Tag Archive for: small business lending

Small business legislation, State of the Union address, President Joe Biden

Legislative Proposals Small Businesses Should Worry About in 2023

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Small business owners should be keeping an eye on the current 118th Congress. While it’s only a month old, there are several pieces of legislation and proposals that could have wide-ranging impacts on small- and medium-size businesses should they pass, and issues such as  manufacturing costs, tax breaks and whether a popular government grant program survives could all be in play in 2023.

So as the year progresses, here are the legislative issues small business owners should keep on their radar screens.

Made in America

“Tonight I am announcing that all construction materials used for federal infrastructure projects to be made in America,” said President Biden during his State of the Union Address on February 7. While “Made in America” is always a great talking point for a politician, it really isn’t feasible for small construction companies and contractors to execute without ballooning the costs of construction projects.

President Joe Biden stated during the State of the Union address that he wants all materials used in federal construction projects to be made in America, a rule that would cause the cost of construction projects to soar. Photo Credit: MSNBC

The 2022 Infrastructure Investment and Jobs Act (IIJA) included the Build America Buy America provision that currently requires that only 55% of the materials used by a contractor for a federal project be made in America. If Biden’s statement comes to fruition, it would cause considerable difficulty for independent contractors and small construction firms to stay on budget if they win a federal construction contract. 

Patriotism is always appealing of course, but according to Construction Dive, a news site for contractors, forcing contractors to use 100% American-made supplies could raise project costs by 25% on average. 

The reason for this is that the most vital construction materials such as lumber, steel, copper, aluminum and cement, are all imported from countries in Asia, South America and Canada. Those offer those materials at a far lower cost due to lower labor costs. 

STEP Renewal Act

This bill, introduced by Sen. Jeanne Shaheen (D-NH), would renew the popular State Trade Expansion Program (STEP) and would direct the SBA, which administers millions of dollars in STEP grants through local and affiliate offices every year, to make it easier for small businesses to apply for these grants. With a Republican-controlled House that wants to cut federal spending, there could be a partisan showdown on whether the STEP grant program gets renewed. 

Since 2011, the SBA has administered millions of dollars in grant money to small businesses starting out or expanding into the import/export business through its State Trade Expansion Program (STEP) grant program. In the past 12 years, the agency has awarded over $200 million through state and affiliate offices to support US small businesses in learning to export products, participating in foreign trade missions and designing international marketing campaigns, among other activities related to international trade. 

Easier to Obtain Microloans?

In late January the House unanimously passed HR 1487, the Microloan Transparency and Accountability Act, sponsored by Rep. Tim Burchet (R-TN). The bill is designed to ensure that the funding for the microloan program is, in fact, being disbursed to small businesses in underserved and rural communities as it was intended to through greater oversight of the SBA. 

The Microloan is one of the most popular lending programs that the SBA offers. These loans have far less restrictive lending requirements, are one of the few SBA lending programs that can help fund startup businesses, and are crucial to small businesses in rural and low-income communities. 

The bill, if passed, would offer 5% technical assistance grants to the program’s affiliate lenders if they lend to businesses in rural communities, and would require them to make at least 25% of their lending funds to rural businesses to qualify for the 5% grant. It would also require the SBA to produce an annual report on the number of loans that have defaulted as well as the number of loans made to small businesses in rural areas.

More Audits?

As part of the Infrastructure Investments and Jobs Act (IIJA), the Internal Revenue Service was given

A new bill could prevent further audits of small businesses – a bill that’s opposed by the Biden Administration.

more funding to conduct additional audits on companies and individuals that produce $400,000 or more in gross annual income, with the idea that this would increase tax revenue by forcing multi-billion dollar corporations and wealthy individuals to pay more in taxes. 

In January, HR 23 was introduced in the House to rescind that additional funding – a move adamantly opposed by the Biden Administration, which insists that the additional audits would only affect large companies and the country’s ultra-wealthy elites.

In reality, $400,000 or more in gross annual income for a pass through business would likely make the small business owner financially well off,  but it certainly wouldn’t make the business owner ultra wealthy. Once parcel out payroll, taxes, inventory purchases and other expenses are all parceled out, a small business owner would be left with far less than $400,000. If the IIJA provision is kept, it would mean a higher tax rate and further audits of high margin small businesses such as law and accounting firms and doctors offices, so one can expect a showdown between House Republicans and the Biden Administration over this bill. 

Easier to Unionize?

President Biden, as expected, made a plea to Congress to pass the Protecting the Right to Organize (PRO) Act during his SOTU address, which would make it easier for workers in any business to organize and form unions. Of course, Democrats and Republicans have always been far apart when it comes to supporting unions, but the issue has garnered far more attention in the past two years due to the tightening labor market and highly publicized unionization attempts by workers at large companies such as Starbucks and Amazon.

This obviously affects small businesses that are already feeling the brunt of the labor shortage and rising wages. More unions would ultimately lead to rising labor costs that some small businesses would have a difficult time being able to afford. 

Should the Tax Credit Stay?

One issue that has concerned small business trade groups such as the National Federation of Independent Businesses (NFIB) is the possible sunsetting of the Qualified Business Income (QBI) tax credit, which was created by the Tax Cuts and Jobs Act (TCJA) of 2018. Shortly after taking office, President Biden promised to rescind elements of the TCJA to ensure that large corporations and the wealthy pay their share of taxes.

While Biden did later say that he was not considering eliminating the QBI deduction, it is scheduled to sunset in 2025. The NFIB continues to actively lobby to make the deduction permanent, as it claims many small businesses have come to rely on that deduction to stay afloat amid the myriad of economic challenges they are currently facing. President Biden has not commented on this deduction in the past year, but if he does indicate a move to eliminate it, it would set up a showdown between him and the GOP.

The QBI deduction allows eligible self-employed and small-business owners to deduct up to 20% of their qualified business income on their taxes. In general, total taxable income in 2022 must be under $170,050 for single filers or $340,100 for joint filers to qualify.

Expect Gridlock

All-in-all, while the Biden Administration has made  progress in passing bi-partisan legislation to reduce inflation and rebuilding the nation’s infrastructure, we can probably expect more gridlock over the next two years with Republicans controlling the House.

Strands of Faith, Ameka Coleman, small business, Building Resilient Businesses, Kapitus

BRB Stories: Relying on Faith and Passion for Business Success

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For small business owners, it’s all about keeping the faith – not only in God, but in yourself and your ability to succeed. That’s what drives Ameka Coleman, founder and CEO of Strands of Faith and one of the 3rd place winners of Kapitus’ inaugural Building Resilient Businesses contest. Strands of Faith is one of five 3rd place winners, and Coleman received $20,000 to help maintain and grow Strands of Faith. 

Starting her own business in 2018 took a tremendous amount of faith, courage, and hard work for Coleman, who gave up a lucrative career as a clinical researcher for pharmaceutical contract research giant PPD to become a small business owner. The Christian mother of four took the plunge into entrepreneurship when she realized that her passion was hair care.

Coleman was able to fill a need by creating a line of cruelty-free, non-toxic hair care products that

Ameka Coleman, Strands of Faith, Building Resilient Businesses, Kapitus, Contestof Faith

Ameka Coleman, founder and CEO of Strands of Faith, used her personal credit card, a small amount of savings and her faith to launch the business.

contain no parabens or silicone-based materials, yet keep hair moisturized and healthy.

“I launched the business in 2018,” said Coleman. “Prior to this, I never thought that I would one day own a business. I was in a career, Clinical Research, that I loved. It was truly a scenario of passion meeting purpose. Starting in 2006, I developed a passion for loving and embracing my natural hair and I was equally passionate about making progress in the field of clinical trials. Eventually, my science background and real-life experience merged into one to make a beautiful faith walk with purpose!”

A Wing and a Prayer

Like most small business owners first starting out, Coleman had few resources. She used a small amount of savings and personal credit cards to fund the launch of Strands of Faith, and her biggest assets during that time were support from her family and her passion for making clean hair care products. Even though she took a huge gamble by starting her own business, she found the resilience to push through the COVID-19 pandemic through hard work.

“Building Strands of Faith has been a journey of faith, hope, and resilience,” said Coleman. “If you would have told me 6 years ago that I would one day start a business, I wouldn’t have believed it simply because I didn’t have the mental fortitude, faith, and self-confidence to bet on myself. However, little did I know, my journey leading up to it was the perfect segway to creating my brand. While I was on a journey to finding myself, it resulted in me falling in love with the hair that God blessed me with. I then found great joy in encouraging and motivating other women to do the same.” 

Expansion Plans

Strands of Faith has found success through some rough times, and has grown to 10 employees and dozens of product lines, as well as a successful blog on hair care. Coleman said that she plans to use the $20,000 in prize money to help expand her team and strengthen its marketing efforts to serve customers both in the US and internationally. 

“This business became bigger than me,” she said. “I was led to create products that could help further the

Strands of Faith’s Holy Grail collection of natural hair care products has helped launch it to success.

mission by providing clean products for textured hair that would make women feel confident about their hair regimen. This entire journey has been one of faith. Starting out, I didn’t have many resources, but I didn’t let that stop me. I put my best foot forward, juggled all of the roles, and trusted God to lead the way. I was working my full-time job while also being a mom to 2 kids and a wife. It was rough but the vision made me stay committed.

“Now, as a mom of 4, I strive daily to be the best example to my kids, and it gives me great joy for them to see me keep pushing along this entrepreneurial journey. Building this business has impacted my life and others in so many ways but the most impactful way has been the reminder to simply keep the faith! This grant by Kapitus is such a tremendous blessing in allowing me to expand my team and marketing efforts so that we can continue to serve women all around the world.”

Maintaining Balance

Coleman may be unusual among small business owners in that she’s achieved something that many small business owners have not: balance between her personal and business lives. Her secret is putting her family and faith first. That balance, she said, is a key part of the success of Strands of Faith.

“I did the groundwork in the beginning and worked super hard to lay a foundation, so I now have a team who has helped tremendously with taking off some of the workload. Now, these days, though the business still needs much of my time to run, my priorities have shifted, and it is all about family first! Business now comes second to my family. I intentionally did the groundwork in the beginning when my kids were younger. Now that they are older, I am super intentional about being present for them!”

Advice to New Entrepreneurs

Coleman said that the beginning days of Strands of Faith were the most difficult as they are for most small business owners, but she advised new entrepreneurs that the learning experience of launching a business is well worth it. 

“I would say that the most challenging parts, in the beginning, were wearing many titles,” she said. “I now appreciate the process of first getting the experience in each role because over time it built me up to be an efficient business owner. I have learned that entrepreneurship is not just a journey by itself but, instead, it is also a personal healing journey! There will be many times where the journey may feel lonely, but this is when it becomes super important to lean on your self-confidence and focus on the past wins to get you through and, of course, God’s given strength.”

Congratulations to All the Winners

Kapitus’ inaugural BRB contest awarded $250,000 to 7 small businesses that are the epitome of strength and resilience – two crucial ingredients needed to launch and operate a small business. The first-place prize was $100,000, the second was $50,000 and five third-place winners each received $20,000. All of the winners also will receive a complimentary, 8-hour consulting/advisory session to help their business. Kapitus also looks forward to this being an annual contest starting every spring.

Learn the stories of all of our small business winners:

BRB Stories: After Devastating Setback, Play Pits Takes First Place in Kapitus’ BRB Contest!

interest rates, small business, lending, bank loan, Ben Johnston, Kapitus

How Will Rising Rates Impact Small Business Lending?

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The Federal Reserve Bank has raised the overnight rate four times so far in 2022 to try to tame runaway inflation, with more hikes likely coming. This leaves Main Street businesses that rely on financing in a major bind – rising rates mean small business loans have become far more expensive than they were just a year ago, and that added expense creates yet another challenge for those that have already faced rising costs, a demand for higher wages and supply chain shortages, among other things.

So now that we’ve been forced to live with higher interest rates for the time being, what should small businesses do? Should small businesses hold off on plans to take out loans until interest rates come back down? What if you need financing now, despite the current interest rate environment? 

Ben Johnston, Kapitus, rising interest rates, lending, small businesses

“Better credit quality small businesses can expect to see lower increases in rates while businesses with lower credit quality can expect to see a more dramatic increase in rates,” says Ben Johnston. Kapitus’ chief operating officer.

Ben Johnston, the Chief Operating Officer at Kapitus, tries to decode this situation by offering valuable advice for small businesses during these difficult times. 

Borrow for the Right Reasons

With the cost of capital being especially high right now, small businesses may want to hold off on borrowing if they can afford to. Interest rates often swing wildly from year-to-year, and once the current inflationary environment begins to settle down, the Federal Reserve may start to loosen its belt once again, so it may be worth waiting until then to apply for financing. 

If you need to borrow money now, however, it’s now more important than ever to make sure you are using the proceeds of that loan to invest in a project or aspect of your business that will increase your profits. These can include growing your business with new hires or expanded inventory, or the development of a new product that is projected to increase your revenue. The increased revenue should offset higher costs of capital and will enable you to comfortably pay back the loan.

“Small businesses should always weigh the cost of the capital that they are seeking with the expected economic return of the project they are financing,” said Johnston. “If the project provides sufficient returns at the cost of capital being offered, then they should move forward with the project. Unfortunately, as interest rates rise the number of economically viable projects declines, meaning that many small businesses will choose to hold off on financing growth until rates either come down or revenue and expense prospects improve.”

Fix Your Credit Score

Despite the fact that the prime rate is now far higher than it was a year ago, one fundamental rule of

credit score, small business, lending, interest rates, Kapitus, Ben Johnston

Fixing your business’ credit score is especially important in a high interest rate environment.

lending still applies: the higher your credit score, the less you will have to pay in interest rates. As the COVID-19 pandemic winds down, however, many small businesses may have taken hits to their credit scores given the COVID-related recession the US endured in 2020 and 2021. 

“Most lending companies are seeing their own cost of capital increase, and over time, this rise in interest rates can be expected to be passed on to small business customers in the form of higher rates as well,” said Johnston. “Better credit quality small businesses can expect to see lower increases in rates while businesses with lower credit quality can expect to see a more dramatic increase in rates.”

If you struggled during the pandemic and your FICO score decreased as a result, don’t worry – fixing it may not be as daunting of a task as you may think. There are some basic steps you can take to possibly improve it:

  • Talk to your creditors. If you have any outstanding debt, it’s worth contacting your creditors to see if you can modify your payment structures. Remember, creditors would much rather negotiate a new payment arrangement with their borrowers than have to send the debt to collections. Once a new arrangement is agreed upon, you can comfortably make payments without having any late payments show up on your credit score.
  • Pay off or lower your revolving debt. If you can afford to, make sure your debt on your line of credit or business credit card is 25% to 30% of your spending limit, as that is the credit utilization level that credit agencies prefer to see. Not only will this reduce your interest rate payments, it also lets potential lenders know that you can properly manage your debt.
  • Encourage your suppliers to give you trade references. Having a strong payment history with your suppliers will not be reflected on your credit report. However, your suppliers can give you a trade reference: a verbal or written notice to credit reporting agencies such as Dunn & Bradstreet, Experian Business or Equifax stating that you’ve always made payments on time. These positive references may increase your score and will be looked upon favorably by potential lenders. 
  • Try to increase your credit limits. If you have a line of credit or a business credit card, increasing your limits on them can increase your credit utilization ratio and help boost your FICO score. 

Consider Alternative Lenders

Higher costs of capital means that traditional banks will have to take on more risk when they lend to small businesses. As a result, many banks will have stricter requirements for small businesses seeking financing, thus making it harder for Main Street businesses to qualify for loans. This may make alternative lenders – non-bank lenders such as Kapitus – more attractive. 

Alternative lenders often require less paperwork and fewer requirements than banks for small businesses seeking financing. Plus, interest rate hikes often don’t affect the cost of capital from alternative lenders as much as they do traditional banks. 

“Banks too are seeing the effect of higher interest rates on their cost of capital and all lenders are looking warily at the economic uncertainty in today’s economy,” said Johnston. “Given this uncertainty, we can expect banks to reduce their exposure to small business loans in the coming months, and to continue to increase the cost of capital offered to small businesses. This means that Kapitus and other non-bank small business lenders will play an even more important role in providing small businesses with the capital they need to grow and weather uncertainty in this challenging economic time.” 

Johnston added that he “absolutely” expects that alternative lenders will be more attractive in the small business loan market than traditional banks. “I expect that non-bank small businesses lenders will be slower to raise rates to strong credit quality customers and will be less likely to tighten their credit boxes significantly, making small business lenders a critical source of capital in the coming months.”

Be Prudent

It’s no secret that we are living in uncertain economic times. Small business owners that rely on financing would be wise to shop around for the best rates, lower their revolving debt and seek financing products, such as SBA and term loans, that typically offer the lowest costs of capital. As the country is officially in a recession, small businesses should seek ways to tighten their spending and maximize profits. 

Kapitus small business halloween

This Halloween, Slay Your Biggest Fears as a Small Business Owner

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Children may be afraid of ghosts and goblins during the Halloween season, but for small business owners, things that go bump in the night are nothing compared to their real-world fears. If you’re a small business owner, you’re likely more afraid of an auditor from the IRS knocking on your door than you are of Michael Myers or Jason coming at you with a knife. 

In the spirit of Halloween, here are some of the biggest fears that small business owners face, as well as tips to overcome them. 

#1 – Fear of Catastrophe

Halloween Kapitus small business

The fear of catastrophe monster can be slain with some planning and insurance.

The COVID-19 pandemic proved disastrous for small businesses, as it forced more than 300,000 small businesses to close their doors permanently. Many small business owners that survived had to take out PPP loans and other government assistance to survive, and many are facing challenges with having to pay back rent the last two years are suffering from anxiety. 

Now, with inflation and interest rates out of control and the labor shortage persisting, small business owners are waiting in fear for the next catastrophe – be it a full-blown economic recession, a fire, a natural disaster or some other event that can drive them out of business.

Slaying the Monster – It’s important to remember that the pandemic was a historic once-in-a-century event, and while hurricane Ian did devastate parts of Central Florida, natural disasters don’t occur very often. Just in case disaster does hit, however, you want to be prepared. Some steps you can take now are: 

  • Take out small business hazard insurance. It may be an added monthly expense for your business, but it could prove to be worth it when the next crisis hits.
  • Check out SBA Disaster Mitigation Assistance. This SBA program allows businesses within declared disaster zones to apply for additional funds specifically for improving their businesses to better protect against future disasters. 
  • Take out a business line of credit (BLOC). BLOCs are offered to qualified borrowers from both traditional banks and alternative lenders, and can provide you with emergency cash to help you quickly recover when disaster hits.
  • Protect your business records. You should always have a backup of your most important business records. You can do this by storing important information on a separate hard drive or through cloud computing. 

#2 Rapid Growth

Having more customers or receiving too many demands simultaneously from clients than you can

handle is another monster that may be hiding under the beds of small business owners. While some may say that this is a good problem to have, this fear can threaten your business if you aren’t in a position to quickly obtain additional inventory or are understaffed.

Slaying the Monster –If your business is growing at a rapid pace, the first thing you should do is take pride in knowing that you’re doing something right. After you give yourself that little pat on the back,  your first priority should be customer service. Be ready to explain politely to them that they need to have patience because you are experiencing overwhelming demand but assure them that their needs will be taken care of. 

You should also have a plan to add more hourly or full-time staff if you find yourself overwhelmed with customer demands, or consider hiring a virtual assistant. If you need more inventory fast but don’t have the cash upfront to pay for it, you may want to consider purchase order financing to help you.

#3 Employees Quitting

Kapitus small business halloween

The fear of all your employees quitting can be very spooky, so make sure you’re treating your workers well!

Small businesses in nearly every industry are feeling the brunt of the labor shortage, as workers are increasingly demanding higher salaries and better working conditions. The prospect of your best employee – or all of your employees – suddenly quitting at roughly the same time is scarier than the thought of Freddy Kreuger visiting you in your dreams, especially if you employ hourly workers that don’t get benefits.

Slaying the Monster – Every business, no matter how small, must deal with employee turnover. The scenario you want to avoid, however, is having all of your employees quitting in a short period of time. You want to create a system that doesn’t overly rely on a single employee, no matter how good that employee is. You also want to make sure that you create a company culture that your workers feel comfortable and safe in. You should also look to offer small perks, such as quarterly bonuses or limited essential coverage plans that your workers will appreciate. 

#4 Getting Audited

There are few boogeymen that are scarier to small business owners than an IRS auditor – which could

mean that you inadvertently misreported finances and that you suddenly owe a fortune in back taxes. 

Slaying the Monster – As a small business owner, you shouldn’t be too worried about getting audited if you’ve kept your books in order throughout the year. Only 1.5% of small businesses in the country get audited on a yearly basis, but to prevent yourself from being among them:

  1. Make sure you keep track of your business finances. It’s especially important to carefully separate them from your personal expenses.
  2. Carefully document your business expenses throughout each quarter. Sometimes the line between a business and personal expense can be blurry, so make sure when you document a business expense you have a good reason why it should be a business expense. 
  3. Consult with an accountant on how much in taxes you should pay each quarter. You’re probably better off being conservative when reporting your business expenses and getting a refund at the end of the year. 
  4. Stay up to date on new tax laws. The see-saw battle between Republicans and Democrats over who controls Congress and the executive branch has never been more volatile. Expect the tax code to change every time the balance of power shifts to make sure you’re not missing out on new tax deductions. 

#5 Continued Inflation

While inflation has slowed a bit in the past two quarters, it is still growing at a rapid pace thanks to continued supply chain disruptions, rising gas prices and higher wages for workers across the board. Indeed, the inflation monster has forced small business owners to raise their prices and fear losing customers as a result. 

Slaying the Monster – The prospect of having to raise the prices of your products and services is always  scary for small business owners, but here’s the good news: inflation is showing signs of slowing, and while consumers resent having to pay more for goods and services, they’re still spending, according to a recent JPMorgan study. Also, if you raise your prices carefully, you can actually beat out your larger competition, since they’re also raising their prices.

#6 Failure

This fear is probably the most prevalent among new business owners. Having to close your business due

to lack of sales does count as a tangible definition of failure, but there are other definitions of the word that haunt small business owners, making this fear much more opaque. Those fears can include the fear of not providing enough income for your family, losing control of your business, or losing confidence in your ability to run your business. An overwhelming fear of failure can take its toll on your mental health, as any unexpected problem can cause you to go into full-blown panic mode.

Slaying the Monster – Fear of failure is normal among small business owners, but having that fear to an unhealthy degree is not good. One of the most important things to remember when it comes to the fear of failure is that, more than anything, it’s psychological. Sometimes overcoming this fear is as simple as developing a positive mindset. Here are some steps you can take:

  1. Set daily goals. If you feel overwhelmed in the number of tasks you need to complete, try breaking down those tasks on a daily basis. Be realistic in what you can get done every day, and feel good about accomplishing those tasks afterward – they can serve as reminders that you’re succeeding.
  2. Adopt a philosophy of learning. Failure, in many cases, isn’t a dirty word. Some may argue that there are no such things as failures – just lessons. If you experience a setback, solve it, learn from it and move on with no regrets. 
  3. Prepare for obstacles. As a small business owner, you will face obstacles, both big and small, every day – there may be a delay in the delivery of important inventory; your credit card processing machine may break down, or an employee might unexpectedly not show up.  It’s important to prepare for these obstacles by having a backup plan.
  4. Find relaxation time. Constant stress can lead to serious mental health problems over time. Try to carve out time every day to take care of yourself. This can be in the form of meditation, exercise and spending quality time with your family.

#7 Slowing Sales

Kapitus small business halloween

The prospect of slowing sales can be terrifying, but don’t worry, there are ways to prepare for that.

Every small business owner fears a sudden slowdown in sales, especially now that we’re living in uncertain economic times. This fear is often exacerbated by the holiday period – a time when many small businesses rely on seasonal sales to survive. 

Slaying the Monster – Overcoming this fear comes down to your marketing strategy. Are you offering the proper discounts during the holiday season? Are you implementing a strategy to retain existing customers and gain new ones? Are you offering something different and better than your competitors? Focusing on marketing throughout the year should help you overcome this fear.

Happy Halloween!

This Halloween, don’t allow your fears to stand in the way of running your business successfully. If you find yourself overwhelmed by fear, it’s important to face those fears head-on by making good decisions and celebrating victories and milestones in your business.

Labor shortage, small business lending, economy

Which Industries Are Getting Hit Hardest By The Labor Shortage in 2022

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The labor shortage remains stubbornly high for businesses across several different industries despite the high number of job openings, even as many predict that the current recession will eventually level the playing field between employers and workers. Small business owners continue to feel the brunt of the shortage, as many of them can’t compete for workers in the labor force with larger competitors when it comes to salaries. 

So which industries are getting hit the hardest in terms of unfilled job openings and worker shortages? Based on information gathered from the Bureau of Labor Statistics, the worker shortage continues to affect companies with both hourly and full-time workers for different reasons. Here are some of the most impacted industries.

Accommodation and Food Services

Restaurants had a quit rate of 7.6% in September 2022 – the highest of any industry measured by the BLS – with 193,000 job openings compared to 139,000 new hires, leaving 60,000 job openings. These include table servers, cooks, bartenders, and other staff. The National Restaurant Association (NRA) predicts the shortage will continue for the rest of this year and into 2023. 

Restaurants laid off thousands of workers during the COVID-19 pandemic, and those workers have been slow to return. The reasons include low wages – the federal minimum wage for tipped workers is still $2.13 per hour (the NRA, ironically, has lobbied Congress every year for a decade against raising that wage). Restaurant jobs also often require long hours, low pay, and no benefits. According to a study by Blackbox Intelligence and Snagajob, 15% of restaurant workers left the industry during the pandemic to move into different industries that offer higher wages and benefits, such as education, warehouse jobs, and starting their own businesses. 

Retail Trade

Retail workers had a quit rate of 4.9% in August 2022, with job openings outpacing new hires by more than 25,000. This follows the laying off of over 2 million retail trade workers due to store closings at the height of the COVID-19 pandemic. Amazon predicted in a recent report that it could run out of warehouse workers by 2024. Many retail workers laid off during the pandemic decided to switch careers or retire. 

Despite the median salary of retail workers increasing to $18.50 per hour in August 2022 (from $14 per hour before the pandemic), a study by Cogsy showed three main reasons retail stores are having a hard time finding workers:

  1. Low compensation. The retail industry has never been a high-paying field, and most jobs don’t provide benefits.
  2. Customer-facing retail workers are usually the first people to be laid off during an economic downturn – that job instability was magnified by the pandemic, and
  3. Difficult working conditions. This has been a problem facing retail workers for decades, especially since the “just in time” inventory technique (companies being lean on inventory based on seasonal expectations) was invented to cut costs at large retailers. This inventory technique generally made it possible for retailers to cut the hours of retail workers and put them on often unpredictable, makeshift schedules. 

Transportation

The transportation industry, including truck drivers and rail workers, saw a 4.6% quit rate in August

Truck driver, labor shortage, Kapitus

A nationwide shortage of truck drivers has contributed to supply chain disruptions and inflation.

2022, as the US faces a shortage of about 2.6 million truck drivers overall, despite a general increase in pay. This shortage not only affects the roughly 3.1 million transportation and warehouse small businesses in the US, but it also is one of the root causes of the recent global supply chain disruptions. 

Like with many industries, the worker shortage in transportation existed before 2020 but was compounded by the global pandemic. According to business consulting firm MossAdams, the primary causes of the shortage isn’t salary, it’s due to the fact that the job requires long hours away from family, the fear of contracting COVID-19 and the fact that the transportation workforce is aging, and few millennials and GexXers are willing to replace them. 

Healthcare

Industries that require skilled workers are also facing a massive labor shortage, and salary may not be the overriding reason. In August 2022 there were 1.7 million job openings in this industry, particularly for nurses, while only 717,000 were hired. According to the American Medical Association, the country will also face a shortage of some 38,000 to 124,000 primary care doctors over the next 12 years, even though salaries in these professions are typically higher than the national median household income. 

According to the AMA, many medical school graduates are becoming discouraged by the fact that independent primary care doctors’ offices are being quickly swallowed up by large health care providers. That, combined with doctor burnout from the pandemic; rising medical school debt; increased medical malpractice insurance premiums, and the red tape that independent doctors often face when it comes to sharing electronic health records, many hopeful doctors have been discouraged from entering into the industry.

One-Third of Nurses Plan to Leave

A study by Fierce Healthcare showed that one-third of nurses across the country plan to leave their job over the next year, exacerbating a problem that the healthcare industry has been suffering from since before the pandemic – a national nurse shortage. Last year, BLS data showed that the country is going to need an additional 275,000 by 2030. Despite a median national income of over $82,000 per year for registered nurses in the US, many are quitting due to burnout, according to the study. 

Most healthcare facilities were already suffering from a high patient-to-nurse ratio, and COVID-19 greatly expanded that number. The study also found that 65% of nurses endure constant beratement, and in some cases, physical assault, from patients. Most don’t feel appreciated by the doctors they are assisting. This is compounded by a current shortage of nursing schools and faculty in the US.

Construction 

The quit rate among construction workers was 4.7% in August 2022, and in the same month, the industry was short by over 33,000 jobs. Cornerstone, one of the leading publications for the construction industry, expects that the current overall shortage of 430,000 construction workers in the US will expand over the next two years, as new construction projects will increase with the passage of the Infrastructure Investment and Jobs Act in 2021.

Several factors are contributing to the shortage, according to a study by Cornerstone: 

  • First, many construction workers were forced out of their jobs during the pandemic and decided to retire. In total, 40% of the construction workforce is expected to retire over the next decade. 
  • Second, there aren’t enough carpentry trade schools in the US to meet the increased demand for skilled construction workers – contractors, designers and workers with the knowledge to build specialized construction projects. 
  • Third, many contractors in the US have yet to embrace digital technologies to make projects more efficient, on time and on budget, thus slowing down the number of projects that they are qualified to complete.

To compound that, wages are still relatively low for construction workers – the median annual salary for a construction worker was only $39,190 as of September 2022. The pandemic made working conditions hazardous.

How Can Companies Combat Labor Shortages Going Into 2023?

Unfortunately, for small business owners struggling to find workers, there are no easy answers. The labor shortage is persisting, and it appears that it isn’t just a passing fad – it can only be solved by making permanent changes. Study after study has shown that employees in some industries are demanding better pay and benefits, while in other industries, workers are demanding a better work-life balance and better working conditions. The best solution to this problem is to examine the workplace you are providing for employees and look for ways to improve it.

Term loan duration small business lending

What Should the Duration of Your Term Loan be?

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If you’re ready to apply for a term loan for your small business, you want the terms of your loan to be as unique as your business. That said, one of the most important factors you should look at when taking on a term loan is…how long should your loan last? In the world of small businesses, the general impression has been that term loans offered by both banks and alternative lenders are typically short-term, usually with a maximum duration of 24 months. 

That has changed in recent years, however, as more banks and alternative lenders, such as Kapitus, have begun offering a new option to small business borrowers – term loans extending up to 60 months. In some cases, long-term loans may offer benefits for established small businesses such as a lower fixed payment. 

What Factors Should You Consider?

There are several factors to consider when determining what the duration of your loan should be. Additionally, the factors you should consider for a 60-month loan may be different than the ones you would consider for a loan that is 24 months or shorter. 

Josh Jones Kapitus small business lending

Josh Jones, Kapitus’ Chief Revenue Officer, said the duration of your term loan should be a major factor when deciding to get financing.

“If you’re able to get something approved outside of two years, you have a different decision as a business owner,” said Josh Jones, Kapitus’ Chief Revenue Officer. He added that when a small business owner is considering taking a loan of 24 months or shorter, they should examine what they are using the borrowed assets for and when they expect a return on those assets. 

For example, if your business is borrowing money to develop and market a new product that will be introduced to consumers in two years, then maybe a 24-month loan makes more sense for you. 

“For something 24 months or shorter, you have to look at your needs, and kind of do some liability matching to what the use of the capital is and whenever it is a return is going to happen,” said Jones.  

If you’re considering a 24-month loan, you should take into account the total amount that you would be paying back the lender over two years, and the fact that new debt will most likely be available to you, if needed, once you’ve paid off the loan. 

“Typically, debt payment coverage based on the use of the money is a big thing,” said Jones. “Or the fact that I know I have regular needs for capital. If I know my business can support that regular payment, I may not want anything longer than 24 months because I always want an available credit limit.”

Factors to Consider When Going Long

When considering taking a loan longer than 24 months, there are several factors that you need to consider the the total cost of the loan. If you apply for a term loan that will be paid back over 60 months, for example, the total interest will be higher on that loan because the lender is taking on longevity risk – the risk that your business may not still be around in five years. After all, the average lifespan of a small business in the US is 8½ years, according to NAV.

Are you, the borrower, willing to pay more for a five-year loan than a 24-month loan? The answer to this depends on your ability to consistently make payments, and what you are using the borrowed assets for. 

“With total cost, the shorter you go, the more the total cost goes down,” said Jones. “It is possible that the annual percentage rate (APR) of a 24-month loan will be more, but business owners should be more concerned about the total cost of financing, not just the APR. I’m borrowing this money, what is my total payback? If I can reduce the cost, if my business can support the payment, or my opportunity supports the payment of my debt, then that’s going to be the winning factor.”

With a longer-duration loan, you need to carefully consider:

  1. The amount you will be paying each month. Generally, the total cost of a 60-month loan will be greater than that of a 24-month loan (of the same amount). Therefore, if you need to borrow assets, and your cash flow only allows you to pay a limited amount of debt service coverage every month, a long-term loan may make more sense since the fixed payments will be lower than a short-term loan. 
  2. Prepay Options. If you take out a 60-month loan and you want to pay it back in full in 24 months, you may have a few options in terms of the total cost of capital. Some lenders will charge you a prepay penalty by charging you the interest you would have paid had the loan gone to term. Other lenders may give you a prepay discount – they’ll discount the amount of interest you would have owed had the loan gone to term. In either case, you should carefully examine which option would be cheaper for you when you set the terms of the loan. 

What Should I Use a 60-Month Loan For, and How Do I Qualify?

You can use the proceeds of a 60-month loan on anything you choose for your business, and the amount

term loan duration small business financing

Carefully consider the total cost of capital with a long-term vs. a short-term loan

taken out for a long-term loan is typically higher than a short-term one. 

Generally speaking, proceeds for a long-term loan are usually spent on permanent assets for your business, which could include the purchase of property, office equipment, office furniture, computers and company vehicles. Perhaps you need a long-term loan to acquire a well-established business to complement your own.

Be aware that the requirements and underwriting process for obtaining a loan beyond 24 months are more stringent than a standard two-year loan, mainly because the lender is taking on that longevity risk. 

“Even if you have a great credit score, it can be very difficult for a business to get a 60-month loan unless they have [many] years in business,” said Jones. “That’s because the likelihood of a business [that’s well established] making it another five years is much higher than a business that’s shorter. It’s not meant to be insulting to anyone’s good business, it’s just the way the stats play out.”

Talk to Your Financing Specialist

The duration of your term loan will depend on several different factors; but, like with most loans, your ability to pay the loan back will usually be the key. Examine your balance sheet and cash flow history, and talk to the financing specialist about whether lower payments over a longer time horizon may be a better option for your business.

Americans with disabilities, small business funding, Kapitus

Does Your Website Make You Susceptible to an ADA Lawsuit?

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Most small business owners know that their physical stores or offices must be compliant with the Americans with Disabilities Act of 1990 (after all, they’ve had more than 30 years to learn and comply with the law), but did you know that despite your efforts, you may still be susceptible to an ADA lawsuit? 

That’s because the ADA itself obviously predates the advent of the internet, and therefore no one is really sure how much legal liability risk you’re carrying as it relates to your website..

Gil vs. Winn Dixie

When the 11th Circuit Appellate court ruled in April that the ADA does not entirely apply to websites in

the Gil v. Winn Dixie case, it gave some short-term clarity on the issue. However, while the court ruled in favor of the business, the case generally put a renewed spotlight on the ambiguous subject of whether business websites should be required to accommodate people with physical and mental impairments. 

In Gil v Winn Dixie, a customer sued the grocery chain because its website did not accommodate visually impaired people, and therefore treated disabled people as “second class shoppers,” according to the plaintiff’s affidavit. In short, the plaintiff, Mr. Gil, claimed that he was given less preferable treatment than non-disabled customers. 

The 11th Circuit court, which covers Alabama, Georgia and Florida, ultimately ruled that Winn Dixie’s website did not fall under “places of public accommodation” under Title III of the law, and therefore its website is not required to be accessible to impaired or disabled people, even though its brick-and-mortar stores do need to be ADA compliant. 

Jury Still Out, Despite Decision

It’s important to note, however, that the judges’ decision in the case was somewhat narrow in its scope. Although they ruled in Winn Dixie’s favor, they did so largely because the company’s website is not a point-of-sale. The judges noted in their decision that there was nothing to prevent Mr. Gil from making transactions at any of Winn Dixie’s physical stores, which are ADA compliant. 

Legal experts have pointed out that if the website were a point-of-sale and disabled people could not conduct transactions on it (i.e., the customer had to renew and pay for a prescription on its site), the decision may have been different. So if your business has a website in which customers can make purchases, you may still face legal liability risk if your site is inaccessible.

Why the Case Matters

In recent years, website accessibility lawsuits have skyrocketed as the legal community continues to wrestle with the issue of whether websites should be ADA compliant. 

According to a study from UsableNet, the number of ADA-related digital lawsuits climbed to 3,550 in the US in 2020, up from 2,314 in 2018. Gil v Winn Dixie, however, was one of the few cases that made it to the Appellate Court, and while the court’s ruling ultimately favored businesses, it also puts a renewed spotlight on how companies – especially small businesses that may not be able to afford costly legal battles – should take steps to avoid sometimes-frivolous ADA lawsuits by making their websites accessible to people with disabilities. 

Last year, the 116th session of Congress ended up voting against the Online Accessibility Act which would have amended the ADA to include requirements to make websites accessible, but with a new Presidential administration and the fact that Senate Democrats now hold a slim majority, the issue could be taken up again shortly.

What are the Current Laws?

ADA requirements for physical stores and offices have been around for nearly three decades and are well-known, but – barring legislation from Congress – the question of how the ADA applies to websites is still murky.

In 2010, the US Dept. of Justice passed the Americans with Disabilities Act Standards for Accessible Design, mandating that electronic and information technology, such as websites, be accessible to those with disabilities such as the visually and hearing-impaired. The act does not, however, cite specific steps companies need to take to make their websites accessible. 

Today, many companies use the Worldwide Web Consortium’s (W3C) Web Content Accessibility Guidelines (WCAG) version 2.1 as a guide to making sure their sites are up to standard. While WCAG is not a legal document, W3C is an international community of web developers that is respected around the globe.

Avoiding an ADA lawsuit

While the issue is still ambiguous, if you’re a small business owner, it’s probably best to err on the side of caution when it comes to your website, lest you find yourself having to pay exorbitant legal fees in order to fend off a lawsuit. 

If you’re concerned about your website and are seeking to make it ADA compliant, you may wish to consult with an attorney. There are also plenty of software packages out there that can assist you in making sure your site is accessible to those with disabilities. 

Screen readers for your website can help you avoid a costly ADA lawsuit.

The first thing you may wish to do is invest in a screen reader for your site. A screen reader is a software program that allows blind or visually impaired individuals to read the text that is displayed on a computer screen via a speech synthesizer or a pad that will translate text on the screen into braille. Many of these software packages are available online and are free.

Following WCAG 

Additionally, your best bet is to carefully read WCAG 2.1 and make sure that your website follows its guidelines. You may wish to do this with an attorney. There are 4 basic principles to WCAG. A website must be:

  • Perceivable – Your website must be perceivable in terms of touch, sound, and sight. This is where a screen reader would most likely come in handy.
  • Operable – A user, regardless of their disability, must have ways to operate and browse your site. For instance, someone with motor difficulties should be able to use a keyboard instead of a mouse.
  • Understandable – Your website must use clear terms, simple instructions, and be able to explain complex issues.
  • Robust – Your website must use recognized standards, such as clean TML or CSS language so that users do not have to rely on additional technology besides their computer to use your website. 

Other Suggestions

Aside from the four principles stated, there are other actions to take to follow WCAG 2.1. On your site, you should make sure to:

  • Create alt tags for all images, video and audio files so that users with disabilities can read or hear alternative descriptions of your content.
  • Create transcripts for video and audio content so that hearing-impaired users can easily access your content.
  • Offer customers alternatives when they run into input errors. If a user is having difficulty navigating your site because of their disability, it is your responsibility to offer recommendations on other ways to navigate to the content they are looking for.

While making sure your website is accessible to all users will take time and energy, it is an exercise worth undertaking. First, it will enable you to avoid a costly lawsuit. Second, showing the world that you’re empathetic to people with disabilities, and making your site accessible will improve your public image. Third, it could even increase your customer base to include more people with disabilities.

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