Small businesses are suffering as a result of the economy, but some can find relief with short term loans. A short term loan is designed to help businesses run smoothly and fill financial gaps in budgets. For the qualified business owner, they can be a great asset in times of struggle.

In general, there two options regarding short term loans: secured and unsecured. Secured loans are backed by some type of collateral, and unsecured loans aren’t. Each one can be useful to the struggling business owner as they try to manage their monthly finances.

The recession and small businesses

The recession brought down huge corporations, so naturally it had adverse effects on the small business market, too. If you look at small businesses in the nation, most have had to employ some type of financial tool to survive. Cutbacks, layoffs and deep budgeting have all be used to stay within budgets. Sandy Carlson, small business owner in San Diego, California said, “I have had to cut back on everything — straight across the board. When the recession got more difficult, I had to lay off a lot of my workers, and I don’t know if I will be able to bring new workers back any time soon.”

Carlson is not alone. Many businesses had to target human resources in an effort to survive through the recession. The most difficult repercussion was a huge unemployed workforce. Businesses had to keep eliminating jobs but the more jobs that were eliminated, the more stress was on the economy. People stopped spending due to their employment status, and that stifled the economy’s sustenance.

How businesses are making it financially

Secure loans and unsecured loans can be long-term or short-term loans. Before the recession both were popular options for finding funding. The unsecured loan option took a hit quickly when credit lenders started feeling the effects of the recession. Borrowers fell into default because of their lack of money, and credit companies stopped lending. Small businesses felt the push as they were no longer privy to loans they once relied on.

On the other hand, there are secured loans. These are loans with collateral to back them, so traditionally they were easier to get than the unsecured type. Unfortunately, due to the recession even these types of loans are now harder to get. Applicants may need them, but lenders are still charging higher interest rates and penalties for late payments.

The future of lending

No one knows how the lending industry will develop or what the repercussions of the recession are. Marty Leflore, of the SBA, said, “Credit was used all the time by businesses before the recession, but now that the rules have been rewritten, no one really knows what configuration the industry will take on. … Lenders most likely will be more conservative with extending credit because they are as in the dark about the future as business are.” Today the lending world is already changing. Many companies are looking to short term loans as a means of closing up budget gaps. The are not traditional types of loans due to their structures, but because of their nature many business owners qualify for them.

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Save your receipts and use installment loans when needed, home-based business owners!

Small business owners are using installment loans to fund their businesses. The recession has affected every consumer, from the individual to the business owner. Fortunately business owners have some leeway in financing and savings. Many small business owners are shelving money away into overseas investment vehicles and using loans to cover expenses.

It’s probably a wise decision to move money into safe accounts overseas, but it is also a growing concern of the IRS. Historically, business owners who transfer money overseas tend to underreport their business income and the IRS is not unaware of the tactic. Studies are showing that there is a serious difference between what a taxpayer should pay and what they end up paying at tax time. In fact, according to Chris Wagner, commissioner of the IRS’ Small Business Operating Division, the total difference on average is about $345 billion annually. He also added that the number is mostly due to small business owners underreporting their revenues.

The Small Business Operating Division

The Small Business Operating Division is responsible for policing the 41 million self-employed taxpayers and nine million small business owners in the U.S. Although there is a lack of jobs in the U.S., this department of the government is not skimping on extra help. By the end of 2009, the Small Business Operating Division is estimated to have an increase of 4,000 more people, which includes 1,100 revenue agents and 1,100 revenue officers. Agents are tasked with investigating criminal violations and officers focus on noncriminal investigations and collections. The groups are working together to close up the underreporting gap in the small business and self-employed sector of the taxpaying public.

In particular, the division will be monitoring people who file a Schedule C. This type of filing is used by the self-employed or sole proprietorship business. Their filings that include deductions for auto use, home office expenses, meals and entertainment will be examined closely in the 2010 tax year.

What Small Business Owners Can Do to Protect Themselves

Let’s face it, small business owners are under a lot of pressure these days. They are working hard to make their companies work smoothly by sorting through payroll, managing installment loans, dealing with vendors, watching inventory and handling promotions. They don’t have time to worry about the IRS coming into the fray. So what can a small business do to protect itself? Prepare!

What to Be Aware of Throughout the Fiscal Year

The main things that catch the attention of auditors are: meals/entertainment, home office deductions, automobile usage and travel. So the simple answer to protecting yourself is to save receipts for all of these categories. When it comes to meals and entertainment, the cut off is $75. Any meal or entertainment deduction over $75 has to have a receipt as proof it was a business expense. The receipt needs to include the date, address, name of the restaurant or entertainment venue, cost, people in the party and the business topic discussed.

Concerning travel and auto, business owners also need to have proof. With travel, that means all bills and checks that were paid and the reason for the travel. With automobile costs it will include having proof of business miles. Many people avoid any audit questions by carrying a tape recorder to record the miles driven and the purpose of the journey. They then transcribe the tapes for any questions. Finally, when dealing with home office expenses, have a diagram of the office involved and a picture with the date clearly visible. This should prove that the owner is working, on that date, in that particular office. There is also a “regular and exclusive” rule when it comes to home offices. If the office is used as anything other than an office, business owners lose their eligibility to deduct for it. All business owners should keep the above records for three years, because that’s how long the IRS has to audit them. For example, a 2010 tax return can be audited through April 15, 2014.

Records and Proof are a Business Owner’s Necessity

In the end, it’s up to the business owner to have records and proof for any deduction he or she wants to make. For the self-employed who are sending money overseas, having records is even more important. Under the FBAR, or Foreign Bank Account Reporting Act, business owners are required to post all savings, including overseas money. For this reason, owners are still encouraged to use the normal tools for paying bills such as installment loans, short term loans or credit cards while they build cash equity. But they are also cautioned to get their records straight, have proof and know the laws of deductions.

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Employing relatives in a family business can be a reward path to debt relief, but some precautions are necessary. (Photo: flickr.com)

The search for debt relief has been a strong incentive for business owners to employ their relatives. Statistics are showing that of the six-million-member pool of small businesses in the U.S., about 20 percent of those with 100 employees or more, involve two or more family members. Analysts are speculating that these businesses have a greater ability to withstand bad markets and economic problems. There are some interesting reasons why their resilience may be something to watch.

Patiently Committed

The first trait these businesses have is that their owners and all family members involved tend to be patient entrepreneurs who understand the market. They tend to be “building conservatively over years and turning a deaf ear to the siren song of debt,” stated Matthew Brady, head of Barclays, a wealth-advisory group. He claimed that these types of owners and workers are more prone to focusing on “legacy and commitment” than dollar signs and profit. They are a breed of worker who will put their full efforts into building their businesses and don’t read small negative signs as disaster. Brady added, “These workers live by putting their hands to the plow, rather than interpreting the weather.”

One example of this is Boardroom Inc. This is a family-owned and operated publishing company in Stamford, Connecticut. The company began in 1972 at the direction of Martin Edelston. He employed his wife and three children. Edelston stated, “We’ve lived through ups and downs of the economy but giving up was never an option. This is our life, not just a business.” It’s this type of commitment to the business that’s built it up to sales of $100 million while maintaining no debt.

Issues That Arise (aka “The Ties That Bind”)

There are some issues that can arise from hiring family members, however. These issues can make debt relief the smallest of a business owner’s issues if they aren’t careful. Here are some tips to be aware of when owners debate hiring their family members.

• “Use your brain, not your heart,” cautioned Don Schwerzler, founder of Family Business Institute. Because a family member lost their job is not a good reason to automatically employ them. Business owners need to make sure there is an actual position the family member would be a good fit for, before hiring them.

• Owners shouldn’t use hiring a relative as a sure-fire way to find debt relief. The reality is that if a relative is doing a job well, they should be compensated well. They should be earning and have the earning potential equitable to someone coming in off the street.

• Decide what will happen if the family member doesn’t work out. Having a hiring board or advisory board can make firing decisions easier, but if the person to be let go is a relative who the owner hired, they normally have the job of firing them.

• Business owners should be willing to listen to their family member’s ideas. Sometimes it takes a fresh thought to push businesses to newer heights of success. Schwerzler said, “In great family businesses, there is a surprising amount of disagreement when new ideas are first being discussed.”

• Families need to have a way to stay focused on the business’s growth. It’s easy to become “too casual” when family members meet in the board room. Schwerzler suggested using a family business advisor to manage. They specialize in looking “for sources of friction—principally with [the owner].”

Making Family-Run Businesses Work

Family-run businesses can be successful and fulfilling. When a new business owner makes the decision to hire family as a debt relief tool, they may find themselves either wildly successful or bitterly disappointed. They should be aware of the situation and dynamics of the relationship. Ideally, having people who are automatically invested in the company is what owners want. They should monitor progress along the way, but it is a workable plan.