Friday, October 19, 2018

Do I Need an LLC For This? How to Pick What’s Best For Your Business

If you’re starting a business or are already a small business owner, you may be wondering which type of business structure will help you achieve success. You have likely had to adapt to changes as your business has grown and are ready to take the next steps. With so many different kinds of business entities out there with different benefits, it can be hard to determine if you need an LLC. Business owners usually form LLCs to reduce their financial risk and to keep their taxes simple.

The LLC is a relatively new business type, as the first LLC formed in 1977 as a hybrid between a corporation and a partnership. As a middle ground between these two entities, LLCs incorporate the benefits of both business types to serve a growing need among companies that are larger than one to two people, but not as big as corporations.

There are many things to consider when deciding whether or not you should form an LLC, including the costs associated with forming your business, and where you see your business headed. Keep reading for a comprehensive break down of the pros and cons of LLCs and other options out there, or jump to our infographic to quickly determine if you need an LLC for your business.

What Is an LLC?

A limited liability company is a legal category of business that combines some of the tax benefits of sole proprietorships and partnerships with the reduced liability of corporations. They allow their owner or owners to choose to have the income of the entity reported with the income of the owners on their personal taxes. This is known as pass-through taxation because the profits are passing through to the owners. While personal income tax rates are higher, this structure has the benefit of allowing losses to be written off on your personal taxes, possibly saving you money. In addition, the financial liability for owners of LLCs is limited to the business itself. If the business were to be sued for an amount owed on a debt, only the assets of the business itself could be seized, and the business owner would not need to declare bankruptcy.

The Benefits of an LLC

There are many things that you will need to consider when deciding whether or not to form an LLC, including your business’s needs and your plans for the future. Here are some of the main benefits of structuring your business as an LLC:

Reduce Liability
Limited Liability Companies create a level of separation between owners and their business. This means that if their company were to be sued, the owner would not be personally sued, only the business. In addition, shareholders and owners in a limited liability company are not on the line if the company were to go into debt.

Less Complex Than Corporations
A reason that LLCs are often favored for smaller individually-run businesses is that they require less paperwork to establish and operate. In contrast to corporations, LLCs need less record-keeping and do not require annual shareholder meetings. If you find yourself busy and don’t plan on hiring additional employees to help with paperwork any time soon, you may find this attribute incredibly useful.

Avoid “Double Taxation”
LLCs do not have a set classification in the way that they are taxed. Based on whether there is one owner or a partnership, you can decide to be taxed as a sole proprietorship, an S corporation, or a  corporation. Double taxation means that revenue is first taxed on a company, and then what the owner makes from the business is also taxed. LLCs allow the business’s income and expenses to “pass-through” to the owner’s personal income report, meaning that the profits of the business are only taxed once.

Make Your Business Official
Once you file to become a limited liability company, you’ll legally have “LLC” in the title of your business, on checks, or on invoices. This title demonstrates a level of organization and professionalism to potential customers and clients. While this isn’t a good enough reason in itself to start an LLC, it is one small perk.

Ownership Flexibility
Unlike entities like S corporations, LLCs can have over 100 shareholders, can include foreign shareholders, and can have owners that are corporations. If any of these situations apply to your business, an LLC is probably a good option for you to consider.

The Disadvantages of an LLC

There are certain downsides to forming an LLC including complications due to the requirement for LLCs to distribute its profits to all owners. Depending on whether you still need investors or plan on going public someday, there are several potential disadvantages to consider:

Equity Compensation Is More Difficult
Many businesses choose to offer incentives to employees in the form of equity, which is the value of a company in shares. LLCs taxed as partnerships and following the traditional path of granting multiple rounds of equity to employees will experience more complicated and expensive processes than S or C corporations.

Investors Often Prefer C Corporations
Due to the special tax advantages for LLC owners, investors face additional taxation and filing requirements when they invest in LLCs. For investors, C Corporations are more attractive investment opportunities because they can offer stocks that do not require the holder to pay taxes until the asset is sold. It can be hard or impossible for investors to sell their shares in an LLC.

Finally, raising additional capital from investors requires drawing up more complicated agreements. Many investors are much less likely to contribute because governing contracts of LLCs can vary more widely than in C corporations, which require less effort to assess before investing.

New Bank Accounts Need to Be Set Up
Unless you are the sole owner with no employees and you work from home, your business becomes a separate entity, it will need a new EIN or Electronic Identification Number. This is what the IRS uses to calculate taxes. With a new business EIN you’ll need to set up new bank accounts to keep track of income and expenses for tax purposes. While this isn’t very hard, having multiple accounts can pose a difficulty when you’re used to only having your personal bank account to manage. And once your business has its bank, the account cannot be used for anything unscrupulous.

Tax Disadvantages
While the structure of an LLC allows for pass-through taxation, this means that all income will be taxed at the higher rate of personal income tax. In addition, members must pay taxes on their share of the company, even if they are never distributed to them in the form of dividends. LLCs also aren’t exempt from property taxes like corporations, and LLC owners must pay the full amount of self-employment taxes themselves.

How to Set up an LLC

Forming an LLC requires filling out some paperwork and paying some fees, but it is a relatively straightforward process that should be easy with the help of your lawyer and knowledge of your state’s individual requirements. Here are the steps you need to take:

1. Choose a Name
Depending on the state you live in there are varying requirements for your LLC’s name. Often across all states, the name must include “limited liability company” or “LLC” somewhere in the title. In addition, the name cannot be easily confused with a government organization or an LLC that is already registered with the state.

2. File Articles of Organization
Where you submit your LLC’s name and location will depend on the state, but commonly you will file with the secretary of state’s office. You will need to include a statement of the LLC’s purpose, guidelines for management, and the duration of the LLC. The purpose and duration are usually allowed to be very broad in nature, so you don’t even need to list what type of business you are.

3. Create an LLC Operating Agreement
Though these are not often required by state law, operating agreements are essential as they govern the role of members and how the company will function. Typically this is where members’ percentage stake in the company, responsibilities, and voting power are listed. This agreement also includes how the LLC will be managed, rules for meetings, and how profits will be allocated.

4. Obtain Permits
Once your LLC is official, there is still one more step before you can open your doors. You’ll need to obtain necessary permits including a business license, a federal employer identification number for tax purposes, and a seller’s permit. In some cases, you may also need to get a zoning permit.

5. Maintain Your LLC
Now that your business is officially an LLC, there are requirements in place by the state to keep your company a separate entity. You will need to keep financial records and minutes of any major decisions. To ensure your business is not dissolved, you’ll need to keep records of employees, appoint a registered agent who can receive legal notices, and file taxes.

Other Types of Entities to Consider

You’re likely wondering how an LLC differs from a corporation or the benefits of an LLC versus a sole proprietorship. Here’s a quick overview of the different types of entities that a business may form. Think through all your options and plans for the future of your business before committing to a structure.

Sole proprietorships cost nothing to start and are the simplest form of small businesses because they don’t have to register with the state. This is usually the best option when an owner only works on their business part-time and has no employees. With sole proprietorships, the company is not a separate entity and the owner has little to no liability protections.

Partnerships require at least two owners and generally offer no liability protection. However, limited partnerships (LLP), do offer similar liability benefits to LLCs, but the LLC provides more protection to the individual owners. Partnerships are slightly cheaper than LLCs and limit the input of investor-owners.

S corporations refer to “small business corporations” that elect to be a pass-through entity.  Owners in S corps are also employees who must receive a reasonable salary and receive liability protection. While they can be very similar to LLCs, the difference is that S corporations cannot have more than 100 shareholders, foreign owners, or owners that are companies.

C corporations are standard corporations and can be more expensive to own and operate than other business structures. As with LLCs, they are separate entities that provide limited liability for owners. Corporations can go public, easily offer equity to investors, and obtain financing via venture capitalists. However, they require more structure, boards, and meetings, and do not receive pass-through tax benefits.

Take a look at this simple chart that highlights the differences between these structures:

For a summary of what we’ve covered, and to quickly determine whether you should form an LLC, check out our infographic below:

MoneyUnder30 | LegalZoom | GetButtonedUp | Nolo | FreelancersUnion | Entrepreneur | Timbertax | JohnCunningham | Entrepreneur | FreelancersUnion | NerdWallet | StartupLawBlog | NSBA | LegalZoom | BusinessTown | TheBalance | USAToday | BloomLawfirm | LegalZoom | BizFilings | QuickSprout | LLCUniversity | Nolo

The post Do I Need an LLC For This? How to Pick What’s Best For Your Business appeared first on Fundera Ledger.

from Fundera Ledger

SBA Form 1919: How to Fill out the Borrower Information Form

As part of the rigorous SBA loan application process, the SBA and your intermediary lender don’t only evaluate your business’s financials and your plans for the loan; they also evaluate the business owner and its principals’ personal characters. SBA Form 1919, the Borrower Information Form, plays a major role in that assessment.

As you likely know, SBA loans are disbursed by banks or other partner lenders, but they’re backed by the U.S. Small Business Administration. Thanks to that government guarantee, lenders can offer approved SBA borrowers some of the most generous and affordable loans on the market—which also means these loans are highly competitive. As a result, the SBA can afford to hold their borrowers to incredibly high standards. What that means for applicants? Piles of paperwork—like SBA Form 1919—that dive deep into your and your business’s finances and history.

Here’s a comprehensive guide to the Borrower Information Form, including tips on how to fill it out accurately so you can ensure the smoothest SBA application process possible.      

What Is SBA Form 1919, and Why Is It Important?

SBA Form 1919, the SBA 7(a) Borrower Information Form, collects a range of background information about SBA 7(a) loan applicants, other principals of the applicant’s business, and the business in general.

Expect to answer questions about the purpose of your loan request, current or previous government financing, your involvement in any current or pending legal action, and other crucial details about the nature of your business. All of the data you provide here plays a part in determining your loan eligibility, and it also facilitates background checks.     

Who Needs to Fill out Form 1919?

If you’re a business owner applying for any variation of an SBA 7(a) loan or the Community Advantage program, you’ll need to complete SBA Form 1919.

The following stakeholders will also need to complete their own versions of this form, according to your business entity:

  • Sole proprietors
  • For partnerships: All general partners, all limited partners with 20% or more stake in the business, anyone involved in the business’s daily operations
  • For corporations: All owners of 20% or more of the business and all officers and directors
  • For LLCs: All members owning 20% or more of the business, every officer, director, and managing member

Regardless of your business’s legal organization, anyone hired to manage daily operations will need to fill out their own SBA form 1919, as will any guarantors, trustors, and co-applicants involved in your SBA loan application.

A Closer Look at SBA Form 1919

SBA Form 1919 is divided into two sections: The first asks for information about the business, and the second digs into the principals’ personal histories. We’ll go through each of these sections in greater detail here.

Section I: Applicant Business Information

sba form 1919

Identifying Information

Before launching into the form’s yes-or-no/true-or-false questions, you’ll need to provide basic information about your business, including your business name as it appears on your tax returns, your address, your EIN, and your DBA if your business operates under a name other than its legal name. Applicants also need to mark whether they’re an operating company (OC), or eligible passive company (EPC).

Next you’ll answer a few questions about your loan request, including:

  • The amount of your loan request
  • The number of existing employees, including owners
  • The number of jobs that will be created as a result of the loan, including owners
  • The number of jobs that would be retained as a result of the loan, that would have otherwise been lost
  • The purpose of the loan

The answers to these questions will give the SBA a better understanding of why you’re applying for an SBA loan, and how the loan will benefit your business. (Because these loans are so competitive, the SBA needs to ensure that they’re going to the businesses that truly need these funds, and will use them positively.) Note that if you don’t know the exact number of jobs that would be created or lost, you can make your best estimate. You also don’t need to include contract workers or freelancers in your headcount.

The final field in this top section is dedicated to information about your business’s ownership. Here, you’ll list all owners, their titles, the percentage of their stake in this business, and their addresses. If you need more room to complete this section, you can attach additional sheets.

SBA Form 1919, Questions 1-11

sba form 1919

The first 11 questions on SBA Form 1919 are yes-or-no questions. If you mark “yes” to any of these questions, you’ll need to provide additional details on a separate sheet of paper.  

  1. Are there co-applicants? Co-applicants are other businesses applying for an SBA loan along with the applying business. If there are co-applicants, then they’ll each need to complete their own versions of SBA Form 1919 Section I.
  2. Has the business previously applied for an SBA loan? If so, you’ll need to provide details about that loan request, including the amount, purpose, loan program, when you applied, and whether your application was accepted or denied.
  3. Has a federal department or agency deemed the business ineligible for an SBA loan due to regulatory action? If you answer “yes” to this question, your loan application might be denied
  4. Does the business operate under any type of agreement? If you operate under a franchise, license, distributor, membership, dealer, or jobber agreement, attach a copy of the agreement, plus any other documents that would be helpful in letting the SBA understand the nature of that agreement.
  5. Does the business have any affiliates? The SBA defines affiliated businesses as “when one business controls or has the power to control another, or when a third party (or parties) controls or has the power to control both businesses.” If your business has affiliates, include their names on an attached sheet.
  6. Have any applicants or affiliates ever filed for bankruptcy? If yes, attach details about the bankruptcy.
  7. Is the business or any of its affiliates currently involved in pending legal action? If so, provide details about the lawsuit on a separate sheet.
  8. Has the business or its affiliates ever obtained or been a guarantor for a federally backed loan? If you answer “yes,” you’ll also need to note whether any of these loans are currently delinquent or if you defaulted on these loans, in addition to providing salient details about the loan (including the amount and the purpose of the loan).
  9. Are any of the business’s products or services exported? If you ship your products or services abroad, or if you plan to as a result of the loan funds, check “yes.” You’ll also need to provide an estimate of the total export sales the loan would facilitate.
  10. Is the business using a third party to help with their SBA application? If you’re hiring a packager, broker, lawyer, accountant, or other professional to prepare your SBA loan, or if you were referred to a lender by an agent, check “yes.” On a separate form, include the name of the professional and any compensation they’re earning. Then, you’ll need to fill out Form 159 for every agent receiving compensation for their role in your loan application.
  11. Does the business earn revenue through vice activities? The SBA can’t fund businesses involved in vice industries (or their other ineligible industries), including gambling, pornography, or loan packaging.

Questions 12-16     

sba form 1919

The next set of questions in Section I have true-or-false answers. These questions ensure that there are no conflicts of interest between the business and an SBA or other governmental employee.

For the purposes of an SBA loan, a conflict of interest might look like:

  • An SBA employee, or a household member of an SBA employee, is an employee or owner of the applying business.
  • A former SBA employee, who’s left the agency under a year prior to this application, is an employee or owner of the business.
  • A member of U.S. Congress or appointed official of the legislative or judicial branch of the government is an employee or owner of the business, their household member is an employee or owner of the business.

…Along with a few other scenarios. If you answer “false” to any of these questions, your loan application won’t necessarily be denied; it’ll just need to be processed directly through the SBA, rather than through your intermediary lender, and then through alternative procedures. You might also need to disclose further information about the nature of the relationship between the business and the government employee.

sba form 1919

Once you’ve completed Section I, you’ll enter your signature, date, title, and printed name in the provided fields. Be sure to review your answers, and also ensure that you’re providing additional information whenever it’s requested (in other words, if you’ve answered “yes” to any questions between one and 11, or “false” to any questions between 12 and 16).

Also read over the representations and certifications to which you’re bound after you sign. That includes complying with SBA’s stipulations, only using your SBA loan for business purposes, and purchasing American-made equipment and products whenever possible.  

Section II: Principal Information

sba form 1919

In the second section of SBA Form 1919, the SBA collects personal information about the business’s owners and principals.

“Owners and principals” includes the business owner, anyone who owns 20% or more of the company, partners, officers, directors, managing members, trustors, as well as anyone you’ve hired to manage your business’s daily operations. All of these individuals (or entities) are responsible for filling out their own versions of SBA Form 1919, Section II.

Identifying Information

The first part of Section II requests personal identifying information about the business’s principals. Expect to provide fairly standard information here, including your legal name, date and place of birth, contact information, SSN or EIN (if the applicant is an entity), and the percentage of ownership you have in the business.

Next, the SBA requests data about your veteran status, gender, race, and ethnicity, but you can choose whether or not you want to disclose this information. The SBA collects this information only for program reporting purposes, and your answers won’t have any impact on the loan decision.

Questions 17-26

sba form 1919

Next, the applicant needs to answer a series of yes-or-no questions, all of which help determine the applying business’s loan eligibility.

As in Section I, if you answer “yes” to any of these questions, you’ll need to provide a more detailed explanation on an attached sheet.

  1. Are you currently facing criminal charges? Unfortunately, answering “yes” to this question disqualifies you from SBA loan eligibility. According to the SBA’s standards, the agency can’t guarantee loans to businesses whose owners or principals are currently incarcerated, on probation, on parole, with a deferred prosecution, or who’ve been indicted for a felony or serious crime in the past.
  2. and 19. Have you been arrested in the past six months for any criminal offense? Have you been sentenced for a criminal conviction? Answering “yes” to either of these questions doesn’t necessarily disqualify you from an SBA loan. But if you do answer “yes,” you’ll need to fill out SBA Form 912, the Statement of Personal History. In this form, you’ll provide further details about these convictions, so the SBA can then make a better-informed decision about your loan approval.

Remember to initial your response to question 19, too.

  1. Has your business violated federal regulations? If “yes,” you’ll need to provide details about these violations, but know that you might be ineligible for an SBA loan.
  2. Are you more than 60 days late on child support payments? You’ll only need to answer “yes” to this question if you own 50% or more of the business.
  3. What is your U.S. citizenship status? Mark whether you’re a U.S. citizen, a lawful permanent resident (and your registration number), or neither. If neither, list your country of citizenship. Note that non-U.S. citizens can apply for an SBA loan, as long as they have a green card.
  4. Do you own a stake in an affiliate business? If so, include the name of the affiliate business and the percentage of your ownership on an attached sheet.
  5. Have you or any business you controlled filed for bankruptcy? You can still be eligible for an SBA loan, as long as it’s been discharged. If you mark “yes” here, you’ll need to provide details about the bankruptcy on an attached sheet.
  6. Are you currently involved in legal action, including divorce? Include details about any pending civil cases filed against you or your business.
  7. Have you or a business you’ve controlled ever obtained federal funding, or been a guarantor on a federal loan? Check “yes” if you or a business you’ve owned has received an SBA or other federal loan in the past, like federal student loans or FHA loans. Also indicate whether this financing is currently delinquent, or if the loan ever defaulted.

sba form 1919

After reviewing your answers, any additional details you may need to provide, and the representations and authorizations (which are the same as in Section I), you’ll sign, date, and print your name and your title. And then—you’re done!

How to Fill out SBA Form 1919, Stress-Free

The government and your lender need to take every precaution available to mitigate the risk of a borrower defaulting on an SBA loan. Among those precautions is the assurance that the business owner, and its major stakeholders, are reliable and trustworthy enough (according to their standards) to honor their debt agreements. SBA Form 1919 is just one document that will help your lender and the SBA reach that conclusion.

And SBA Form 1919 is just one of many documents that you’ll need to include in your SBA loan application. If you’re overwhelmed by the prospect of organizing, fulfilling, and packaging all these documents to send along to your lender, know that there are scores of professionals out there to help you. Working with a loan specialist to guide you through this and all the other SBA forms you’re responsible for will ensure a quicker, smoother application process—and free up some of your mental energy so that you can focus on growing your business in the meantime.      

The post SBA Form 1919: How to Fill out the Borrower Information Form appeared first on Fundera Ledger.

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Variable Expenses Defined, Plus 5 Ways to Make Sure They Don’t Destroy Your Business Budget

In every business budget, you’ll find certain expenses that can change dramatically from month to month. These are variable expenses, and they make up a large portion of small business spending (unlike fixed costs, which remain the same each month). The fluctuating amounts behind variable expenses makes planning for them in your business budget hard—but not impossible.

Budgeting for variable expenses isn’t an exact science, but there are some tricks you can use to make sure they don’t derail your business’s finances. Before we get into the how-tos, though, let’s get a solid variable expenses definition in place and clarify the difference between the three types of expenses that impact your business budget: variable expenses, discretionary expenses, and fixed costs.

variable expenses

Examples of Each Type of Business Expense

To help you further understand the different between a variable expense and other types of business expenses, let’s look at a few examples. This will help clarify what fixed costs are, the variable expenses definition, and allow you to understand discretionary expenses, too:

Fixed costs:

  • Rent
  • Insurance payments
  • Most loan payments
  • Dues and subscriptions
  • Annual salaries

Variable expenses:

  • Utilities payments
  • Automobile usage expenses, like fuel and maintenance
  • Office supplies
  • Professional services charged by the hour
  • Payroll for hourly employees

Discretionary expenses:

  • Most meals and entertainment expenses
  • Client gifts
  • Staff parties and bonuses

So, simply put, the variable expenses definition is costs that change; a fixed cost stays the same over a long period of time; and you can think of discretionary expenditures as your “nice-to-haves.”

Variable Expenses Are More Than Operating Costs

One thing to note is that the lists above focuses on operating costs, but variable expenses usually affect your cost of goods sold more than anything. If your business produces a product, you need to be aware of the variable costs of production.

Why is this important? Your variable costs of production have a direct impact on your break-even point. Your business’s break-even point is how much money you need to make in order to cover your costs for the month. Which, as a business owner, you know how important it is to make more than you spend. 

How Do Variable Expenses Affect My Business Budget?

Now that we have a good understanding of the variable expenses definition and the other types of business expenses, let’s take a look at how variable expenses affect your business budget.

The nice thing about variable expenses is that you can easily adjust your variable costs of production in response to a downturn in sales or production… actually, they usually adjust themselves, because when production slows, you stop incurring those costs. Overhead variable costs—like those listed above—are harder to adjust. That also means they are harder to plan for in your budget.

Let’s look at a variable expenses example we can all relate to: electricity costs. Depending on where you live and your options for heating sources, your electric bill might range from around $100/month in the milder months of the year to upward $300/month in the harshest parts of summer and winter.

Changing climate conditions also affect these already variable expenses. You could have a year or two of very mild winter weather, only to be struck out of the blue by a winter that doesn’t end. 

Although you can take steps—like using a smart thermostat—to reduce the amount you pay for electricity, this variable expense is largely out of your control. This is frustrating, since an unexpectedly large electric bill can wreak havoc on your budget, especially if it coincides with a revenue slump. (And if you’re manufacturing a temperature-sensitive good, for instance, it’s not like you can just go without heat or cooling to save cash—and we’re sure your workers would agree, no matter what kind of work you do.)

How do you fix this?
variable expenses

5 Ways to Reduce the Impact of Variable Expenses on Your Budget

In the example above, sometimes you can reduce the impact of variable expenses by asking your service provider to let you pay a fixed amount each month. (Deceptively simple, but really helpful.) This fixed amount is based on the average of your bills for the previous 12 months. Many utilities companies offer this option to help their customers budget, but an average payment option won’t be available for every variable expense in your budget.

You can still use this average payment concept to reduce the impact of variable expenses on your budget, though. Here’s how:

  • Determine the annual average for each variable expense in your budget. When you’re determining the annual average for a variable expense, avoid the temptation to only look at the past 12 months. Take the time to review the average of three years’ worth of variable expenses. This will help you account for anomalies that may impact your average for an expense. Unless you have taken steps to permanently reduce a variable expense, err on the side of caution and use the highest average amount.
  • Add a buffer. After you have determined the average for each variable expense, add a buffer to it. A buffer of 3% to 5% should be more than enough to cover price increases and most anomalies that will result in an outlier year for the expense. If you want to be really cautious—and if your budget can handle it—build in a buffer of 10%.
  • Track your actual spending. Each month, compare your actual expenditure for each variable expense to the budgeted amount. Note if you were over-budget or-under budget for each expense category. If you use business accounting software, look for a Profit and Loss to Budget Comparison Report. This report can usually be customized to do the dollar amount increase or decrease calculation for you, so you can see at a glance if you were over or under budget without having to do the math yourself.
  • Set up a savings account for variable expenses. This is the crucial step in this process. Each month you are under-budget for a variable expense, move the excess into your business savings account for variable expenses. This will create a reserve you can draw from during months when your expenses are higher than usual. For example, let’s say your electric bill averages $375/month. You’re having a mild winter, so your actual electric bill was $355 in January and $325 in February. March comes in like a lion, though, and a week of unexpected below-freezing temperatures results in a March electric bill of $445, when the bill for March is usually closer to $245. Most business owners budget their variable expenses based on the actual expense from the previous year. But because you have budgeted an average of $375/month for electricity ($130 more than your usual electric bill for March) and because you moved the excess money budgeted for your electric bill in January ($20) and February ($50) into your savings account for variable expenses, you have enough money for the unexpectedly high electric bill for the month of March. If you had only budgeted the $245 for a “normal” electric bill for March, you would have had to quickly come up with an extra $200. For a very small business, or a business experiencing a drop in revenue, this can be very difficult to do.

  • Reassess your variable expenses annually. You might be tempted to use the same variable expenses projections in your budget each year, especially if you have saved a decent amount in your variable expenses savings account. Avoid this temptation. You should reassess your variable expenses each year. Especially in expense categories where you have a bit more control than you do with utilities—like automobile usage expenses—opportunities exist to make strategic changes to control the expenses.

variable expenses

Helpful Tip: Capturing All Variable Expenses in Your Budget

Most budget templates are designed to match a typical business’s chart of accounts. This means fixed costs, variable expenses, and discretionary expenses are scattered throughout the template. This layout makes it really easy to compare your actual numbers to your budgeted numbers (remember the Profit and Loss to Budget Comparison Report mentioned earlier?), but it also makes it easy to “gloss over” your variable and discretionary expenses when you are setting your budget numbers.

When you’re first putting together your business budget, start by listing out your expenses by type (fixed, variable, and discretionary). After you have determined the appropriate amount for each expense, you can plug those amounts into your budget template so it is ready to use to compare your budget to actual numbers each month.

In short, the best way make sure that you’re prepared to mitigate the impact of variable expenses boils down to paying attention to the costs of those expenses in the past, and preparing yourself with a buffer or some savings to take care of them in the future. Averages are good indicators of where you might land so you’re not surprised—and keep paying attention so you’re not shocked by changes.

Reducing Actual Variable Expenses

Above we focused on reducing variable expenses’ impact on your budget, but what if you’re in a place where you need to reduce your actual variable expenses? If your business struggles with the lack of predictability, or you need to cut costs, you may be looking to reduce your overall variable expenses.

While we used the example of electricity above, you’ll find most of your variable costs are around the actual production of your product. It’s about the labor and the materials that go into it, and if you need to cut costs, you need to analyze this process and see if there are ways you can produce similar output even after cost-effective changes are made to this process. Examples include:

  1. Labor. Is there anything that can be automated or outsourced that wouldn’t affect quality? Can you increase the efficiency of your workforce, getting more output, by providing them with certain tools or services?
  2. Materials. Are you using the most cost-effective materials? Can you buy in bulk? If you bought better materials, would you have less issues with your product down the road?
  3. Assessing Your Product or Service. Many companies offer different products and services. You could be selling things as a package, but it’s only a portion of the package that is really generating revenue. Should you be eliminating certain features? Is there a way you could deliver your product or service faster?

Remember, just because something has always been done a certain way doesn’t mean it’s the right way. As businesses grow, you can become overwhelmed and don’t usually have time to tear apart your current systems and processes as much as you like. But, given how much the market can change and costs can evolve, doing this might really help your business identify areas to save on variable expenses.

Variable Expenses Affect Your Budget… but They Shouldn’t Destroy It

It’s frustrating to form a plan, only to have circumstances beyond your control throw that plan off course. This is one of the reasons why many small business owners avoid budgeting altogether. Especially if most of your business expenses are variable—as is often the case with very small businesses—trying to come up with an accurate budget can seem impossible.

Now that you have a clear variable expenses definition, with a little bit of planning, even the most volatile of your variable expenses can be accounted for in your budget with ease. Building a buffer in a business savings account to carry you through the months when your variable expenses are higher than projected will keep your budget on track and protect your cash flow. Reassessing your budget for variable expenses annually will help you identify areas for savings and other improvements.

The post Variable Expenses Defined, Plus 5 Ways to Make Sure They Don’t Destroy Your Business Budget appeared first on Fundera Ledger.

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Thursday, October 18, 2018

Merchant Services 101: Everything You Need to Know

What Are Merchant Services?

Merchant services are essentially any services your business uses to accept and process payments from your customers. Historically speaking, the merchant services definition only encompassed the services required to accept credit cards.

However, as payment technology has evolved, so too have business practices and customer preferences. As a result, the payment processing features that have come to fall under the umbrella term “merchant services” have become a bit hazy and hard to nail down in precise terms.

Merchant Services Definition

So, what is a merchant services definition that’s indicative of what merchant services really are these days?

Though it isn’t quite possible to provide a categorical answer to this question, it is possible to explore all of the possible answers out there.

Many merchant services providers group various facets under their merchant services definition, so let’s lay all of these facets out to figure out what could play into any one of your given merchant services options:

Merchant Services Are Primarily Card Processing

For the most part, merchant services still primarily adhere to the traditional merchant services definition—the services and gear necessary for processing card payments.

As a result, no matter who you ask, the answer to what are merchant services will almost certainly include both a card processing terminal and the technology that will be necessary to run debit or credit card payments through it.

And you might be surprised that the moment when your customer runs their card through a card terminal only marks the beginning of a merchant services provider’s job. After that transaction, there will be a web of intricate communications between your customer’s bank and your business’s bank, all of which will be handled by the provider.

At the end of the day, your merchant services provider’s first job is ensuring that your customers can pay with a secure and efficient card transaction.

merchant services

What Else Can the Merchant Services Definition Encompass?

Here are a few of the most notable additions that are often encompassed within a broader merchant services definition:

Merchant Services Online Payment Gateways

Beyond the card processing essentials, merchant services providers might also offer online payment gateways. This product will encrypt and run customer card information online, allowing your business to run secure card transactions from its own website.

If you’re running an ecommerce business, then accessing an online payment gateway with your merchant services bundle will be a crucial step toward a secure, easy checkout process for your customers.

Merchant Services Point of Sale Systems

The merchant services that your business opts for might end up being a full-fledged point of sale system.

In fact, point of sale systems and merchant services have nearly become synonymous. That’s because both have grown over time, encompassing virtually the same realm within small business finances—they both aim to ease the transaction process.

Point of sale systems, however, will generally go far beyond the transaction. In fact, many point of sale systems will allow you to run reports, track inventory, manage employees, reconcile tips and commissions, and even accept contactless payment methods like Apple Pay and Google Pay.

Because the strict merchant services definition doesn’t encompass these capabilities, many merchant services providers have begun to provide point of sale systems in conjunction with their merchant services.

As a result, a broader merchant services definition has swallowed up these point of sale capabilities. So, when you shop for merchant services for your business, you might very well find a few point of sale system perks thrown in there.

Merchant Services Gift Cards and Loyalty Programs

Gift card and loyalty programs also tend to fall under a broad merchant services definition. As such, many providers will offer the technology and supplies that make both gift cards and loyalty programs possible for your business.

What Does the Merchant Services Definition Not Encompass?

Though you might hear otherwise—mostly from merchant cash advance providers themselves—merchant cash advances shouldn’t really qualify as merchant services. Now don’t get us wrong—merchant cash advances and merchant services are inextricably intertwined. In order to get a merchant cash advance, your business will need merchant services.

However, merchant cash advances being swallowed up into a broad merchant services definition isn’t ideal. Many merchant cash advance providers have begun to cross over into the merchant services industry—and vice versa—and, as a whole, merchant cash advances are one of the most expensive forms of business funding a company can offer. So, if your merchant services provider tries to push a merchant cash advance onto your business, think twice about taking them up on this offer.

merchant services

Merchant Service Pricing: What to Expect

You’re likely also wondering how much merchant services will cost your business. Unfortunately, this is yet another question that has a relatively muddy answer. In fact, even after you decide on which merchant services to get for your business, it will probably be tricky to figure out exactly how much it will cost.

Though there are definitely exceptions to disprove this generality, by and large, merchant services providers typically apply notoriously opaque and confusing pricing structures to their products.

There will be many different types of payment structures and miscellaneous fees for you to sift through as you try to figure out how much any given merchant services package will end up costing your business.

Because of this, as you learn the fundamentals of merchant services, it’s prudent to take a look at the most common of these costs that typically come attached to merchant services:

Common Merchant Services Pricing Structures

Merchant services will typically come with one of the three following pricing structures:

Flat Rate

One of the most common types of price tag you’ll see on merchant services is flat-rate pricing. Typically, a flat-rate pricing model will be a small percentage of the transaction value, plus a small flat fee per transaction. However, some merchant services will simply charge your business the small percentage of the transaction value, without the per-transaction flat fee.

Interchange Plus

Another typical pricing structure that you’ll come across is the interchange-plus model. This pricing structure is a bit less straightforward than flat-rate pricing, but your monthly merchant services bill will delineate why each charge costs you exactly what it does.

In fact, interchange-plus pricing gets its name from its transparency. “Interchange” denotes the amount your merchant services provider will pay a card distributor—like Visa or Mastercard—for each transaction. “Plus” denotes the markup your merchant services provider will charge your business.

Tiered Pricing

Finally, the last of the most common pricing styles you’ll find is tiered pricing. With tiered pricing, merchant services providers bundle their services into pricing tiers. Based on your business’s transaction volume, your provider will assign you a pricing tier.

While tiered pricing will be easy for you to wrap your head around, it will ultimately end up being one of the more costly pricing models for merchant services.

Common Merchant Services Fees

Beyond these base pricing models, costs attached to merchant services can also involve multiple miscellaneous fees. It’s crucial for you to become familiar with some of the common fee titles in order to keep an eye out for them as you shop for merchant services. In most cases, a merchant services provider should to waive many of these fees. Other fees that aren’t waived should never exceed industry standards.

Here’s a far-from-exhaustive list of some of the more common fees you should be aware of:

  • Any application fee should be waived.
  • Monthly minimum penalty fees should be waived.
  • Statement fees should also be waived.
  • The monthly service fee should never exceed $10 a month.
  • AMEX transaction fee shouldn’t exceed $0.15 per transaction.
  • The PCI compliance fee shouldn’t exceed $100 per year.

merchant services

The Best Merchant Services for Your Business

Depending on which version of merchant services best addresses your business’s needs, let’s run through your next steps for finding the best merchant services for your business.

If You Need Online Payment Processing…

Then you should look to merchant services that offer payment gateways. As a reminder, payment gateways will allow your business to securely process online card payments from your customers.

Essentially, payment gateways will function a lot like a traditional merchant services bundle, minus the physical credit card terminal.

Here are your top two payment gateways options to choose between:


With the Authorize.Net online option, your business will be able to process online payments from all major credit card networks. Should you opt for this payment gateway option, your online business won’t have to worry about opting out of in-person payment systems, because it’s built specifically for ecommerce merchant service needs.

Plus, with one of the most secure payment data protocols on the market, Authorize.Net will be able to simplify your business’s PCI compliance and ultimately grant the peace of mind that comes with knowing your customers’ information is secure.


Alternatively, if your business is operating in a business-to-business structure, then you might want to consider Veem as your go-to online payment processor.

Veem is changing business-to-business bank wires for the better. In fact, Veem has managed to make secure, free money wires available to small businesses everywhere.

So, if your business is operating through remote, large transactions, then Veem could very well be the most cost-effective and most convenient merchant services provider for your business.

If You Need In-Person Payment Processing …

If your business relies on in-person transactions, then your business’s merchant services should—at the very least—be able to process payments through credit card magstripes, if not through credit card chips and contactless payment methods, as well.

The great thing about accessing merchant services with in-person transaction capabilities? They almost always come with a multitude of extra capabilities. In fact, the very best merchant services for in-person transactions are really full-blown point of sale systems with features like inventory and employee management.

And though these merchant services options might seem costly, they’re actually some of the most cost-effective choices on the market. Let’s see what they’ve got to offer:


Square point of sale systems come in many shapes, sizes, and costs. With a Square account, your business will have the choice to opt for completely free point of sale hardware and software.

With the free Square magstripe card reader, along with the free Square Point of Sale software, you’ll be able to convert a smart device into a powerful point of sale.

If your business already has a smart device at the ready, the only cost you’ll have to take on for Square’s merchant services will be the payment processing fee of just 2.75%.

Intuit QuickBooks POS

Alternatively, if you prefer not to pay payment processing fees, then you might want to consider QuickBooks Point of Sale.

The pricing for QuickBooks’s merchant services is arguably the simplest on the market. You’ll simply have to pay a one-off lump sum for the POS software—which will range from $720 to $1,140, depending on which plan you opt for—and that’s it.

If you prefer to have your merchant services paid for from the get-go, then QuickBooks POS might be your perfect fit.

Merchant Services: The Bottom Line

So, what’s the bottom line for this guide to merchant services 101? That will depend on your business’s needs and preferences. However, if you were to leave this review retaining only the smallest bit of guidance, we’d just want you to tred carefully. Merchant services can be a tricky territory to navigate, so it’s crucial to go in well-educated and ready to ask the correct questions of potential providers.

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10 Best Low Cost Franchises to Buy If You Want to Own a Business

5 Advantages of Sole Proprietorships

Starting a small business can be an intimidating process. You’ve got to come up with a business strategy, solicit customers, and manage short- and long-term finances. Trudging through the paperwork, forms, and registration steps to legally set up your business can be even more frustrating. The advantages of sole proprietorships might be a great option for you, depending on how you want to set up your company. You’ll wade through less paperwork, make getting paid easier, and can focus on getting down to business.

There are numerous advantages of sole proprietorships for many entrepreneurs. They’re easy to set up, straightforward, and require fewer procedural steps than other types of business entities. One-person companies benefit specifically from the advantages of sole proprietorships—especially if their business doesn’t require a complex legal or financial setup.

But it’s important to know when the advantages of sole proprietorship are overshadowed by their limitations, particularly with regard to personal liability. This business setup isn’t for everyone; it’s best to determine if you could benefit from sole proprietorship, or if the additional paperwork for another business entity makes more sense for you.

First, What Is Sole Proprietorship?

In the big, varied world of business entities, a sole proprietorship is the most straightforward setup there is. A sole proprietorship is, as you might have guessed by the name, a company that is owned and operated by an individual. She or he is responsible for paying any debts or liabilities incurred by their business entity, and is also the point-person for any legal or tax questions that might arise.

One of the biggest advantages of sole proprietorship is its simplicity. In essence, a sole proprietorship is a permission slip for you to operate your company as an officially licensed business. This makes it easier for you to work with other vendors and clients, since you’re not technically doing work with them as an individual.

Think of sole proprietorship as the shingle you hang on the door that signals to others that you’re a company—whether or not you’re hanging that shingle in your home, an office, or neither of the two. Sole proprietorship provides you with legitimacy as an individual entrepreneur in a straightforward manner.

advantages of sole proprietorship

What Are the Advantages of Sole Proprietorship?

There’s a reason that most small businesses in the United States register as sole proprietorships: it’s easy, quick, and straightforward. Most small companies don’t need to bother with the requirements that come with other business entity types: after all, it’d feel a little silly to form a board of directors if you run a one-person hot dog stand (although you’d have great food at your annual meetings). And you wouldn’t benefit from forming a C-Corp if you’re a freelance writer, since it’d be foolish to file business taxes and personal taxes separately. Here are a few of the major advantages of sole proprietorship:

1. Less Paperwork

The advantages of sole proprietorship are vast and varied—especially if your company’s small. You won’t have to fill out a ton of paperwork, for starters. Other business types for small businesses, such as limited liability corporations (LLCs), require you to register with your state government before you can do business. On the other hand, sole proprietorships typically do not come with this requirement. You become a business entity merely by virtue of doing business. This allows you to scale up your business much more quickly, and with less government paperwork in the balance.

2. Easier Tax Setup

Other business entities need to file for an employer identification number with the IRS, which allows them to collect taxes and pay employees separate from the filer’s social security number. Sole proprietors, on the other hand, do not need to file for an EIN. Instead, they can use their SSN just like they would for any other financial transaction that requires it.

Another one of the tax advantages of sole proprietorship kicks in around tax time. Because you’re collecting payments through your own LLC, you don’t have to worry about filing business taxes. You’re still liable for paying taxes on any business you do through the sole proprietorship, but can take care of it through your own personal tax return. This makes filing business taxes much easier for you, since it’s as simple as submitting your own 1040.

3. Fewer Business Fees

Another one of the crucial advantages of sole proprietorship relates to registration fees. States require LLCs and other business entities to register with the state before they can conduct business. Most also require LLCs to pay a yearly fee to maintain their registration. These fees can add up quickly: most sole proprietors may not need the features and benefits of an LLC setup, so it’s not always worth paying the registration fees that come with it.

Sole proprietors don’t usually have to contend with these registration fees, since there’s no need to register with the state in the first place. So long as you don’t end up needing liability protection for your business (more on that later), you can help keep more money in your bank account.

4. Straightforward Banking

Another clutch advantage of sole proprietorship is simplified banking. Sole proprietorships are the only kind of business entity that doesn’t require a business checking account in order to operate a company. (You can theoretically run an LLC without a business checking account, but this invalidates many of the personal finance protections that come with owning an LLC in the first place.)

As a sole proprietorship, however, you can make and accept business payments straight from your own personal bank accounts. You don’t have to go through the process of finding a business checking account, or figure out how to set up business banking in general. All you need is your own checking account to get started.

5. Simplified Business Ownership

Sole proprietorships make it easy to start a business, for sure. But they also make it easier to own your business. You don’t have to concern yourself with some of the other components included in an LLC, such as a company officer or registered agent. Since you’re the sole proprietor, you call the shots. No need for boards, officers, or any of the other positions typically required by LLCs and other corporations.

This is one of the biggest advantages of sole proprietorship. You can focus on your daily operations and long-term goals without having to involve other stakeholders or deal with managing external personnel to keep your company on the right side of state and local registration.

advantages of sole proprietorship

What Are the Disadvantages of Sole Proprietorship?

The advantages of sole proprietorship are plentiful, but that doesn’t mean that they’re right for everyone or every business. They’re easy to set up, sure, but that convenience comes at the expense of certain protections that you’d otherwise get through an LLC or incorporated business entity. You may find that a sole proprietorship doesn’t give you the full range of protections that you need—and that the disadvantages outweigh the benefits.

1. No Liability Protection

Since sole proprietors don’t need to register as a business with their state of operation, they also don’t get any of the benefits that come from having a legal business entity. You’re considered self-employed with a sole proprietorship, which means that you’re on your own with regards to your business transactions.

You’re also personally liable for any of your company’s legal, financial, or tax problems. LLCs offer protections that keep creditors from being able to seize your personal assets (in most cases), and prevents people from suing you personally for business-related issues. But these protections aren’t in play with a sole proprietorship, which may open you up to additional risk.

2. Harder to Get Financing and Business Credit

It’s harder to secure loans for a sole proprietorship than it is for other business entities. Most banks want to work with established companies—not just because they’re typically larger in terms of revenue, but also because they tend to have a more substantial history with credit. Sole proprietors can’t usually build business credit the same way that other companies can, since they don’t have their own business credit cards and business bank accounts.

You might not be able to secure business financing from conventional lenders, but you can still seek out personal loans to help fund your business. This comes with its own pitfalls, though, since you won’t have the same level of protection as you would if your business couldn’t pay back its debts. For example, if your LLC defaulted on its loans, it’d take a lot longer for creditors to seize your personal assets. But as a sole proprietor, you’re putting up your own personal assets as collateral—and there’s no firewall there to keep the bank from taking your property.

3. It’s Harder to Sell Your Business

Since a sole proprietorship is attached to an individual by nature, it’s all but impossible to sell or hand down your business to someone else. Your company lives and dies by, well, you. The business ends in the event of your death, or if you decide that you no longer want to run the company.

It’s not impossible to sell a sole proprietorship, however. But you do need to go about doing so in a different way. Mostly, you’ll have to sell your business assets, rather than the business itself. The buyer won’t be able to keep your business name, unless you’ve established a DBA and either sell or transfer the usage rights to the other party. The same goes for passing your business down to an inheritor. Make sure you work with financial and legal professionals before you seek to spin off your sole proprietorship and before making any decisions, of course.


There are plenty of advantages of a sole proprietorship for many entrepreneurs. But there are a ton of potential pitfalls as well. What you gain in terms of time and effort, you lose in terms of liability protection and credit opportunities. Be sure that your business doesn’t need these protections, both now and in the future. Otherwise you may find yourself in as tricky legal position, or playing catch-up to build your business credit history. Be sure that the perks of sole proprietorship make sense for your business goals before you make the jump.

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Wednesday, October 17, 2018

SBA Form 355: How to Fill It Out and Submit It

Part of the U.S. Small Business Administration’s stated mission is to “aid, counsel, assist, and protect the interests of small business concerns.” But to live up to that mission, the SBA needs to ensure that the concerns they’re supporting—either through their SBA loan program or the many other initiatives they spearhead—are definitively small. That’s the job of SBA Form 355.    

If you’re applying for an SBA loan, but you’re not sure whether your business is small enough to officially be considered a small business—and, therefore, whether you’re eligible for SBA financing—then you can complete and submit SBA Form 355. Based off the information you provide, the agency will make that size-based determination for you.

In this comprehensive guide, we’ll explain why you might consider submitting SBA Form 355—and, if you do, exactly what to expect when you fill out this form.

Why Is SBA Form 355 Important?

SBA Form 355 is the Application for Small Business Size Determination, and that’s fairly self-explanatory of what this document does: Small business owners can submit this form to the SBA to determine the size of their businesses. If their company doesn’t fall under the SBA’s definition of a small business, then they won’t be eligible for SBA financing.

SBA Form 355 can be used as a size determination for any type of SBA loan you’re applying for, other than the SBIC program, which requires SBA Form 480.

That said, you can consult the SBA’s size standards table even before filling out this form to gauge whether your business is qualified for federal financing based on its size. (The table represents the largest a business can be while still being considered SBA-eligible.)

Every industry has their own size standards, but across the board the SBA bases size determinations on the business’s number of employees, and/or the industry’s average annual receipts, which is the business’s total income plus the cost of goods sold.

And beyond these numbers, for the purposes of loan eligibility the SBA defines a small business as a company that:

  • Is independently owned and operated
  • Isn’t a leader in its industry
  • Doesn’t exceed the size standards specific to the particular loan for which they’re applying

In certain cases, the SBA will consider the business’s primary activity in its size determination, too.

But some things are better left to the professionals—especially things of such importance as small business financing. For a second (and definitive) opinion on your business’s size-based eligibility, submit SBA Form 355.

A Closer Look at SBA Form 355

SBA Form 355 is made up of five sections. We’ll take a closer look at each of those sections here, and show you how to answer each question asked.

Part I: Information Related to the Applying Business Only

sba form 355
Questions 1a-1b: Provide your business’s basic contact information.

Questions 1c-1d: Indicate the county in which your business is based, the type of SBA loan you’re applying for, and whether you’ll be using your loan funds in a labor surplus area if you’re not applying for a surety bond guarantee.

Question 1e: Indicate the date that your business was established or incorporated. Also, if you’re an S-corp or C-corp, you’ll need to attach your latest annual report to stockholders, by-laws, and articles of incorporation. Partnerships need to attach a copy of their Partnership Agreement.

Question 1f: Write your primary business activity and your Standard Industrial Classification code.

Question 1g: Indicate whether your company has received a formal SBA size determination in the past and, if so, which SBA office conducted the size determination and when.

Question 2: List your major products or services, each of their Standard Industrial Classification codes, and each of their share or sales for the most recent fiscal year. The form gives you space for five products or services, but you can attach additional sheets if you need more room.

Question 3: Do you operate under a franchise, license or other contractual agreement with another business? If so, mark “yes” and attach a copy of your agreement to the form.

sba form 355
sba form 355
Questions 4-6: Provide information about any owners, partners, principal stockholders (that’s anyone who owns 10% or more of the voting stock), general partners, officers, or directors involved in your business.  

sba form 355Questions 7-8: Answer yes/no questions concerning your company’s stock. If you answer “yes” to any of these questions, you’ll need to include additional information.
Question 9: Is anyone you listed in questions 4-6 an owner, director, officer, partner, employee, or principal stockholder in another business? If so, you’ll list the name of the other business, the position the person in question holds there, and the percentage of their voting stock or ownership.

Part II: Employment-Based Size Standards

sba form 355
Question 10: List the number of employees at your business. (That’s it for this section!)

Part III: Revenue-Based Size Standards

Questions 11-12: List the ending date of your fiscal year, then the total sales or receipts for your three most recent fiscal years. If you’re seeking an Economic Injury Disaster Loan, provide your sales for the three fiscal years prior to the disaster.

Part IV: Affiliate-Related Information

sba form 355
In this section, you’ll provide information about any affiliate businesses, both domestic and foreign, if relevant.

Among other standards, the SBA considers businesses as affiliates “when one controls or has the power to control the other, or a third party or parties controls or has the power to control both.” If you’re not sure whether a business counts as an “affiliate” of yours, consult the SBA’s complete definition of affiliate businesses to make sure you’re reporting accurate information on SBA Form 355 (and any other SBA form that requires information about affiliates).  

If the affiliated business is a corporation, you’ll need to attach a copy of its articles of incorporation and by-laws. If you have it on hand, attach a copy of their latest annual report to stockholders, too. If the affiliated business is a partnership, you’ll need to include a copy of its partnership agreement.

Question 13a: For each affiliated business, provide the following information:

  • The affiliated business’s name and address
  • The percentage of voting stock or ownership that the applying business holds
  • The percentage of voting stock or ownership that the affiliated business holds
  • The affiliated business’s major products or services

Question 13b: For each affiliated business listed in 13a, list the names and addresses of the owners, partners, officers, directors, and principal stockholders. Also list the position they hold, and their percentage of voting stock or ownership in the business.

sba form 355

Question 13c: List the number of employees in each affiliated business listed in 13a.

Question 13d:List the affiliated business’s total sales or receipts for its three most recent fiscal years.

sba form 355
Question 14: If any of the owners, partners, directors, officers or principal stockholders of the affiliated business are owners, partners, directors, officers or principal stockholders of another business, you’ll need to provide that third business’s name and address, the position that person holds, and the percentage of their voting stock or ownership.

Part V: Information Related to the Applying Business and Alleged, Acknowledged, or Possible Affiliates

sba form 355

The last section of SBA Form 355, questions 15-29, consists of yes-or-no questions.

However, not all businesses need to fill out all of these questions:

  • If you’re contesting an alleged affiliation, you’ll need to fill out questions 15-22.
  • If you’re not contesting an alleged affiliation, only fill out questions 15-22 if the SBA requests that you do.
  • Answer questions 23-29 if you’re requesting a size determination for participation in an SBA procurement program.

Questions 15-22: Your answers to these questions will provide the SBA with further clarification about the relationship between your business and the (alleged, acknowledged, or possible) affiliate business. That way, the SBA can make a definitive evaluation about whether the business in question is, in fact, an affiliate.

sba form 355

Questions 23-29: These questions investigate whether any affiliate businesses have provided an indemnity or a guaranty to facilitate a contract award to your business.

As is the case with the rest of this form, if you answer “yes” to any question in Part V you’ll need to provide a detailed explanation on an attached sheet, as well as copies of certain documentation (as requested).  

man filling out sba form 355

Where (and When) to Submit SBA Form 355

Once you’ve filled out your answers for SBA Form 355, read over the certification and sign and date the form. You’ll submit this form, plus any relevant additional documentation, to the SBA Office of Government Contracting or Office of Disaster Assistance (if you’re applying for an SBA disaster loan) nearest your business. If you’ve hired an attorney, accountant, or other non-employee to complete and submit this form for you, you’ll need to send along a letter authorizing them to complete this task.

However, keep in mind that SBA Form 355 isn’t a requirement of your SBA loan application—it’s only necessary if you’re seeking an SBA loan, but you’re not sure whether you suit the SBA’s size requirements. So if you’re a solopreneur, you can count the number of your employees on one hand, or if you’re otherwise certain that your business is definitively small, don’t worry about Form 355 in particular; you’ll have plenty of other SBA forms to submit!

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