There is no loan “forgiveness” associated with these loans. Essentially, these Main Street Loans are targeted toward larger, more profitable companies than the earlier Paycheck Protection (PPP) and Economic Injury (EIDL) business loans and grants of the U.S. Treasury and SBA. For more information, visit https://www.bostonfed.org/supervision-and-regulation/supervision/special-facilities/main-street-lending-program/information-for-borrowers.aspx
Most U.S. businesses, except the very large, are eligible to apply for Covid 19 – related SBA Disaster Recovery Loans. There are two major initiatives: 1) Economic Injury Disaster Loans (EIDL) – keeping businesses viable by operating expense and debt payment loans, and; 2) Paycheck Protection Program (PPP) – protecting employee staff count and payroll contributions by loans to fund these costs as well as building and utility expenses. It’s beyond the scope of this post to discuss the considerable detail associated with these initiatives. Businesses are eligible to apply for both loans. Check www.sba.gov for more details.
There is growing attention to EMV (Europay, Mastercard, Visa) ‘smart” micro-chipped credit cards here in the U.S. Added functionality includes NFC (near field communication), both contact and contactless, like you might see at “pay at the pump” gas stations or your local coffee shop where you wave your card in front of a reader and go. Like everything related to “smart” cards, timelines for a full card association-mandated rollout in the U.S. probably will get pushed back. But over the next 6 to 18 months, expect to have to make some decisions related to how your business processes these new credit cards. If you’re thinking of changing processors, it would definitely be good to ask about EMV card processing if they expect to sign you to a multi-year contract. The compelling benefit to this new technology is improved card data security and significant reductions in fraud loss. Despite the industry requirement to begin to accept these cards here especially in 2015, the business reality is that over 99% of domestic association-branded cards only carry a mag stripe. Additionally, processing equipment needs to be reconfigured to read these microchip cards (although they will retain a mag stripe) or be replaced entirely. So the reality of substantial costs and the logistics of such a phase-in will challenge changeover timelines. And, overriding all of this is the absolute surety that the card associations, card issuers, processors, and businesses won’t do anything that will disrupt the trillions of dollars in card processed sales.
It’s now November. Have you completed your 2014 financial plan or budget yet? If not, do it now, before year end crunch time. An old quote says that “planning without action is futile, action without planning is fatal”. By carefully establishing best estimate revenue and expense projections now, you’ll get a glimpse into the future, good or bad, based on these assumptions. That one year plan is also the foundation for longer range financial goals over three to five years.
This plan typically starts with an unimpeded “run rate” based on a continuation of today’s activities. These first pass results are normally not acceptable, unless your company is enjoying great 2013 partial year growth and profitability that you will fully realize next year. Next, your subsidiary plans for capital expenditures, marketing and advertising, HR, sales, technology, and other new initiatives need costing and timing inclusion in order to understand the impact on 2014 results. It can take several iterations before an acceptable plan is finalized.
Whether complex or simple, you need this financial barometer to measure your actual results against. It gives you both an early warning and real time indication as to whether you’re on course with your desired goals. Want some help? Western Equity LLC’s Consulting Services can help you draft a planning framework that meets your requirements.
Square Inc. has announced the roll out of Square Cash, a new free email personal debit card to debit card money transfer product. As it works informally and simplistically by email, there’s no new accounts, passwords or logins and no new app to add. It works on any email-capable device such as a smartphone, tablet, or computer. Initially, Square Cash is designed to work on a person to person basis and is not intended for retail sales purchases of any kind. It requires either a Visa or MasterCard debit card from any U.S. bank. To utilize the service you compose an email to the party you wish to send money to, you cc: firstname.lastname@example.org, and in the subject field you enter the amount you’re sending. You can either leave the message body blank or describe the payment. Then press Send. International transfers are not presently supported.
There are obvious questions regarding security, liability, dollar limits, and why or what Square gets for these “free” transfers. Starting out, transfers are limited to $250 a week without providing more information to Square. There is a one time requirement by Square to enter your debit card information which they use to verify the legitimacy of your card and check your balance (ala normal card processing protocol) before acting on the email. Funds are expected to be deposited in one to two business days. Because there is no account per se, there is no transfer record or reconcilement feature available. You would only have your email trail to verify any transfers. An interesting concept from some creative thinkers. Let’s see where it leads.
The federal government’s easing of general solicitation rules pertinent to securities registration has created more and faster opportunities for small business start-ups to raise investment dollars from third parties. These actions are the result of the J.O.B.S. Act passed in 2012. This means that companies can now publicly fundraise via their website, social media, or solicitation of online syndication groups. Online syndicates look to take funding positions in promising business start-ups. These early stage investor groups take ownership stakes in companies they fund unlike other so-called crowdfunding initiatives which may take product or in-kind benefits. These syndicates have been formed for specific single investments or for more open ended investing. Businesses looking to raise capital can find interested investors through Google searches such as “Business Crowdfunding” or “Business Syndicates”.
Labor Day’s just passed and the the 4th quarter for 2013, like this year’s football season, is upon us. Has your YTD competitve standing improved, declined, or stayed the same? Are you hitting your business plan targets? It’s fairly easy to assess: have your number of customers and sales revenues held steady or increased? Are you driving toward a bottom-line win? If your business results are up, stay the course. Do your fine tuning where it’s needed, but your focus should mainly be on executing those key strategies that are already working and will have the biggest impact on full year results.
If results don’t measure up, carefully, but quickly, determine why and where you need improvement. What can you realistically do better or different. The good news is the traditionally robust 4th quarter is when business activity is greatest for most every industry. So you have the opportunity to get back to your goals if you make the appropriate operating corrections and can drive more business to your door. Presumably, your central strategies are still in order and you largely need tactical adjustments. Now is not the time to be defensive about how you’re right and the market is wrong. It’s great to be your company’s biggest cheerleader, but you will benefit more by being your toughest critic. As former Oakland Raider football coach and owner Al Davis famously said “Just win, baby!”. You have the time you need to make 2013 a winning year by having a strong 4th quarter playbook.
Crowdfunding as it relates to business investment solicitation is an outgrowth of more philanthropic-inspired crowdsourcing. Such initiatives, typically, seek via the internet, funding for projects from others. The Jumpstart Our Business Startups Act (JOBS) was signed into federal law in April, 2012 with the aim of creating more small business investment opportunity for companies that could then add jobs to boost the economy. To date, final SEC regs pertinent to businesses soliciting non-accredited investors over crowdfunding platforms have not been finalized. October 31, 2013 is the established deadline.
JOBS Act rules being formulated relate to accounting methods, owner compensation, investment parameters, and other material business background information that might influence crowdfunding investor decisions. Generally, much less disclosure is required than in a more traditional IPO prospectus process so the legislative concern is that there can be more risk involved for those that might contemplate such an investment. Conversely, over-regulation can stifle smaller initiatives unable to satisfy any new requirements. In the meantime, entrepreneurs wait as they continue to experience tepid loan appetites from banks and other traditional lending sources.
Earlier in May, the U.S. Senate passed the Marketplace Fairness Act that has as its aim sales tax collection from all internet site purchases. The U.S. House of Representatives has not yet acted upon this bill.
Until now, online shoppers have enjoyed buying items from ecommerce sites largely sales tax free. Most existing state tax laws only impose tax collection responsibilities on businesses that have a physical presence in that state, such as a retail store or warehouse distribution location.
Many retail associations like the National Retail Federation endorse the plan. Big internet sales sites such as Ebay oppose such collections.
2012 internet sales exceeded $225 billion, so forecasted tax revenues could approach $20 billion. There are plenty of persuasive and powerful pros and cons to this argument. Stay tuned.
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