Strategies for Obtaining a Small Business Loan

Small businesses are critical to the American economy. For small companies to survive and generate new jobs, they need credit on affordable terms. If you've considered starting a small business, have you thought about how to fund it? Borrowing money is one of the most common sources of funding a small business. Before you approach your lender for a loan, it is a good idea to understand as much as you can about the factors the bank will evaluate when they consider your application.

The Federal Deposit Insurance Corp. (FDIC) offers the following tips to help improve your chances of getting a good loan.

Prepare or update a business plan.
This summary of the company's goals, needs and financial projections will be crucial to your success, whether you're just starting out or you've been in business for years.

The U.S. Small Business Administration (SBA) offers the following tips for writing a solid business plan:

• Begin with a statement of purpose. You should be able to explain your business in 25 words or less.
• Illustrate how your business will work and why it will be successful. List the owners.
• Describe the company's products or services, the customers, the market and the competition. List the managers and their credentials.
• Supply three years of projected financial statements. Include income, loss and cash-flow projections.
• Provide supporting documents, such as references from creditors and potential clients and suppliers, and evidence of insurance.

Understand the risks and costs of different kinds of loans.
Your best option may be a bank loan guaranteed by the SBA. Under this program, the SBA backs a certain portion of the loan -- as much as 90 percent -- which enables a small business owner to qualify for attractive interest rates and financing.

Credit cards may appear to be an easy source of money, but they can be an expensive way to finance a small business. Don't make the mistake of using high-cost credit, such as personal loans or credit cards, to fund business operations when you can get a better rate on a business loan from your bank.

Home equity lines of credit also may be a source of funding, but you may not want to risk your family home to launch your business venture. Before going this route, carefully consider the risks involved. Likewise, think carefully before co-signing or guaranteeing a business loan for a friend or relative.

Know your options.
There are generally three types of business loans: short-term loans to be repaid within approximately three years (including lines of credit used to help finance ongoing expenses), intermediate-term loans typically paid back in five to seven years (often used to purchase machinery, furniture or fixtures or to finance renovations and expansion), and long-term financing that can be available for 20 years or more (typically for commercial mortgages for buildings or major equipment purchases).

Don't overlook state, county and city governments when you're looking for financing. Many economic development offices have lending programs for qualified small firms that may offer special terms.

Learn from other professionals.
The SBA provides loan guarantees, referrals to local free or low-cost counseling and training, tips on how to write a business plan, and other support for small businesses. For more information, call the SBA at (800) 827-5722, go to www.sba.gov or contact the SBA District Office in your area.

The FDIC also offers a toll-free hotline at (855) FDIC-BIZ (or (855) 334-2249), which responds to questions or concerns about credit availability for small businesses. At www.fdic.gov/smallbusiness, you will find useful information and an online form to ask the FDIC a question or register a concern.

Your banker also may be able to provide advice on how to expand your business or refer you to other local sources of assistance.

Top 10 Scams of 2011

The Better Business Bureau (BBB) investigates thousands of scams every year, from the latest gimmicks to schemes as old as the hills. Recently, the BBB came out with the Top 10 Scams of 2011. They divided scams into nine major categories and picked the top scam in each. Then, they named the "Scam of the Year."

1. Top job scam. BBB sees lots of secret shopper schemes, work-from-home scams, and other phony job offers that are created to steal your identity. In the worst kind, emails, websites and online applications look professional and candidates are even interviewed for the job (usually over the phone) and then receive an offer. In order to start the job, however, the candidate has to fill out a "credit report" or provide bank information for direct deposit of their "paychecks." The online forms are nothing more than a way to capture sensitive personal data that can easily be used to steal your identity. And, of course, there is also no job.

2. Top sweepstakes and lottery scam. Sweepstakes and lottery scams come in all shapes and sizes, but the bottom line is almost always this: You've won a whole lot of money, and in order to claim it you have to send in a smaller amount of money. This year's top sweepstakes scam was undoubtedly the email claiming to be from Facebook founder Mark Zuckerberg announcing that the recipient was the winner of $1 million from the popular social networking site. These kinds of scams often use celebrities or other famous names to make their offer seem more genuine. If you aren't sure, don't click on the link.

3. Top social media/online dating scam. On the Internet, it's easy to pretend to be someone you are not. Plus, with so much information about you online, a scammer can sound like they know you. There are lots of ways to use social media for scams, but the one that stands out appeals to our natural curiosity -- and it sounds like it's coming from a friend. Viral videos claiming to show everything from grisly footage of Osama bin Laden's death to the latest celebrity hijinks have shown up on social media sites, often looking as if they have been shared by a friend. When you click on the link, you are prompted to "upgrade your Flash player," but the file you end up downloading contains a worm that logs into your social media account, sends similar messages to your friends, and searches for your personal data. The next time you see a sensational headline for the latest viral video, resist the urge to peek.

4. Top home improvement scam. Always near the top of BBB complaint data are home improvement contractors who often leave your home worse than they found it. They usually knock on your door with a story or a deal -- the roofer who can spot some missing shingles on your roof, the paver with some leftover asphalt who can give you a great deal on driveway resealing. The worst are those who move in after a natural disaster, taking advantage of desperate homeowners who need immediate help and may not be as suspicious as they would be under normal circumstances. A large percentage of BBB's Accredited Businesses are home contractors who want to make sure you know they are legitimate, trustworthy and dependable. Find one at www.bbb.org/search.

5. Top check cashing scam. Two legitimate companies -- Craig's List and Western Union -- are used for an inordinate amount of scamming these days, and especially check cashing scams. Here's how it works: Someone contacts you via a Craig's List posting, maybe for a legitimate reason like buying your old couch or perhaps through a scam like hiring you as a secret shopper. Either way, they send you a check for more than the amount they owe you, and they ask you to deposit it into your bank account and then send them the difference via Western Union. A deposited check takes a couple of days to clear, whereas wired money is gone instantly. When the original check bounces, you are out whatever money you wired -- and you're still stuck with the old couch.

6. Top phishing scam. "Phishing" is when you receive a suspicious phone call asking for personal information or an email that puts a virus on your computer to hunt for your data. It's almost impossible to avoid them if you have a telephone or an email account. But the most standout phishing scam this year disguised itself as official communication from the National Automated Clearing House Association (NACHA), which facilitates the secure transfer of billions of electronic transactions every year. The email claims one of your transactions did not go through, and it hopes you react quickly and click on the link before thinking it through. It may take you to a fake banking site to "verify" your account information, or it may download malware to infiltrate your computer.

7. Top identity theft scam. There are a million ways to steal someone's identity. One scam has gotten so prevalent that many hotels are posting warnings in their lobby. Here's how it works: You get a call in your hotel room in the middle of the night. It's the front desk clerk, very apologetic, saying their computer has crashed and they need to get your credit card number again, or they must have gotten the number wrong because the transaction won't go through, and could you please read the number back so they can fix the problem? Scammers are counting on you being too sleepy to catch on that the call isn't from the hotel at all, but from someone outside who knows the direct-dial numbers for the guest rooms. By the time morning rolls around and you are clear-headed, your credit card has been used on a major shopping spree.

8. Top financial scam. In challenging economic times, many people are looking for help to get out of debt or make their mortgage payments. Unfortunately, many scammers try to take advantage of desperate situations. Because the federal government announced or expanded several mortgage relief programs this year, all kinds of sound-alike websites have popped up to try to fool consumers into parting with their money. Some sound like a government agency or even part of BBB or other nonprofit consumer organizations. Most ask for an upfront fee to help you deal with your mortgage company or the government (services you could easily do yourself for free), and almost all leave you in more debt than when you started.

9. Top sales scam. Sales scams are as old as humanity, but the Internet has introduced a whole new way to rip people off. Penny auctions are popular because it seems like you can get something useful -- cameras, computers, etc. -- for way below retail. But you pay a small fee for each bid (usually $.50 to $1.00) and if you aren't the winner, you lose that bid money. Winners often are not even the top bidder, just the last bidder when time runs out. Although not all penny auction sites are scams, some are being investigated as online gambling. BBB recommends you treat them the same way you would legal gambling in a casino -- know exactly how the bidding works, set a limit for yourself and be prepared to walk away before you go over that limit.

10. Scam of the year. The 2011 scam of the year is the BBB phishing scam. Hundreds of thousands, perhaps millions, of people have gotten emails that very much look like an official notice from BBB. The subject line says something like "Complaint Against Your Business," and the instructions tell the recipient to either click on a link or open an attachment to get the details. If the recipient does either, a malicious virus is launched on their computer -- a virus that can steal banking information, passwords and other critical pieces of information needed for cyber-theft. BBB is working with security consultants and federal law enforcement to track down the source of these emails and has already shut down dozens of hijacked websites. Anyone who has opened an attachment or clicked on a link should run a complete system scan using reputable anti-virus software. If your computer is networked with others, all machines on the network should be scanned, as well.

BBB's new Scam Source (www.bbb.org/scam) is a comprehensive resource on scam investigations from BBBs around the country, with tips from BBB, law enforcement and others. You can sign up to receive our Scam Alerts by email, and you can also be a scam detective yourself by reporting scams you've discovered.

Managing Holiday Debt

1. Develop a budget. The first step toward taking control of your financial situation is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your fixed expenses -- those that are the same each month -- such mortgage payments or rent, car payments and insurance premiums. Next, list the expenses that vary -- such as entertainment, recreation and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance and education.

2. Assess your debt. After you've established your budget, you'll be prepared to start paying down your existing debt. When reducing your debt, always continue to make your payments on time. Try to pay more than the minimum due. Generally, it is a good idea to pay off debt with highest interest rates first.

3. Contact your creditors. Contact your creditors immediately if you're having trouble making ends meet. Tell them why it's difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don't wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you.

4. Find free fun. Use the month of January to get your budget back on track. Plan to only spend money on necessities, and then commit to finding opportunities for free family fun. Plan a family game night, or check out books and movies from your local library. Your family might also enjoy preparing dinner together or volunteering for a local charity. If you enjoy outdoor fun, winter provides plenty of opportunities for sledding or building a snowman. Use your imagination, and the savings will add up!

5. Open a holiday savings account. Saving a little money each month will help you avoid facing the same spending crunch in December 2012. Many banks offer a Christmas Club or holiday savings account program to help customers save for holiday expenses throughout the year.

Make a New Year's Resolution for Your Finances

As you're considering your New Year's resolutions for 2012, don't forget to think about your money. The New Year is a great time to assess your finances, gain control and stick to a new budget or saving plan. Taking control of your personal finances will allow you to save and prepare for unexpected expenses. Here are some tips to help you get started:

Get organized. Start 2012 by organizing your financial records and creating a plan to keep your bills and financial statements organized throughout the year.

• Consider treating yourself to a post-holiday gift of a financial organization system. Alphabetized file folders or filing systems specifically for financial organization are available in January as you begin to prepare for tax season.
• While you're getting organized, consider buying a shredder to keep your personal information safe from identity theft.

Create a budget. Track your income and expenses to see how much money you have coming in and how much you spend. If you have debt, establishing a budget will help you to pay down your debt while saving.

• Identify how you spend your money.
• Set realistic goals, especially if you plan to cut some of your expenses.
• Use computer software programs or basic budgeting worksheets to help create your budget. Include as much information as you can.
• Track your spending and review your budget often.

Lower your debt. Establish a plan to pay off debts while you save. By paying off -- or at least paying down -- high-interest credit cards, you'll save on interest charges that add up quickly over time.

• Make payments on time and, if possible, pay more than the minimum due.
• Pay off debt with higher interest rates first.
• Transfer high-rate debt to credit cards or other loan options with a lower interest rate. Talk with your banker about your options.

Save for the unexpected and beyond. Pay yourself first. Saving is important; it will likely help to ensure a comfortable future that can endure financial surprises.

• If you receive direct deposit at work, ask your employer to send a specific amount to your savings account. Because the money is put into an account before you have a chance to spend it, automatic savings plans are an easy and convenient way to save. If your employer doesn't offer direct deposit, many banks allow for automatic transfers from checking to savings accounts.
• Save at least 10 percent of your income for retirement. Enroll in a retirement plan or consider optimizing an established retirement plan. Contribute at least the maximum amount that your employer will match. Contributions made to these types of plans are tax deductible. If your employer does not offer a retirement savings plan, many banks offer Individual Retirement Accounts. IRAs offer tax-deferred growth, meaning you pay taxes on your investment gains when you make withdrawals.
• Financial advisors often recommend keeping about three months salary in a savings account in case of financial emergencies such as hospital bills or loss of job.