BRB Rules

How to Manage Business Taxes

by Brandon Wyson13 minutes / September 22, 2024

For most business owners, handling business taxes is one of the most cumbersome and dreaded parts of business ownership. However, running a business requires paying attention to and complying with tax regulations. While business taxes are complex, managing them doesn’t have to be difficult. By taking steps to prepare for filing your taxes, business owners can simplify the process of maintaining tax compliance.

Understanding the various types of taxes small businesses may have to pay, as well as the steps business owners should take when preparing to file taxes will make the entire tax management easier…and maybe even a bit more tolerable.

Types of Small Business Taxes

Small businesses may be responsible for several different types of taxes. Some of the taxes your small business must pay will depend on the structure and location of your business.

Income Tax

The IRS requires all businesses except partnerships to file an annual income tax return. Partnerships are required to file an information return. The return form your business uses—and the way you pay income taxes—will depend on how your business is structured. For example, corporations are taxed separately from their owners, while sole proprietors report their personal and business income taxes using the same form.

Federal income tax is a pay-as-you-go tax. That means taxpayers must pay the tax as income is earned or received throughout the year. Many businesses are required to make estimated tax payments to cover income tax liability every quarter. It’s a good idea to talk to a tax professional to determine whether your business needs to make quarterly tax payments.

Payroll Tax

A business that has employees must pay payroll taxes as a percentage of employee payroll. Payroll taxes include Social Security, Medicare, and unemployment taxes. The taxes paid on Social Security and Medicare are together known as FICA taxes, named for Federal Insurance Contribution Act. They are split evenly between the employer and the employee, and the employer must withhold the employee’s portion from their paychecks.

Employers are responsible for paying unemployment tax at the federal level and at the state level if required by their state. Employees do not contribute to unemployment tax, with three exceptions. In Alaska, New Jersey and Pennsylvania both employers and employees pay state unemployment (SUTA) tax.

Employment Tax

If you have employees, you have employment tax responsibilities that include paying taxes and filing forms. As mentioned above, employment taxes include:

Social Security and Medicare taxes
Federal unemployment tax (FUTA)
State unemployment tax (SUTA)

In addition, employers are responsible for handling federal income tax withholding for employees. That means that you withhold the appropriate amount from employee wages for their personal income taxes, based on the employment forms they provide to you. Employers must also submit those funds to the federal government on their employees’ behalf and file forms such as W2 forms to report the amounts withheld.

Excise Tax

Some types of businesses must pay federal excise taxes, depending on the products they sell or the way they operate their businesses. Federal excise taxes include:

Environmental taxes
Communications and air transportation taxes
Fuel taxes
Taxes on the sale of heavy trucks, trailers, and tractors
Taxes on the sale or use of different types of items

Self-Employment Tax

Self-employment tax is the tax that self-employed individuals owe to the federal government to help fund Medicare and Social Security. Employees split these taxes with their employer, as each one pays half the FICA taxes. But self-employed individuals must pay the full amount, which is equal to 15.3% of their wages.

State and Local Taxes

Your business may need to pay state and local taxes, depending on its location and business structure. Check with state and local governments to learn your specific business tax obligations.

The most common types of state and local tax requirements for small businesses are income taxes and employment taxes. If your state charges income tax, your business structure will determine how you pay it. Like with federal income tax, corporations are taxed separately from their owners, while sole proprietors report their personal and business income taxes using the same form.

If your business has employees, you’ll have to pay state employment taxes, which might include worker’s compensation insurance, unemployment insurance, and temporary disability insurance. You may also need to withhold state income tax for your employees.

Many state and municipal governments also charge sales tax. If you’re responsible for paying sales tax, it will be based on a percentage of your sales.

How to File Business Taxes

To file business taxes, start by assembling all your business financial documents from the tax year. You’ll need records of business transactions to calculate income, expenses, and deductions.

You will also need to locate the right IRS tax form, based on your business structure. If your business operates as a sole proprietorship or a single-member LLC, you can report all business income and expenses on a Schedule C attachment to your personal income tax return. But if your business is organized as a corporation or you choose to treat your LLC as a corporation, you’ll have to prepare a separate corporate tax return using Form 1120 for C-corporations or Form 1120S for S-corporations. Multi-member LLCs are considered partnerships and usually file Form 1065.

Keep in mind that there are deadlines for filing your tax forms, and it’s important to meet them. If you use a Schedule C, it’s part of your personal tax return (Form 1040) and has no separate filing deadline. It’s subject to the same April 15 deadline as your personal return.

If you’re taxed as a C-corporation and file a Form 1120, you must file it by the 15^th day of the fourth month following the close of the tax year. For most taxpayers, that’s April 15. If your business is an S-corporation or a partnership, you need to file a Form 1120S or Form 1065. These forms are due by the 15^th day of the third month following the close of the tax year, which is March 15 for most taxpayers. This form cannot be sent to the IRS with your personal income tax return; it must be sent separately.

When in doubt, contact a tax professional to help your business get started on filing taxes.
MORE >> Why Small Businesses Should File Taxes Early

Withholding Taxes

Withholding tax is the amount of money that an employer deducts from an employee’s gross wages and pays directly to the government. The amount withheld is a credit against the income taxes the employee must pay during the year. If too much is withheld, the employee will receive a tax refund after filing their tax return. If too little is withheld, the employee will have to pay the IRS more money when they file their return.

Estimating Taxes

If a person is self-employed or earns extra income in addition to employer-paid wages, they don’t have an employer making adequate tax payments on their behalf through withholding for that additional income. In that case, the person is responsible for estimating taxes based on their income and making estimated taxes to the government each quarter throughout the year. By estimating taxes, an individual or business can meet the IRS requirement of paying-as-you-go for income taxes—and avoid a huge tax bill at the end of the year.

Paying Federal vs Paying State and Local Taxes

Federal taxes are the same wherever you live in the United States, but state taxes can vary significantly. Some states charge a flat tax, and others use a progressive system that taxes high-income taxpayers more than others. While all federal taxes must be paid to the IRS, state and local taxes must be paid to state and local taxing authorities.

Small Business Tax Planning Strategies

There are several ways you can plan for—and potentially reduce—taxes. Consider the following strategies to help you prepare and minimize your tax liability.

Choose the Right Business Classification

Your business structure will determine not only the IRS form you use to file taxes, but also the amount you’ll have to pay. For example, some business structures, including sole proprietorships, LLCs, and S-corporations, are known as pass-through entities, which means the business income “passes through” to the business owner. The business owner pays taxes on the business’s earnings at their individual federal income tax rate. The business does not owe taxes separately, but the business owner may be responsible for paying self-employment taxes.

A C-corporation, on the other hand, must pay taxes on its taxable income at the business level. The U.S. federal corporate income tax rate is currently 21%. An owner of a C-corporation pays their own taxes separately from the business.

Separate Business and Personal Expenses

To file business taxes appropriately, it’s crucial to keep business expenses and personal expenses separate. That way, you can track business expenses and deduct them from your business earnings to lower your taxable business income.

The easiest way keep business and personal expenses separate is to have both a business and a personal bank account and credit accounts. ONLY use the bank and credit accounts you’ve assigned to your business for business expenses; and only use the bank and credit accounts assigned to personal expenses for personal expenses.

Maximize Deductions

Tax deductions decrease your taxable business income, which allows you to pay lower taxes. Most small businesses qualify for deductions, including business mileage, business interest and bank fees, legal and professional fees, business insurance, home office expenses, and business travel expenses.

Establish Employee Retirement Plans

If you have employees, you may be able to lower taxes by establishing employee retirement plans. Most businesses can take advantage of tax deductions when they contribute to retirement plans for employees.

Hire a Tax Professional

Trying to do taxes on your own can be overwhelming, time consuming and prone to mistakes – after all you’re not in the business of tax preparation so it’s unlikely you’re going to know the ins and outs of tax codes. Partnering with a tax professional can save you time and money, eliminating (or at the very least reducing) the hassle that comes with filing.

One small mistake on your tax forms could lead to a very expensive problem on your hands. Working with a reputable tax professional can reduce your risk of an audit and they can handle communications with the IRS if they come knocking on your door asking questions. In addition, a tax professional can ensure you’re getting all of the tax credits and deductions available to you. Often, just one missed deduction on your end could cover a significant portion of the fee that comes along with working with a tax professional. Added bonus: if you’ve filed your business taxes on your own in the past, a tax professional can look through these past returns and if any deductions were missed, they can amend them for you.

Tax Deductions and Credits for Small Businesses

If your business qualifies for tax deductions and tax credits, use them to decrease the amount of taxes you owe.

Business Expenses

Most business expenses are tax-deductible, such as postage, mileage, marketing and advertising, payroll and benefits, and other costs of doing business.

Tax Credits

A tax credit is different from a deduction—rather than reducing your taxable income, a tax credit allows you to subtract the amount of the credit from the amount of tax you owe. Small businesses may qualify for tax credits for employing workers from marginalized groups, purchasing an electric vehicle, providing childcare for employees, increasing energy efficiency in their buildings, to name a few.

Depreciation

When you purchase business equipment, the IRS allows you to take the deduction through depreciation, deducting a portion of the cost over several years, or to take the entire deduction in the year you purchase or finance the equipment.

Tax Filing Information for 2024

The tax filing deadline for tax year 2024 is April 15, 2025 for sole proprietors, LLCs and C-corporations. The tax filing deadline is March 15, 2025 for S-corporations. If you owe taxes, they are due on these dates, even if you file an extension, which will typically give you another six months to file the return. If you don’t have the funds to pay your tax bill by the due date, you might want to consider a business loan to cover your taxes, however doing so should be weighed VERY carefully and done only in certain circumstances.

Quarterly estimated tax payments for the 2024 tax year are due April 15, June 17, and September 16. The final payment is due January 15, 2025.

Small Business vs Large Business Tax Differences

Small businesses and large businesses typically experience some differences in paying taxes. Most of these differences are attributed to a difference in business structure. Large businesses are typically organized as C-corporations, which involve more paperwork and different tax filings. Smaller businesses are typically organized as sole proprietorships, LLCs or S-corporations, which have different tax filing obligations.

Deductions and Credits

Businesses of all sizes can take tax deductions and credits. However, some tax credits require major expenditures, which make them more common for larger businesses. These include credits for research and development and advanced energy projects. Small business owners may be more likely to take deductions for business mileage and home office expenses.

Filing Requirements

Filing requirements also vary based on the size and structure of your business. Owners of sole proprietorships and single-member LLCs report business income on a Schedule C, which is added to their personal tax return and due on April 15 after the tax year in question.

If you’re taxed as a C-corporation, you must file a Form 1120. For most corporate taxpayers, the 1120 is due by April 15 following the close of the tax year.

If your business is an S-corp or a partnership, you need to file a Form 1120S or Form 1065. These forms are due by March 15 following the close of the tax year for most taxpayers.

FAQs for Managing Small Business Taxes

What is an EIN?

An EIN, Employer Identification Number, is a federal tax identification number. Like a Social Security number for an individual, an EIN is a unique number assigned to a business so that the IRS can easily identify it for tax reporting purposes.

How much do small businesses pay in taxes?

Small businesses pay an average of 20% of their revenue in taxes, which is inclusive of all taxes owed. However, this percentage can fluctuate depending on your state, business structure, income, expenses, and deductions.

Should I do small business taxes myself?

Choosing whether to file business taxes on your own or rely on a tax advisor is a personal decision, and a business decision. Many business owners choose to work with a tax advisor to help them make sure they are compliant with all tax laws. As a bonus, the money you pay for professional tax services is deductible on your tax return.

How much can a small business make before paying taxes?

A small business can earn up to $400 before paying taxes. If a small business earns more than $400 in a calendar year, it must report and pay taxes on that income.

Brandon Wyson

Content Writer

Brandon Wyson is a professional writer, editor, and translator with more than nine years of experience across three continents. He became a full-time writer with Kapitus in 2021 after working as a local journalist for multiple publications in New York City and Boston. Before this, he worked as a translator for the Japanese entertainment industry. Today Brandon writes educational articles about small business interests.

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What is Payroll Tax?

Manage Your Money

by Brandon Wyson7 minutes / September 21, 2024

Payroll tax is a tax paid on the wages of employees to fund social programs like Medicare, Social Security, and unemployment benefits. For most employers, payroll is one of the biggest items in the budget—and payroll tax is a significant portion of that line item.

How Payroll Taxes Work

Employers are required to withhold a percentage of employees’ paychecks to cover payroll taxes. These taxes cover the employee’s portion of FICA taxes, named for the Federal Insurance Contributions Act. FICA taxes are about 15.3% of an employee’s pay, and the employee and employer are each responsible for half of that amount. Additional payroll taxes will vary based on the state, county, and municipality in which your business is located.

In addition to withholding the correct amount of payroll tax from each employee’s paycheck, an employer is also responsible for paying its own portion of payroll taxes. This portion includes the remaining half of FICA taxes for each employee, as well as state and federal unemployment taxes.

What’s the Difference Between Payroll and Income Tax?

Payroll tax is a tax the government charges to employers and employees, and income tax is levied on individuals’ salaries, wages, and other incomes.

Payroll tax is sometimes confused as income tax because employers typically withhold both payroll tax and income tax from an employee’s paycheck. However, employers withhold income tax as a service to employees to help them pay their income tax bill incrementally throughout the year, while employers are required to withhold payroll taxes.

Types of Payroll Taxes

Payroll tax is an umbrella term that refers to multiple taxes like self-employment, social security, and unemployment taxes. Here are common types of payroll taxes:

Self-Employment Taxes

Self-employment tax is the tax that self-employed individuals owe to the federal government to help fund Medicare and Social Security. Employees split these taxes with their employer, as each one pays half the FICA taxes. But self-employed individuals must pay the full 15.3%.

Social Security Payroll Taxes

Social Security taxes are 12.4% of an employee’s wages. Employed individuals split this tax with their employers, so each is responsible for paying 6.2%. Employers are required to withhold the employee’s Social Security tax, equal to 6.2% of their pay, from each paycheck.

Medicare Payroll Taxes

Medicare taxes are 2.9% of an employee’s wages. Employees split this tax with their employers, so each is responsible for paying 1.45%. Employers must withhold the employee’s Medicare tax, equal to 1.45% of their pay, from each paycheck and pay it to the federal government.

Unemployment Taxes

The federal unemployment tax (FUTA) rate is 6% of each employee’s wages. Employers are responsible for paying this amount to the federal government with each payroll.

State and Federal Taxes

Most states also levy payroll taxes on employers, in addition to their federal payroll obligations. Many employers must pay state unemployment taxes (SUTA), and some may have to pay additional taxes, depending on their state regulations.

In some cases, employers that must pay state unemployment taxes may receive a credit on federal unemployment taxes.

How to Calculate Payroll Taxes

Calculate payroll taxes by starting with an employee’s gross pay and multiplying it by each tax rate (Social Security, Medicare, FUTA, and SUTA). Here’s how it works:

Social Security tax formula: Employee income x 6.2% = Social Security tax
Medicare tax formula: Employee income x 1.45% = Medicare tax
FUTA tax formula: Employee income x (FUTA tax rate – state credit reduction) = FUTA tax
SUTA tax formula: Employee income x SUTA tax rate = SUTA tax

After calculating each of these taxes, the employer must pay 50% of the Social Security and Medicare taxes and 100% of the FUTA and, in the majority states (47 of the 50) SUTA totals. The employer must also withhold the remaining 50% of Social Security and Medicare taxes from the employee’s paychecks.

Payroll Tax Withholding Example

As an example, imagine an employee earns $100,000, or $4,166.67 of gross pay per semi-monthly pay period. To determine Social Security tax, multiply $4,166.67 by .124 (12.4%). The resulting Social Security tax is $516.67. Because the employer and the employee split that total, each will be responsible for paying $258.33 each pay period.

To determine Medicare tax for the same employee, multiply $4,166.67 by .029 (2.9%) for a total of $120.83. The employer and the employee will both pay half, or $60.42 per pay period. The employee’s total FICA responsibility, including Social Security and Medicare, will be $318.75.

FUTA and SUTA taxes for this employee would depend on the employer’s location and the state taxes to which it is liable.

Additional Payroll Tax Requirements

In addition to withholding payroll taxes, employers must also deposit the payroll taxes withheld and the employer’s payroll taxes based on IRS regulations. Employers are required to make federal tax deposits via electronic funds transfers.

When an employee’s wages and compensation exceed $200,000 in a calendar year, employers are responsible for withholding the Additional Medicare Tax from the employee’s paychecks. Additional Medicare Tax is equal to 0.9% of the employee’s wages. There is no employer match required for the Additional Medicare Tax.

Payroll Tax Credits

During the Covid-19 pandemic, employers were able to qualify for payroll tax credits if they kept workers employed throughout the pandemic. However, payroll tax credits may not be available for everyone moving forward, something for business owners to consider.

Many small business owners are looking for ways to reduce their tax burden and payroll tax credits could provide some relief. While there is not a significant number of available credits related directly to payroll, there are a number of other credits that small business owners should consider. Speak to your accountant to see if any of the following credits are relevant for your business:

Work Opportunity Tax Credit
Credit for Employer-Provided Childcare Facilities and Services
Child and Dependent Care Credit
Credit for Small Employer Health Insurance Premiums
The Premium Tax Credit
Retirement Plan Startup Costs Tax Credit
Plug-In Electric Drive Vehicle Credit
Research and Development Tax Credit

How Payroll Tax Credits Works

If you qualify for a payroll tax credit, you can directly subtract the amount of the credit from the amount of taxes you owe. That means if your business owes $10,000 in taxes and you qualify for a $7,000 payroll tax credit, you will only be responsible for paying $3,000.

Payroll Tax Credits vs Deductions

While tax credits can be subtracted directly from the taxes you owe, deductions work a little differently. Tax deductions allow you to reduce your taxable income, which will also lower your tax bill. It’s possible for a small business to qualify for both tax credits and tax deductions. Talk to your tax professional to make sure you’re maximizing all your potential credits and deductions to lower your tax liability.

Payroll Tax FAQs

What is the FICA tax rate?

The FICA tax rate, named for the Federal Insurance Contributions Act, is 15.3% of an employee’s wages. For employed individuals, the responsibility for paying FICA taxes is split evenly between the employee and the employer, so each one pays 7.65%. Self-employed individuals have no employer with whom to split FICA taxes, so they are responsible for paying the full 15.3%. This amount is referred to as self-employment tax.

Is payroll tax based off net or gross income?

Payroll tax is based off an employee’s gross income, the original wage amount before any withholdings.

Who pays payroll taxes?

Employers pay the payroll taxes, but the money comes from both the employer and the employee. The employer withholds 7.65% of the employee’s wages from their paycheck to cover the employee’s portion of FICA taxes. The employer matches that amount, paying the additional 7.65% of the employee’s pay for the employer portion of FICA taxes. The employer also pays federal and state unemployment taxes.

Brandon Wyson

Content Writer

Brandon Wyson is a professional writer, editor, and translator with more than nine years of experience across three continents. He became a full-time writer with Kapitus in 2021 after working as a local journalist for multiple publications in New York City and Boston. Before this, he worked as a translator for the Japanese entertainment industry. Today Brandon writes educational articles about small business interests.

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Interest Rates Were Cut – Should I Apply for a Business Loan Now?

Manage Your Money

by Vince Calio5 minutes / September 20, 2024

Small business owners finally got some good news from the Federal Reserve Bank on Sept. 18, when Fed chairman Jerome Powell announced that the federal funds overnight rate will be lowered by one half of one percent (50 basis points) to 5%, marking the first time that the rate has been cut in more than three years. Small business owners have been suffering through rate hikes nearly every quarter over the past year-and-a-half as part of an effort to try to tame inflation.

This is expected to be the first of several rate cuts to come as inflation hikes have cooled over the past year. The good news for small business owners is that they can expect the cost of capital – as well as lending requirements, to begin to ease over the next several quarters.

It’s Been Tough for Borrowers

Many small businesses depend on financing to operate. Lending products such as loans and business lines of credit help them grow, launch new products, purchase equipment and meet operating expenses throughout the year. Both SBA 7(a) loans and term loans charge a fixed interest rate based on the overnight rate, while other products such as business lines of credit charge a variable interest rate on the borrowed money.

After the overnight began to rise in mid-2022, the average approval rates on small business loans from traditional banks dipped to below 20% according to Statista, but rose slightly for alternative lenders that often lend to borrowers that have been rejected by traditional banks. Lending requirements also began to tighten when interest rates rose, as traditional banks saw a higher-interest loan as riskier than a lower interest one.

How will Lower Rates Help Small Businesses?

When it comes to borrowing money, lower interest rates will help small businesses in two main ways. First, lower rates means a cheaper cost of capital on most lending products, such as SBA loans, bank loans, business lines of credit and equipment financing loans. Even financing products that charge factoring fees, such as invoice factoring, will get a little cheaper.

Second, as the overnight rate continues to be cut, traditional banks and alternative lenders will begin to loosen their lending requirements, making it slightly easier for small business owners to obtain financing. Since mid-2022, when the Fed began hiking the overnight rate, traditional banks, alternative lenders and SBA lenders began demanding more stringent requirements such as slightly higher credit scores and longer profitability statements to justify taking the risk of approving high-interest loans.

If you use a variable-rate lending product such as a business line of credit, you can also expect to see the interest rate slightly decrease on the money that you’ve borrowed against it.

Is it Time to Borrow?

While a rate cut is generally considered positive for small businesses looking for financing, it’s important to remember that this rate cut is just the initial cut, so waiting for further cuts before applying for financing may be the prudent move.

While it’s impossible to predict how many times the Fed will cut rates, many economists are predicting that the aim is to lower them to the 2.25% to 2.50% target that we saw in 2022 to help the economy rebound from the inflation spike seen over the past three years. It is fair to assume, however, that the cost of capital for fixed-rate lending products, such term loans, especially those being offered by traditional banks, will continue to lower.

Small business owners who qualify for the most popular SBA-backed loan, the 7(a) loan, are hoping that the interest rate on the popular loan will eventually go back to the 5.5% to 6.5% range that they saw at the beginning of 2022. The rate on term loans from both traditional banks and alternative lenders are also based in part on the overnight rate, so expect the rates on those loans to decrease over time as well.

Refinancing Options

Small businesses that have outstanding SBA 7(a), term loans or equipment loans may look to replace their loan with a cheaper one or renegotiate the terms of the current loan as interest rates go down. This will especially be effective if your credit score has improved since taking out your loan.

The bottom line is that if you have an outstanding loan and you’re seeking to take advantage of falling interest rates, most lenders will be willing to renegotiate or refinance. You may, however, want to wait until rates drop even further.

Play the Waiting Game

While this initial interest rate cut is generally good news for small business owners, most economists agree that more will be on the way. You may want to hold off on the temptation to refinance your existing loan or take out a new one right away. Keep checking the news for further rate cuts and read economic forecasts on how many more cuts are on the way. Waiting for the lowest possible overnight rate before you take out a loan could save your small business a considerable amount of capital down the road.

Vince Calio

Content Writer

Vince Calio has been a writer for Kapitus since 2021. Before that, he spent three years operating a dry-cleaning store in Rahway, NJ that he inherited before selling the business, so he’s familiar with the challenges of operating a small business. Prior to that, Vince spent 14 years as both a financial journalist and content writer, most notably with Institutional Investor News and Crain Communications.

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Raising Your Prices to Combat Continued Inflation

Marketing Your Business

by Vince Calio9 minutes / July 19, 2024

When should your small business raise prices?

Staying profitable at a time when the cost of just about everything continues to rise is one of the most difficult tasks any small business owner can face. As higher prices continue to plague the economy, one of the key challenges for small business owners is increasing their prices to stay profitable without driving away customers.

Inflation Remains a Challenge

While inflation rates have cooled off in the past year, increases in the Consumer Price Index and other benchmarks continue to exceed economists’ expectations, much in part due to supply chain disruptions and rising costs of raw materials and groceries. In fact, long term inflation remains the biggest worry for small business owners this year and has forced many to change the pricing structure of their products and services multiple times already in order to survive.

This has forced businesses both big and small to seek price adjustments for their products, goods and services. This has also forced the Federal Reserve to keep the overnight interest rate high for an extended period – a move that’s caused small business owners to get squeezed on both ends – rising costs and rising interest rates on their loans.

Pricing Complicated by Inflation

Pricing products is usually simple: calculate the cost of making your product and bringing it to market (that includes marketing expenditures) and add a reasonable profit margin on top of that. Determining that profit margin, however, becomes especially difficult in a high inflationary environment when the cost of making your product has gone up.

Part of the answer is sticking to basics, which means calculating your customers’ willingness to pay. Another part is playing the inflation psychology game, which means changing your sales strategy to make your customers feel like they’re getting a bargain when they buy your products.

When Should you Raise Prices?

While raising prices during a period of high inflation may be necessary, the timing of doing so is critical. If you raise prices too soon, your clients and customers may go elsewhere. On the other hand, if you raise them too late, your small business may not be able to withstand the losses. So what factors should you examine to determine when to raise the prices of your products and services? Here are a few:

When your profit margin sinks.

As a general business rule, your profit margin should be between 7% to 10% in order to comfortably maintain your business. This number will vary from business to business, but if you find that it’s falling below 7% you very well could be operating at a loss. If it is falling below that number due to rising costs of inventory, payroll and other expenses, that could be a signal to raise prices.

Your employees are demanding higher pay.

High inflation doesn’t just affect the cost of your inventory, it also will influence the average pay of employees in your general sector. If you find that you can’t keep your best workers because your competitors are offering better pay, this is a strong sign that you should raise prices in order to stay competitive.

Your competitors are raising prices.

One of the best ways to determine when to raise your prices is to look at the market in which you operate. Have your competitors raised their prices and remained successful? If so, this most likely means that your loyal customers have accepted price increases in your sector, and that you should raise your prices as well.

How High Should I Raise My Prices?

One of the most important tasks you must complete as a business owner under any economic conditions is to determine how much your customers are willing to pay for your product. In a high inflationary environment, however, it becomes even more crucial. As the price of goods continues to increase, consumers will become more hesitant to purchase what they consider to be luxury or non-essential products.

Unfortunately, there is no easy way to calculate customers’ willingness to pay, but there are several methods that small businesses owners can execute to determine how much they can charge for their products without driving away customers.

Set up an Auction

Small business owners can clear their inventory and determine what price customers are willing to pay by holding an online auction for their products. You can even hold one at a physical location where you can showcase your products, and customers can bid for them using their smartphones. You can use small business auction software such as AuctionWorx to easily hold the auction. Send special invitations to your loyal and prospective customers for the auction. You can not only sell your products but offer special prizes such as tickets to a concert or sporting event to attract customers to the event.

Auctions are great tools to help you determine the maximum prices customers will be willing to pay for your products, as they will bid against each other for them. The one drawback is that auctions can be expensive. Auction software typically costs $1000 or more, and you may not get bids as high as you want.

Conduct Surveys

If you’re like most small business owners, you probably don’t have the time or resources to run a focus group to gauge your target customers’ thoughts. However, online or email surveys are fairly easy and can yield a wealth of valuable information to help you appropriately price your products. By asking your customers directly how much they will be willing to pay – especially at a time of high inflation – you could get some surprising answers that can help you appropriately price your products and maximize your profits. There are several companies such as Survey Monkey that offer software packages that make it easy to survey your customers.

Monitor Larger Competitors

Small businesses are not the only ones facing inflation woes. Larger competitors are also seeking to adjust their prices and stay profitable. Examine the balance sheets of the big corporations you compete with to see what is and isn’t working for them during this high inflation period. Remember, publicly traded companies must issue quarterly and annual earnings reports, so tracking which of their products are the most popular among consumers shouldn’t be too difficult.

You can also use this information to undercut the prices of your larger competitors if possible. For example, if you own a local coffee shop and you’ve noticed that Starbucks has raised prices for its café lattes, you can offer yours at a slightly lower price and still make a profit.

Run a Conjoint Analysis

A conjoint analysis is a fancy marketing term that describes a research method of using simple surveys, along with statistical analysis, to help you determine how people value differing features of products and services. For example, a conjoint analysis can tell you what types of bundled products your customers prefer and what they are willing to pay for it. Let’s say you run an independent restaurant. Such an analysis could reveal which combination of proteins and side dishes your customers prefer. If you run a retail clothing store, you can find out which types of fabrics, styles, colors, etcetera your customers are willing to pay for. Software from companies such as Sawtooth can make the process fairly easy.

Trial and Error

Experimenting with the price tags of your products could be the costliest way to determine customer willingness to pay, but it is also one of the most direct. Experiment with the pricing of your products to determine the profit margin you can charge, and take notice when customers stop buying your products. The drawback to this method is that sales will slow if your price is too high and could cost your business.

Bundle Your Products

Consumers are naturally inclined to purchase products and services when they feel like they’re getting a bargain, especially when inflation is as high as it currently is. Once you’ve completed a conjoint analysis, you can bundle your most popular products into packages and sell them at a perceived discount. There are several ways you can bundle your products, and the benefits of doing so, especially when prices are rising, are endless.

At a time when inflation continues to rise and consumers are looking for value when they shop, bundling your most popular products can convince your current and potential customers that they are getting a discount when they buy from you. Offering bundled products can help your business clear overstocked inventory, create subscription services that can guarantee sales for your business over a given period of time, as well as create a technique to offer gift packages, among other uses.

Be Honest with Your Customers

Raising prices without letting your customers know in advance may be a tactic that large corporations can afford to do; but for small businesses, it can cause your customers to lose their trust in your business. Consumers consider their relationships with small businesses to be more personal than those they have with large companies, so a heartfelt email or announcement on your website stating that the current economic conditions have forced you to modestly raise the prices of your products to stay profitable can go a long way in retaining customer loyalty.

Inflation is hitting everyone’s wallet – your customers will understand your need to raise prices in order to keep the lights on. However, you can also offer them trade-offs, such as a discount on one product if they buy another at full price.

Getting Your Pricing Strategy Right is Crucial

Everyone is feeling the pinch of inflation and everyone has become more selective in where they shop and what they choose to buy. Getting the pricing of your products right is critical for the survival of your business. It is possible to find the right pricing threshold to keep your business running until the current inflationary environment calms down.

Correct pricing in conjunction with a good marketing strategy and an honest evaluation of ways you can cut your operating costs will enable your business to come out the other side of this economic turbulence even stronger.

Vince Calio

Content Writer

Vince Calio has been a writer for Kapitus since 2021. Before that, he spent three years operating a dry-cleaning store in Rahway, NJ that he inherited before selling the business, so he’s familiar with the challenges of operating a small business. Prior to that, Vince spent 14 years as both a financial journalist and content writer, most notably with Institutional Investor News and Crain Communications.

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What is the Difference Between Interest Rate and APR?

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by Brandon Wyson8 minutes / June 26, 2024

When applying for a loan or any type of business financing, it’s essential for borrowers to understand the components that impact their repayment. Terms like interest rate and APR (annual percentage rate) are often used interchangeably, but they aren’t the same. Knowing the difference can help borrowers make more informed decisions when comparing loan offers.

What is an Interest Rate?

The interest rate is the cost of borrowing money, expressed as a percentage of the principal loan amount. When you borrow money, the lender charges interest as a fee for the use of their funds. Interest is typically calculated annually, although it may be compounded more frequently, such as monthly or daily, depending on the financing type. Lenders may charge you simple interest or compound interest based on the loan or financing you choose. While simple interest is a percentage of the principal, compound interest is calculated on the principal plus any accumulated interest.

When you borrow money, you’ll almost always pay interest on the sum you borrow. This applies to all sorts of loans, from business loans and lines of credit to mortgages and personal loans.

How do Interest Rates Work?

Interest rates are influenced by a variety of factors, including the level of risk associated with the loan, the current state of the economy, and the Federal Funds Rate. In general, interest rates tend to rise when the economy is growing and inflation is high, and they fall when the economy is slowing and inflation is low.

Borrowers don’t have control over these factors and their role in determining the interest rate a lender offers. However, lenders also consider your business finances when assessing creditworthiness, which can impact interest rates offered to you. Lenders typically evaluate your credit score (both personal and business) and revenue when determining the interest rate you’ll pay. Other factors, such as choosing a secured or unsecured loan, can impact on interest rates.

Interest rates tend to vary from one lender to the next, this is why it’s useful to compare rates and terms from different lenders before getting a business loan or credit card.

What is APR?

APR is the total cost of borrowing money for a given year not considering compound interest, expressed as an annual percentage. APR includes interest as well as other fees and charges associated with borrowing. While interest tells you the cost of borrowing, APR often gives you a more complete picture of the cumulative costs involved in taking out a business loan or line of credit. APR is never less than the interest rate, but APR and interest may be the same for lenders who don’t charge any fees in addition to interest.

All lenders are required to disclose the APR they charge borrowers. This is important for borrowers to note since APRs are almost always higher than interest rates, so many lenders use interest rates in advertising materials. As with interest, businesses with excellent credit and strong revenue can usually secure lower APRs.

Difference Between Interest Rate and APR

It’s important for borrowers to be familiar with both APR and interest rates when choosing a business loan or other financial product. But keep these important distinctions in mind when you’re reviewing these rates.

Costs included: Your interest rate is the cost you pay for borrowing from a lender. On the other hand, APR includes not only the cost of borrowing, but also any other fees associated with the loan.
Impact on monthly payments: Lower interest rates usually mean lower monthly payments on a loan. But the overall loan may still be expensive due to fees and charges you may not have considered. A low APR can indicate a cheaper loan even if monthly payments seem relatively high when compared to interest rates. Also, keep in mind that the annual percentage yield (APY) accounts for compound interest, a factor that APR does not account for.
Role of credit: Great credit often means lower interest rates. However, even with a high credit score your APR may appear high as it includes fees and charges that aren’t typically impacted by your credit. Good credit may grant you a relatively lower APR compared to someone with a lower credit score, but a high APR may be a sign of large fees that inflate the overall cost of borrowing.
Utility: Ultimately, the bottom line for borrowers is that interest is not as useful as APR as a measure of the cost of a loan. It’s a good idea to review APRs instead of interest rates when comparing different loans and their terms.

Keep in mind that not all forms of business financing have an APR, making it difficult to compare options. If you’re looking at a form of financing that doesn’t utilize APR, like revenue-based financing, it’s important to take all costs into consideration.

How are Interest Rates Calculated?

Simple interest and compound interest are calculated differently. Here’s how it’s calculated.

Simple interest is calculated using the formula: Simple Interest = P × r × t

Where P is the principal amount (the initial amount of money borrowed), r is the annual interest rate (expressed as a decimal value), and t is the time the money is borrowed for, in years.

For example, let’s say you borrow $10,000 at an annual interest rate of 5% for 3 years. Your principal (P) would be $10,000, your rate of interest (r) would be 0.05, and your loan time (t) is 3 years.

Using the simple interest formula of 10,000 × 0.05 × 3, you would pay $1,500 in interest.

Most credit cards and some lines of credit will charge compound interest instead. Here’s the formula that shows how it’s calculated:

Compound Interest = [P (1 + r)n] – P

Where P is the principal amount (the initial amount of money, r is the annual interest rate (as a decimal) and n is the loan period in years.

If you borrow $10,000 at an annual interest rate of 5% for 3 years, your principal (P) would be $10,000, rate of interest (r) would be 0.05 and loan term (n) would be 3 years.

CI = 10,000 × (1+0.05)3 − 10,000

CI =$1,576.25

You can see how compounding interest is higher than simple interest for the same amounts, interest rate and loan term.

How is APR Calculated?

APR is calculated by taking the total cost of borrowing money, including interest and fees, and expressing it as an annual percentage. To find your APR, you’ll need to know your periodic interest rate first.

Periodic Interest Rate = [(Interest amount + Total Fees) / Loan Principal] / Number of Days in Loan Term

Once you know your Periodic interest rate, multiply the figure by 365 and then by 100 to arrive at a percentage value. This formula requires you to know the interest you pay as a dollar amount, so you’ll need to calculate that beforehand using the formula for simple or compound interest (based on your loan).

Here’s an example. If you’ve borrowed $10,000 and expect to pay around $1500 in interest and $200 in fees over a loan period of a year (365 days), your equation will look like this:

Periodic Interest Rate = [(1500 + 200)/10,000]/365

Periodic Interest rate = 0.0004657

To arrive at your APR, multiply your periodic interest rate by 365 and then by 100 to get a percentage.

Annual Percentage Rate (APR) = (Periodic Interest Rate x 365 Days) x 100

APR = (0.0004657 x 365) x 100

APR = 16.99 which can be rounded off to 17%

By understanding how to calculate APRs and what they entail, you can make more informed decisions when comparing types of financing.

The Importance of Understanding APR

Understanding how APR works can be critical when comparing different business loans and lenders. While the interest rate is also important, APR presents the total cost of the loan minus compound interest each year. Always compare APRs on loans and lines of credit when shopping for business financing.

Interest Rate and APR FAQs

Which is more important, interest rate or APR?

APR is more important than the interest rate when you’re evaluating the total cost of your loan. That said, the interest rate provides useful information, too. A significant difference between APR and interest may indicate high fees associated with the loan. However, a high interest rate paired with proportionally high APR may be a sign that you’re not eligible for favorable rates.

Do you pay both APR and interest rate?

APR includes interest so borrowers do pay both. In practice, borrowers pay interest every month as they make payments on their loan, but they may pay additional fees at the time of taking on the loan.

Why is APR so much higher than the interest rate?

APR is often higher than the interest rate because it includes not only the cost of borrowing the principal amount but also any additional fees or charges associated with the loan, such as origination fees, closing costs, etc. However, when your loan carries no additional fees, your APR and interest may be the same.

Brandon Wyson

Content Writer

Brandon Wyson is a professional writer, editor, and translator with more than nine years of experience across three continents. He became a full-time writer with Kapitus in 2021 after working as a local journalist for multiple publications in New York City and Boston. Before this, he worked as a translator for the Japanese entertainment industry. Today Brandon writes educational articles about small business interests.

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Secured Business Loans: What to Know

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by Brandon Wyson8 minutes / June 25, 2024

When it comes to securing financing for your small business, secured business loans may offer a reliable option. These loans utilize collateral to provide lenders with security, which could make them more accessible for businesses with limited credit history or lower credit scores.

Let’s delve into the ins and outs of secured business loans, covering everything from how they work to the types of financing available and the qualification requirements you need to meet.

What is a Secured Business Loan?

A secured business loan is a type of financing in which you, as the borrower, pledge assets as collateral to secure the loan.

These assets could include property, equipment, inventory, or accounts receivable. By providing collateral, you reduce the lender’s risk, typically making it easier to qualify for the loan.

However, it’s important to understand that defaulting on the loan could result in the loss of the pledged assets.

Parts of a Secured Business Loan

Secured business loans consist of various components that impact the size of the loan, how much you pay, and expenses you’re allowed to use the business loan for. Understanding how these parts of a secured business loan work can help you decide whether this is the right type of financing for your small business.

Here are some of the most important components of a secured business loan:

Interest Rate: This refers to the percentage charged by the lender on the principal amount, which is the initial amount borrowed. The interest rate is essentially the cost of borrowing the money and can be fixed or variable, depending on the loan type and lender.
Loan Term: The loan term indicates the duration within which the borrowed amount must be repaid in full. It’s often expressed in months or years.
Collateral: Collateral is any asset that the borrower pledges as security for the loan. The lender will determine what types of collateral they accept, but many allow property or a home to be used as collateral. Without collateral, lenders rely more heavily on the borrower’s creditworthiness.
Repayment: Repayment involves returning the borrowed funds to the lender according to the agreed-upon terms, which usually include periodic installments comprising both principal and interest. If you get a fixed rate secured business loan, then monthly payments will remain consistent throughout the life of the loan.
Uses: Secured business loans can serve various purposes, including working capital needs, purchasing inventory, expanding operations, or investing in marketing initiatives. With most lenders, they offer flexibility in funding without the necessity of specifying the loan’s purpose. Make sure that the lender you choose lets you use the funds as planned as some lenders set restrictions on acceptable uses.

Secured vs Unsecured Business Loans

Comparing secured and unsecured business loans might help you determine the best option for your business needs. Here’s a breakdown of their differences:

As mentioned before, secured business loans use collateral to secure the loan, which can allow lenders to accept borrowers with lower credit scores. While specifics vary by lender, secured business loans:

Require collateral.
Typically have lower interest rates.
Come with longer terms than unsecured loans.
Allow for larger loan amounts than unsecured loans.
Are suitable for businesses with valuable assets.

Unlike secured business loans, unsecured business loans require no collateral, making them ideal for small businesses with few assets but strong credit. Unsecured business loans:

Do not require collateral.
Generally have higher interest rates than secured business loans.
Often come with shorter loan terms than secured business loans.
Require strong personal and business credit scores.
May require stricter business income levels for approval.
Are suitable for businesses without significant assets or those unwilling to pledge collateral.

Why Consider a Secured Business Loan?

Secured business loans are particularly beneficial for businesses that may not qualify for unsecured loans due to limited credit history or lower credit scores. They can offer advantages such as lower interest rates, higher borrowing limits, and longer repayment terms.

Secured business loans can also be an excellent way to build business credit, assuming the borrower makes payments on time and in full.

Before applying for a secured business loan, it is essential to weigh these benefits against the potential drawbacks, including the risk of losing collateral in case of default.

Benefits of Secured Business Loans

One key benefit of secured business loans is the lower interest rates compared to unsecured loans that typically comes with them. This means lower repayments than a similar loan with a higher rate, leaving more money left over for operations and growth.

Secured business loans also do not typically require strong credit histories and scores as the collateral makes the loan a safer option for lenders.

Secured loans often have higher borrowing limits than unsecured loans, allowing businesses to access larger amounts of capital. The longer repayment terms typically offered by secured loans may also give businesses greater flexibility in managing their cash flow.

Drawbacks of Secured Business Loans

Despite their advantages, secured business loans also have drawbacks. The most significant risk is the potential loss of collateral if the borrower defaults on the loan.

The application process for secured loans may be more time-consuming than for unsecured loans, and businesses with insufficient collateral could struggle to qualify for the financing they need. Keep in mind that collateral used for a secured business loan needs to get appraised, too, another step that adds time to the application process.

Types of Secured Business Loans

Secured business loans come in various forms, each tailored to meet different business needs. Here’s a brief overview of the types of financing available:

Term Loans

Term loans are a common form of business financing where a lump sum of money is borrowed and repaid over a set period, typically with fixed monthly payments and fixed interest rate.

These loans are generally ideal for long-term investments such as purchasing equipment, expanding operations, or funding significant projects. Terms loans offer predictability and stability, great for business owners that want consistency.

SBA Loans

SBA (Small Business Administration) loans are government-backed and designed to support small businesses. They provide favorable terms and lower interest rates than traditional loans, making them an attractive option for business owners who may not qualify for conventional financing.

SBA loans come in various forms, including 7(a) loans, CDC/504 loans, and microloans, each tailored to different business needs.

Secured Business Loan Alternatives

Line of Credit

Similar to a credit card, a line of credit allows you to borrow up to a predetermined limit as needed. You only pay interest on the amount you use, making it an ideal option for managing cash flow fluctuations, covering unexpected expenses, or seizing growth opportunities. The flexibility of a line of credit makes it a popular option for small business financing.

Lines of credit may be secured by collateral, such as inventory or equipment, depending on the lender.

Invoice Factoring

Invoice factoring involves selling your accounts receivable to a third-party company, known as a factor, at a discount. In return, you quickly receive cash, which could be crucial for businesses with slow-paying customers or seasonal fluctuations in cash flow. While it may be more expensive than traditional loans, invoice factoring could provide quick access to capital without taking on additional debt.

Equipment Financing

Equipment financing allows businesses to purchase or lease equipment without a substantial upfront investment. This type of financing uses the equipment itself as collateral, reducing the lender’s risk. Terms and interest rates may vary based on factors like equipment type and your creditworthiness. Whether you need machinery, vehicles, or technology, equipment financing could provide a cost-effective way to acquire essential assets while preserving your working capital.

Secured Business Loan Qualification Requirements

To qualify for a secured business loan, you’ll typically need to meet certain requirements, including:

Time in business
Collateral
Good business credit score
Good personal credit score
A history of business operations
Sufficient revenue to repay the loan

Keep in mind that lenders set their own requirements, and some may set stricter requirements than others. In some instances, you may be required to submit additional information, such as tax information or a business plan.

Secured Business Loan FAQs

How much collateral is needed for a secured business loan?

The amount of collateral required for a secured business loan could be different depending on factors such as the loan amount, the lender’s policies, and the type of collateral offered. Generally, lenders will determine the value of the collateral relative to the loan amount to determine adequacy.

Is a secured business loan hard to get?

Secured business loans may be easier to qualify for compared to unsecured loans since the collateral reduces the lender’s risk. However, meeting the qualification requirements, including providing sufficient collateral and demonstrating the ability to repay the loan, is essential.

How long does it take to get a secured business loan?

The time it takes to get a secured business loan may vary depending on factors such as the lender’s processing time, the application process, and the amount of required documentation. In general, the process may take several weeks to complete, from application to funding.

Brandon Wyson

Content Writer

Brandon Wyson is a professional writer, editor, and translator with more than nine years of experience across three continents. He became a full-time writer with Kapitus in 2021 after working as a local journalist for multiple publications in New York City and Boston. Before this, he worked as a translator for the Japanese entertainment industry. Today Brandon writes educational articles about small business interests.

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How to Build Business Credit in 7 Steps

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by Vince Calio8 minutes / June 24, 2024

For small businesses looking to grow, getting access to the right financing is crucial. Having good business credit makes it easier to qualify for loans and other forms of financing so you can easily access the funds you need to manage emergencies, consolidate debt, pay employees, or invest in new equipment. Building and maintaining strong business credit can take time, but the benefits are well worth the effort. This article covers the steps you can take to build strong business credit and grow your business.

How Business Credit Works

Just as your personal credit score represents your creditworthiness based on how responsibly you use loans and credit cards, manage debt, and make payments, your business credit score involves the same considerations for business accounts. Credit bureaus collect information from creditors and other sources and use it to calculate your business credit score. This score, which typically ranges from 0 to 100, helps lenders assess your business’s creditworthiness and determine whether to approve your business loan application.

Your business lenders report your payments and account information to business credit bureaus like Dun & Bradstreet, Equifax, and Experian. Each bureau produces a credit report and uses a scoring model to assign you a credit score based on your ability to manage debt effectively.

These credit bureaus make your business credit score and report available to lenders who use the information to assess your creditworthiness for a loan or similar financial product.

Business Credit vs Personal Credit

While business credit and personal credit are similar in many ways, there are some key differences worth noting.

Identification numbers: Business credit is tied to your business’s Employer Identification Number (EIN), while personal credit is tied to your Social Security Number (SSN).
Score ranges: While personal credit scores typically range from 300 to 850, business credit scores range from 0 to 100.
Contributing factors: Factors like your payment history (to creditors), the age of your oldest credit account, and credit utilization are important contributors to business and personal credit. Scoring models for business credit may also consider the age and size of the company, industry risks, and established trade lines.
Access to credit reports: Consumer credit reports are accessible to the subject of the report, as well as to lenders, landlords, and other parties providing services to the individual. However, business credit reports are public, and anyone can request access to them.
Lender preferences: Lenders may vary in their approach to credit review based on factors such as the age of your business and established credit lines. If you already have business credit accounts and have built business credit, your personal credit may not matter as much. However, for newer business owners, your personal credit will usually determine your creditworthiness. Some business lenders may consider both personal and business credit as part of their evaluation process.

Why Build Business Credit?

While some business owners can get by on the strength of their personal credit, there are good reasons to work on building business credit. You don’t want upheaval in your personal finances to affect your business growth and financing prospects. Additionally, there are some benefits to having a good business credit score, including:

More financing options: Good business credit can make it easier to qualify for a variety of financing options, including loans, lines of credit, and business credit cards.
Lower interest rates: With good business credit, you may qualify for lower interest rates on loans and other forms of financing, saving your business money over time.
Higher rate of approval: Lenders are more likely to approve loan applications from businesses with good credit histories.
Prepare for future growth: Building business credit takes time, so it’s important to start early, even if you don’t currently need financing. Establishing good credit now will make it easier to access funds when your business is ready to grow.

7 Steps to Build Business Credit

Building business credit can take time, but the rewards are significant. Once you establish a line of credit for your business, it’s a simple matter of making timely payments and ensuring that you borrow only what you can repay. Get started with these steps.

1. Register Your Business

Register your business with the appropriate state and local authorities. This will establish your business as a separate legal entity and make it easier to build credit in your business’s name. At this time, you should also make sure you have an EIN; if you don’t you can apply for one through IRS.

2. Open a Business Bank Account

Open a business bank account to separate your business and personal finances. This will help you keep track of your business’s income and expenses and make it easier to establish credit with vendors and lenders.

3. Apply for DUNS

A Dun & Bradstreet DUNS Number (short for Data Universal Numbering System) is a nine-digit unique identifier for businesses. While you don’t always need a DUNS number to own or operate a business, you may be asked for one when you apply for a business loan or credit. You can get a DUNS number for free through a simple application process on dnb.com.

4. Establish Trade Credit

Working with vendors or suppliers offers you the opportunity to establish a trade line where you make payments days or weeks after you’ve received your products. Trade credit can help improve your business credit score if your vendors report payments to credit bureaus.

You can build a trade line with any vendor, from your stationery supplier to any manufacturer that you purchase from.

5. Open a Business Credit Card

A business credit card can be an easy way to help build credit for your business. You don’t always need established business credit to get a credit card; instead, issuers can use your personal credit to evaluate your creditworthiness. Make timely payments and keep your credit utilization low to start building a good credit score.

6. Apply for Business Financing

Obtaining a small business loan or line of credit can help further establish your business’s credit history. Be sure to choose a lender that reports your payment history to the major credit bureaus. Once you’ve received your loan, it’s important to make payments in full and on time to ensure your payment history remains positive.

7. Monitor Your Credit with Bureaus

Regularly monitor your business credit reports with the major credit bureaus, including Dun & Bradstreet, Experian, and Equifax. Check your reports for errors and dispute any inaccuracies that could be hurting your credit score.

Tips to Maintain Good Business Credit

After building good business credit, small business owners should take steps to maintain their solid credit score. Here are tips to maintain a healthy business credit score.

Continue a Positive Payment History

Continuing to consistently make on-time payments to your loan, credit card, or other form of financing helps establish a positive payment history. Your payment history is an important factor in your business credit score, so maintaining a positive record can help improve your business credit.

Build Solid Connections with Vendors and Suppliers

Timely payments and strong communication with vendor sand suppliers can lead to positive reporting to credit bureaus, further improving your business credit profile. In addition, better connections could lead to more favorable trade terms.

Diversify Your Business Credit Mix

Having a diverse mix of credit accounts, such as trade credit, business loans, and business credit cards, can demonstrate your ability to manage various types of credit responsibly. This mix of account types can contribute positively to your business credit score.

Maintain a Low Credit Utilization

Aim to keep your credit utilization ratio low, using no more than 30% of your available credit across all of your accounts. A high credit utilization can indicate financial strain and may negatively impact your credit score.

FAQs for Building Business Credit

How do I get credit for my new business?

To get credit for your new business, you’ll need to establish a positive credit history. Start by registering your business, opening a business bank account, and applying for a DUNS number. Then, establish trade credit with vendors and suppliers, open a business credit card, and apply for business financing. Applying for a business credit card is an easy first step since issuers will likely evaluate your application based on your personal credit.

How soon can I build business credit?

You can start building business credit as soon as you register your business and open a business bank account. However, it’s difficult to say how long it will take to achieve a good credit score. The most important thing is to keep business debt under control and ensure that your lenders are reporting your payments accurately and on time.

How do you build business credit fast?

Building business credit takes time. Making timely payments and keeping a low credit utilization ratio can help you build the foundation for a good credit score, but there’s no quick fix to significantly accelerate the process. One key aspect of quickly achieving good credit is keeping negative marks off your credit report. Late payments, defaults, bankruptcy, etc., can decimate your progress and be tough to recover from. Avoiding these financial pitfalls, managing debt responsibly, and tracking your credit reports for any mistakes can all go a long way toward building good business credit.

Vince Calio

Content Writer

Vince Calio has been a writer for Kapitus since 2021. Before that, he spent three years operating a dry-cleaning store in Rahway, NJ that he inherited before selling the business, so he’s familiar with the challenges of operating a small business. Prior to that, Vince spent 14 years as both a financial journalist and content writer, most notably with Institutional Investor News and Crain Communications.

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How to Get an Unsecured Business Loan

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by Brandon Wyson9 minutes / June 23, 2024

Unsecured business loans offer business owners the financing they need without requiring collateral. From purchasing inventory or equipment to hiring staff and acquiring a workspace, an unsecured business loan can facilitate growth and expansion for any small business. While unsecured business loans can be great for providing financing, many small businesses may benefit from an alternative option. In this guide, we’ll explore what unsecured business loans are, how they work, and how to get one.

What is an Unsecured Business Loan?

An unsecured business loan is a type of financing that doesn’t require collateral. While secured loans require borrowers to pledge assets such as real estate or equipment as security, unsecured loans are approved based on the creditworthiness of the borrower. For new business owners seeking their first loan, lenders typically evaluate the applicant’s personal credit score and business credit score. However, applicants with an established business and a strong business credit score could be evaluated on their business credit score alone. All other things being equal, a higher credit score generally improves the changes of getting approved for an unsecured business loan with better rates.

With unsecured business loans, borrowers face no threat to their assets. However, late payments or a default may hurt their credit score (personal or business, depending on which is applicable) and their ability to borrow in the future.

How Unsecured Business Loans Work

The disbursal and repayment process for any unsecured business loan depends on the type of loan you’ve applied for. In most cases, an unsecured business loan refers to a term loan. Term loans involve a lumpsum disbursal combined with fixed monthly payments for a predetermined repayment period. Loan amounts are generally lower for unsecured term loans compared to secured term loans, and terms can last as short as six months to years, depending on the lender you choose.

Parts of an Unsecured Business Loan

When evaluating an unsecured business loan, you should consider the different parts of the loan that impact the total length and cost. Parts of an unsecured business loan to review include:

Interest Rate: This is the percentage charged by the lender on the principal amount borrowed. Many unsecured business loans have a fixed rate, though keep in mind that a variable rate loan means the interest can change during the life of the loan.

Loan Term: The loan term, sometimes known as the repayment term, is the period over which the loan is to be repaid. Loan terms can be a short as months to as long as years. Longer terms often mean lower monthly payments but higher total interest payments.

Repayment Schedule: Repayment is the process of paying back the borrowed money to the lender. Repayment schedules could be daily, weekly, or monthly, depending on the lender.

Uses: Some lenders outline specific uses for the loan, such as equipment purchases or payroll financing. Make sure that the unsecured business loan can be used toward your specific needs.

Unsecured Business Loan Benefits

Unsecured business loans offer applicants some excellent benefits, including:

No collateral required: Applicants won’t have to put up any assets to secure the loan, which can be beneficial if you don’t have valuable assets to use as collateral or if you’re uncomfortable with the risk.
Quick access to funding: With no collateral required, the loan approval process is typically faster than with secured loans. Some applicants receive their funds within a day of being approved (though approval and disbursal timelines vary by lender).
Accessible financing option: One advantage of unsecured business loans is that most applicants can usually find a lender that meets their needs.
Versatility: Most small business loans can be used for anything from refinancing an existing loan to consolidating debt, expanding operations, buying more inventory, and covering operational expenses.

Unsecured Business Loan Drawbacks

Here are some drawbacks of unsecured business loans that business owners should be aware of:

Higher interest rates: Because unsecured loans are riskier for lenders, they often come with higher interest rates than secured loans. On the flip side, secured loans can offer borrowers access to lower interest rates.
Stricter eligibility requirements: To qualify for an unsecured business loan, you’ll need to have a strong credit history and a proven track record of revenue and profitability.
Less desirable terms: Lenders may be less willing to issue large loan amounts since unsecured loans are riskier. Borrowers may be approved for a smaller loan and a shorter repayment period.

Secured vs Unsecured Business Loans

Business owners must determine which business loan best fits their needs. While a secured loan can sound risky, it could lead to better terms and rates. On the other hand, an unsecured loan may be a better fit for borrowers with great business or personal credit.

Unsecured Loan	Secured Loan
Collateral not required	Collateral is essential
Potentially higher interest rates	Collateral allows for lower interest rates
Ideal for borrowers with good credit	Suitable for all borrowers, including those with lower credit or a short credit history
Borrowing limits may be lower due to higher risk	Less risk for the lender could mean a higher borrowing limit
Defaulting on the loan may mean long-term credit damage and having accounts sent to collections.	Lenders will usually seize the collateral if the borrower defaults on the loan.

Who Offers Unsecured Business Loans?

Small businesses can get an unsecured business loan from a variety of sources, including banks, credit unions, and online lenders. Banks and credit unions usually offer the best rates and borrowing limits; however, the application and approval processes may be longer and more tedious. Online lenders can issue faster loans and may have fewer eligibility criteria but may have higher interest rates.

It’s a good idea for business owners to compare multiple different lenders before applying for a loan.

4 Steps to Get an Unsecured Business Loan

Getting an unsecured business loan doesn’t have to be complicated. Here’s a simple four-step process to help you secure business financing.

Check Your Business Credit Score

Before applying for a loan, it’s essential to know where you stand. Check your business credit score to see if you meet the lender’s minimum requirements. You can get a free copy of your business credit report through credit bureaus like Experian and Dun & Bradstreet. While specific credit score requirements vary from lender to lender, generally, a higher credit score will increase your chances of approval and may qualify you for better terms and lower interest rates.

Gather Required Documents

Most lenders will require documentation to verify your business’s financial health and creditworthiness. Commonly required documents include:

Business agreements, licenses and permits (if applicable)
Business tax returns
Profit and loss statements
Balance sheets
Bank statements

Research Options

Once you know your credit score and have gathered your financial documents, it’s time to research your lending options. Compare interest rates, loan terms, and repayment options from different lenders to find the best fit for your business. Don’t forget to look for any fees and charges associated with the loan.

Submit Your Application

Once you’ve chosen a lender and loan, the next step is to submit your loan application. Be prepared to provide detailed information about your business, including its financial history, revenue, and the purpose of the loan. Most lenders accept applications online, but the exact process and information requested may vary. Contact your lender if you’re unsure about your application. After you’ve submitted your application, the lender will review it and let you know if you’ve been approved for a loan.

Unsecured Business Loan Alternatives

While unsecured business loans can be a great option for many businesses, they’re not the only solution. Here are some alternative financing options to consider.

Lines of Credit

A business line of credit works similarly to a credit card, allowing you to borrow up to a predetermined limit as needed. You only pay interest on the amount you borrow, making it a flexible financing solution. However, unlike a business credit card, you won’t earn rewards and may have to contend with minimum withdrawal amounts or penalties for non-use.

Invoice Factoring

If your business invoices customers for goods or services, you may be able to use those invoices to secure financing. Invoice factoring offers you financing upfront for your unpaid invoices, providing you with immediate cash flow. Invoice factoring is ideal for business owners dealing with slow-paying customers. However, business owners typically receive less than the total value of their invoices.

SBA Loans

The U.S. Small Business Administration (SBA) offers several loan programs designed to help small businesses access the funding they need. SBA loans often give borrowers more flexible underwriting criteria than traditional loans. The SBA Guarantee helps protect lenders and reduces their risk, which may translate into more attractive terms and rates for borrowers.

Business Credit Card

Similar to a line of credit, a business credit card allows you to use money as you need up to the credit limit. One benefit of business credit cards is that many offer rewards and perks to business owners. Keep in mind that business credit cards come with higher APRs, so this can become an expensive financing option if you don’t pay off your statement on time and in full.

Unsecured Business Loan FAQs

Can SBA loans be unsecured?

An SBA (7)a loan does not require collateral if you’re borrowing under $50,000. For loans ranging from $50,001 to $500,000, collateral is a requirement.

How do you qualify for an unsecured business loan?

To qualify for an unsecured business loan, you’ll need to meet the lender’s approval criteria. Usually, this requires a strong credit history, a proven track record of revenue and profitability, and a solid business plan. Lenders will also consider factors such as your business’s industry, the purpose of the loan, and your ability to repay the loan. For first-time borrowers, personal credit may make a difference. However, those with established business credit may not need to worry about their personal credit, provided their business accounts are in good standing.

What is a personal guarantee?

A personal guarantee is a promise by the business owner to personally repay the loan if the business is unable to do so. Personal guarantees are common for unsecured loans and provide an additional layer of security for the lender. Some small business lenders may include a personal guarantee in your loan contract.

Brandon Wyson

Content Writer

Brandon Wyson is a professional writer, editor, and translator with more than nine years of experience across three continents. He became a full-time writer with Kapitus in 2021 after working as a local journalist for multiple publications in New York City and Boston. Before this, he worked as a translator for the Japanese entertainment industry. Today Brandon writes educational articles about small business interests.

Read More Articles >>

Should I Get a Business Loan or Line of Credit?

Manage Your Money

by Brandon Wyson11 minutes / June 17, 2024

Is a business line of credit right for my business.

Every financial decision for your business is important. Especially if you are thinking of taking on financing, it’s essential that you know with some real certainty that you are getting the right product for your needs. Many small business owners likely find themselves stuck between two popular choices, those being business loans and business lines of credit. While both types of financing have their benefits, it’s more than possible that one may suit your needs better than the other. Let’s get into the key differences between a business loan and a line credit.

What is a Business Loan?

A business loan is basically an agreement between a lender and a borrower in which the lender gives a one-time lump sum of money to a borrower. The borrower is then responsible for paying back that lump sum to the lender with interest. What we’re describing here is also called a term loan, a loan that you pay back over a certain term.

Depending on the lender and the merits of a borrower, business loans can be for amounts up to $5 million and be as long term as 25 years. But the important thing to remember when it comes to business loans is that they generally only account for one singular sum of capital. When you pay back a loan, you can of course take out another one. But business loans are almost always one-time, lump sum transactions.

Business Loan Benefits

Business loans come with specific benefits, including:

Set Repayments: Business loans usually have a fixed rate, which means fixed monthly payments throughout the life of the loan. This makes it easy to budget for repayments.
Relatively Lower Interest Rates: Generally speaking, business loans have a lower interest rate than business lines of credit. However, rates depend entirely on your credit history and financials.
More Financing Term Options: Business loans can provide both long- and short-term financing, making them suitable for large investments or smaller expenses..

Business Loan Drawbacks

There are reasons that some business owners choose a business line of credit over a loan. Drawbacks to a business loan include:

Collateral Requirement: If you’re applying for a secured business loan, you’ll be required to put up collateral for the loan.
Application Process: The application process for business loans can be more complex than other forms of financing, such as lines of credit or credit cards. However, this can vary form lender to lender.
Fixed Funding Amount: If you find that you need more funds than you received from the loan, then you’ll need to apply for additional financing.

Business Loan Requirements

When applying for a business loan, there are some almost universal requirements that lenders will need to see before approving you. Let’s get into the most universal of those requirements here.

A Specific Purpose for Your Business Loan: Lenders will want to know what you plan on using your capital for. Business loans, however, don’t have to be used to buy one specific thing. While many people use term loans to secure real estate or other expensive assets for their business, it is more than viable to say that you plan on using your business loan to increase your working capital.

Collateral: Just about all business loans today will require some form of collateral. There are, of course, always exceptions. But it is a good idea to anticipate your lender asking for collateral if you are looking for a business loan. Good examples of collateral include real estate, heavy equipment, or even standing inventory. Basically, collateral can be any business asset of close-to-equivalent value of the loan you are looking for.

Required Documents: Every lender will require some amount of paperwork from a borrower before moving forward on a loan. Having PDF copies of all of these forms before applying will likely save you some time later in the process.

Your most recent business bank statements
Your most recent tax returns
Forms on ownership and affiliation if necessary
Proof of your collateral
Disclosures of other debt
Your driver’s license or other valid state ID
Any documents related to a reincorporation or business name change
Any business insurance polices you currently hold

Time in Business: The longer your business has been in operation, the better you will look to lenders, generally speaking. It’s not uncommon for lenders to ask for at least two years of operation for business loans.

Business Plan: While not universally required, it’s more than possible that some lenders may expect you to present a business plan that includes (among other things) what you plan on using your business loan for. Your business plan ought to be a comprehensive overview of your current structure and how you plan to grow or change over at least the next five years. The more involved and specific your plan is, the more trustworthy and responsible you are likely to appear to lenders.

What is a Business Line of Credit?

A business line of credit is essentially a supply of capital provided by a lender that you can draw and repay as long as the line stays open. Similar to traditional credit cards, lines of credit have a credit limit, often have monthly billing periods, and borrowers are only responsible for money that isn’t paid back into the credit line before the end of a billing period. But unlike credit cards, which can only be used for transactions that allow card payment, lines of credit are real working capital that businesses can use to cover traditional expenses like payroll or even inventory costs.

Business Line of Credit Benefits

Business owners may prefer to select a business line of credit over a loan due to the following benefits:

Flexibility: A business line of credit provides flexibility in accessing funds. You can borrow as much or as little as you need up to your credit limit, making it ideal for businesses that might need additional funds down the road.
Interest Only on What You Use: While a term loan charges interest on the entire loan amount, a business line of credit only charges interest on the amount you draw. This could
Different Payment Options: Some business lines of credit let you choose how often you want to repay, whether that be every week or every month. This gives small businesses even more flexibility.

Business Line of Credit Drawbacks

Drawbacks of a business line of credit include:

Variable Interest Rates: The interest rates on a business line of credit are often variable, meaning they can fluctuate with market conditions. This variability can make it challenging to predict future repayments.
Potential for Overborrowing: When not managed correctly, a business line of credit makes it easy to accidentally borrow more than you’re eligible for. Always keep an eye on the total line of credit and the amount drawn.
Collateral Requirements: Just like a term loan, some lenders may require collateral, such as business assets or personal guarantees, to secure a line of credit. This adds a layer of risk, as failure to repay could result in the loss of assets or personal liabilities.

Business Line of Credit Requirements

Every lender has their own requirements and makes agreements on a case by case basis. But when applying for a line of credit, there are some basic things that just about every lender will be looking for. Let’s get into those major requirements here. But it is important to remember, also, that some lenders may require more and there are likely more than a few who could ask for less.

Incorporated Business: While there are certainly some online lenders willing to give lines of credit to sole proprietors, the majority of todays lenders are looking for incorporated (as well as registered) businesses.

Use of Funds: The majority of lenders, especially for larger lines, will be looking for a proposal that lays out your general intentions. Unlike a business plan which explains your overall aspirations and plans for growth, your proposal ought to be solely centered on how you plan on using your line of credit.

Collateral: There are two distinct types of lines of credit, one which requires collateral and one which does not. A secured line of credit is a line of credit that is secured with collateral from the borrower. An unsecured line of credit is a line with no collateral. As you may guess, a line of credit with no collateral represents a higher risk factor for lenders and therefore often comes with a higher interest rate. Further, the majority of larger financial institutions like banks and credit unions who offer lines of credit generally offer secured lines. This means that if you don’t have the sufficient collateral to secure a line, you may want to look into online lender options.

Required Documents: Lines of credit require many of the same documents as a business loan.

Your most recent business bank statements
Your most recent tax returns
Disclosures of other debt
Your driver’s license or other valid state ID
Forms on ownership and affiliation if necessary
Proof of your collateral (If you are seeking a secured line)
Your loan proposal
Any documents related to a reincorporation or business name change
Any business insurance polices you currently hold

Time in Business: It is likely that larger financial institutions will be looking for potential borrowers who have been in operation for at least two to three years. It’s possible to find online lenders asking for less but, as the rule goes, the younger and less proven a business is, the more likely interest rates will go up.

Industry: Unlike many business loans, which are anything but industry specific, some lenders may shy away from certain industries when it comes to lines of credit. The industries that get considered ‘risky’ are decided by the risk departments at each individual lender but here are some of the industries that tend to be classed as high risk and, therefore, may have more trouble securing a line of credit:

Restaurants / Food industry
Retail
Wholesaling
New or used car dealers
Casinos (excluding hotels)

While this doesn’t represent every high-risk industry, this list represents businesses that are more sensitive to economic cycles, deal mostly in cash, or are subject to a large amount of legal regulation.

Choosing Between a Business Loan vs Line of Credit

Where to Get a Business Loan or Line of Credit

There are three major ways to connect your business with a loan or a line of credit. Let’s explore them each, one by one, to better understand what makes one a better match for a business compared to another.

Banks

With some exceptions, securing a line of credit or a loan with a major bank requires the most paperwork. On top of that, banks often have the highest requirements for credit scores as well as revenue and time in business. What you get in exchange for those higher requirements, however, are more generous term and interest rates.

Online Lenders

Online lenders represent the quick and flexible alternative to the traditional bank option. Online lenders have grown in popularity over the past generation and become a lifeline for younger businesses thanks to both their generally more lenient requirements as well as the speed in which lines can be opened and loans can be distributed. What you get in exchange for that speed and lower scrutiny is, of course, more cautious interest rates and terms.

Community Development Financial Institutions

Community Development Financial Institutions (CDFI) are groups that specifically serve under-resourced communities. If you are a business owner in a rural area or are a member of a special interest group, there is a good chance that there is a CDFI who may be interested in working with you.

Choosing the Right Financing for Your Business

While business loans and lines of credit both provide working capital for your business, the way you access that capital is completely different. Business loans are usually a good match for large one-time purchases like real estate. Since your capital is coming in as one lump sum, it generally makes the most sense to spend it in the same way. A line of credit, however, is a longer-term relationship between a lender and borrower. It is more than possible for a line of credit to stay open for a couple of years.

A line of credit, then, should be used for predictable and repeatable expenses that you are certain you can pay back before the end of a billing period so you can avoid interest. Businesses who handle lots of invoices or who only see payouts once or twice a month are the most likely to benefit from the type of working capital that a line of credit can supply.

Brandon Wyson

Content Writer

Brandon Wyson is a professional writer, editor, and translator with more than nine years of experience across three continents. He became a full-time writer with Kapitus in 2021 after working as a local journalist for multiple publications in New York City and Boston. Before this, he worked as a translator for the Japanese entertainment industry. Today Brandon writes educational articles about small business interests.

Read More Articles >>

2024 Small Business Grants, The Ultimate List

Manage Your Money

by Bernadette Abel9 minutes / June 11, 2024

2024 has been and continues to be a great year for small business grant opportunities. But with the incredible number of grants available throughout the year, it could be a full-time job in itself to seek out each and every grant your business is eligible for. Consult this master list of grants available for small businesses in 2024 from the all-entry level down to several major groups like women and veteran small business owners.

You can use this definitive list as a guide to help you build your own list of high-quality small business grants to apply to throughout the year.

2024 Private Grants for Small Businesses

From mainstays like the FedEx Small Business Contest or NASE grants to newcomers like the Kapitus Building Resilient Businesses Contest and Skip Monthly, this list is the best place to start your grant search. Each grant on this list is open to small business owners nationally. This list also has grants from Q1 through the rest of the year, so be certain to bookmark this page and check back regularly.
MORE >>

Visa Everywhere Initiative

Quick Information:

For small businesses in the payment and fintech industry
Special edition categories for black-owned, women-owned, and LGBTQ+-owned startups
Check the Visa Everywhere Initiative website for updated information

Venmo Small Business Grants

Quick Information:

Small businesses must have 10 or fewer employees and $50,000 or less in annual sales
20 small businesses awarded each year
Visit Venmo’s small business grant site to apply

National Association for the Self-Employed (NASE) Small Grants Program

Quick Information:

10 recipients awarded $4,000 for growth financing
Must be a member of NASE
Small businesses should check NASE’s grants website for updated information.

Small Business Growth Fund

Quick Information:

Offered by Hello Alice and Progressive
Must sign up to Hello Alice
Grant amounts will vary between $5,000 and $25,000
Visit Hello Alice’s website to apply.

Skip Monthly Business Grant

Quick Information:

Must have a US SBA-eligible small business
$1,000 grants awarded each month
Detailed instructions on how to apply can be found on Skip’s website.

Small Business Digital Ready Program

Quick Information:

Open to all small businesses that sign up for the online course
$10,000 award amounts
The sign-up sheet for the course can be found on National Ace’s website.

US Chamber of Commerce Dream Big Award

Quick Information:

Must be a for-profit small business in the US
Categories for women-owned, veteran-owned, and minority-owned small businesses
Applicants can sign up for CO’s newsletter here to get updates

Fast Break for Small Businesses

Quick Information:

Offered by the NBA, WNBA, NBA G League, and LegalZoom
$6 million in grants and legal services awarded
Those wishing to participate can sign up for email alerts.

Barclays Small Business Big Wins Contest

Quick Information:

60 small businesses win $255,000 in awards
Applicants must submit their business’s story and photographs of their business
Check back regularly to stay updated on key dates and deadlines

FedEx Small Business Grant Contest

Quick Information:

Awarded by FedEx
10 winners each receive $30,000
Information on the new round of the contest can be found here

2024 Government Grants for Small Businesses

Applying for a grant directly from the government is a bit more of an undertaking compared to applying for private grants. Consider this list the best how-to for both finding out if your business is the right fit for a government grant and how to apply for lengthy grants offered directly from departments of the federal, state, or local government.
MORE >> Guide to Government Grants for Small Businesses

Small Business Innovation Research (SBIR) and Small Business Technology Transfer (SBIT)

Quick Information:

Grants are awarded through 11 federal partner agencies such as the Dept. of Agriculture, Dept. of Commerce and the Dept. of Defense
Three-phase application process
For more information on the SBIR and SBTT programs and to apply, review the SBIR website.

USDA Rural Business Development Grants Program

Quick Information:

Awarded by the US Department of Agriculture
Applicants must fit specific usage categories and be located in a rural area as defined by the USDA
Check out the USDA’s website for more information

US Economic Development Administration (EDA) Small Business Grants

Quick Information:

Grants awarded by the EDA monthly
EDA also awards generous tax benefits
Check out the US EDA’s website where you can find monthly national grant opportunities

State Trade Expansion Program (STEP)

Quick Information:

Over $200 million awarded since 2011
Grants are awarded through state and local affiliate offices
Visit the SBA’s website on the STEP program for more information

2024 Grants for Women-Owned Small Businesses

2024 is a banner year for grants for women small business owners. This great collection of grants and resources hosts grants seeking strong and independent women small business owners. With the number of women small business owners also on the rise, the completion of these grants has never been hotter. Get your pitches and business plans together ASAP, and regard this list for up-to-date info on these grants.
MORE >> 9 Best Small Business Grants for Women

SoGal Black Founder Startup Grant

Quick Information:

Applicants must self-identify as a Black woman and be a business owner
Awards range from $5,000 to $10,000
Visit the SoGal website to apply

WomensNet Amber Grant for Women

Quick Information:

Awards offered at the end of each month and year
Awards range from $10,000 per month to $25,000 per year
Visit the WomenNet Amber Grant site to apply

digitalundivided BREAKTHROUGH Program

Quick Information:

Applicants must identify as women and member of the BIPOC and/or Latina community
Must generate at least $50,000 annually in revenue
Apply for the grant from the digitalundivided grant page

Tory Burch Fellows Program

Quick Information:

Must be 21 years old and be a woman with at least 51% ownership in a small business
$5,000 awards
Apply from the Tory Burch webpage

IFundWomen Grants Series

Quick Information:

Applicants can apply for more than one IFundWomen grant at a time
Awards range from $5,000 to $10,000
Review the collection of IFW grants at their website

Fearless Fund Strivers Grant Program

Quick Information:

Grants awarded monthly to Black women business owners
Applicants must have an annual revenue of less than $3,000,000
Apply for the grant from the Fearless Fund’s application page

Women Founders Network Fast Pitch Competition

Quick Information:

Applicants must fill out a 23-question questionnaire
Awards range from $5,000 to $25,000
Business owners can apply for selection for the in-person pitch competition from this link

Boston Women’s Fund

Quick Information:

Must be a women-owned business in the Greater Boston area
Award amounts vary based on need
Apply via the Boston Women’s Fund site

The Girlboss Foundation

Quick Information:

Applicants must be women small business owners operating in the industries of fashion, design, music, or the arts
Grant winners receive $15,000
When applications go live, you can apply directly from the Girlboss Foundation website

2024 Grants for Minority-Owned Small Businesses

There is an inspiring number of grants built to both celebrate and expand minority-owned small business owners, and 2024 has certainly delivered a demanding list of grants. 2024 is also the year of newcomer grants, so even if you think you know the best grant opportunities this year, check this list first.
MORE >> 7 Grants for Minority-Owned Small Businesses

Main Street America’s Backing Small Businesses Grant Program

Quick Information:

Available to minority-owned, women-owned, and veteran-owned small businesses
350 small businesses are awarded $5,000, plus $25,000 to 25 winners
Click here for information about the program as well as an application form.

Coalition to Back Black Businesses Grant Program

Quick Information:

Must be a Black-owned business with 3-20 employees and operating in an underserved area
Award amounts range from $5,000 to $25,000
Check the Coalition’s website for updated information

Southern Restaurants for Racial Justice (SRRJ)

Quick Information:

Awarded to black-owned small businesses in the food industry operating in the South
60 restaurants won $20,000 grants in 2022
Keep checking SRRJ’s website for updates

Lenovo Evolve Small Initiative

Quick Information:

Applicants must be woman-owned or minority-owned small businesses in the US or Canada
10 winners are awarded $5,000 each year
Visit the Lenovo Evolve Small website for updated information

Comcast Rise

Quick Information:

Must be at least 51% owned by a minority, including Latinx, African American, Asian American, Pacific Islander, or other people of color.
500 small businesses awarded $10,000 in 2022
Check the Comcast Rise website for updates

The Boss Network and Sage’s Invest in Progress Grant

Quick Information:

Applicants must be Black women entrepreneurs
Winners selected based on their stories and planned funds use
Applications can be found on Hello Alice’s Website

The Minority Business Development Agency (MBDA) Grant Program

The MBDA is a federal agency that funds grants of all sizes to minority-owned small businesses. The grants are administered by MBDA’s business centers in various states. Interested business owners can apply for the grant by visiting www.grants.gov. Obtaining a MBDA grant involves extensive paperwork and registering your business with the MBDA.

Quick Information:

Businesses must be minority-owned and registered with the MBDA
Grant sizes vary
Apply via the MBDA website

2024 Grants for Veteran Small Businesses

Grants for veterans are one of the best ways to give back to the men and women who have served our country. These grants reward continued service instead of at our borders but in our cities and towns. Several of the grants on this list are offered by veteran collectives that pride themselves on supportive and understanding environments for veterans. With education and mentorship opportunities , this list is one of the best ways for veteran business owners to get involved and get the funding they deserve.
MORE >> Top Small Business Grants for Veterans in 2024

Military Entrepreneur Challenge by Second Service Foundation

Quick Information:

Applicants must be veteran, reserve, or transitioning active-duty members of the United States Armed Services of at least 21 years of age
Awards range from $4,000 to $15,000
Apply via the Second Service Foundation website

Warrior Rising Vetrepreneur Program

Quick Information:

Applicants must be US Armed services, current or veteran, or a spouse or close family member of a veteran
Awards vary based on need
Apply to join the Warrior Rising Community here

U.S. Chamber of Commerce Dream Big Awards

Quick Information:

Applicants must be a majority owner in a for-profit business with fewer than 250 employees
• Awards are $25,000
• Apply for the veteran grant through the main Big Dreams portal

Bernadette Abel

Read More Articles >>

Types of Small Business Taxes

Income Tax

Payroll Tax

Employment Tax

Excise Tax

Self-Employment Tax

State and Local Taxes

How to File Business Taxes

Withholding Taxes

Estimating Taxes

Paying Federal vs Paying State and Local Taxes

Small Business Tax Planning Strategies

Choose the Right Business Classification

Separate Business and Personal Expenses

Maximize Deductions

Establish Employee Retirement Plans

Hire a Tax Professional

Tax Deductions and Credits for Small Businesses

Business Expenses

Tax Credits

Depreciation

Tax Filing Information for 2024

Small Business vs Large Business Tax Differences

Deductions and Credits

Filing Requirements

FAQs for Managing Small Business Taxes

What is an EIN?

How much do small businesses pay in taxes?

Should I do small business taxes myself?

How much can a small business make before paying taxes?

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Payroll Tax Withholding Example

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