In the "setting yourself up for success" section: Sam's Club small business whitepaper titled "The Big Picture: Small-Business Loans in Today's Economy", aims to clarify and aid the often-times challenging process of obtaining a small-business loan.

1. THE BIG PICTURE: SMALL-BUSINESS
LOANS IN TODAY’S ECONOMY
Tips for Getting Your Loan Approved
Contributor: Catherine Corley, Vice President of Member Strategy for Sam’s Club
(Sam’s Club is a division of Wal-Mart Stores, Inc. (NYSE:WMT)
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2. CONTENTS
1. THE ECONOMIC IMPACT ON SMALL-BUSINESS LOANS
2. TYPES OF SMALL-BUSINESS LOANS
3. HOW TO OBTAIN AND USE SMALL-BUSINESS LOANS
Things to consider before requesting a loan
Basics for applying for a loan
Be prepared to answer questions from your lender
4. GOVERNMENT ASSISTANCE
5. TAX CREDITS
6. EXPERT OUTLOOKS ON OBTAINING SMALL-BUSINESS LOANS
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3. THE ECONOMIC IMPACT ON SMALL-BUSINESS LOANS
Even with the economy being the number one factor facing small businesses in 2009, small-
business loans are still expected to increase this year. With job losses high and traditional
employment options limited, many people will turn to self-employment and small business, says
the Small Business Labs 2009 Top 10 Small Business Trends article—from the website dedicated
to tracking and forecasting the trends impacting the future of small business.
As proof, the previous three recessions have seen an increase in the number of small businesses
being formed, and now it’s easier and cheaper than ever to invest in a start-up. While failure
rates will also increase, these failures won’t be great enough to offset the number of new small
and personal businesses.
Additionally, baby boomers will have to extend their working years, and small businesses will be
their best, and sometimes only, option. And on the flip side, “Generation Y” will continue to be
more entrepreneurial than youth in recent generations. Small businesses are appearing more
attractive to this generation due to limited opportunities with big businesses and the low costs
and risks of starting their own companies.
TYPES OF SMALL-BUSINESS LOANS
There are many types of small-business loans available for owners and operators, both short- and
long-term. Of course the type of loan you should apply for depends upon your individual
situation. Below is a list of just some of the small-business loans available.
• Accounts Receivable Financing—Loans taken out to provide working capital for
a small business, with its accounts receivable (invoices sent out to clients for
goods or services) rendered as collateral.
• Asset-Based Lending Loan—A short-term loan secured by a company's assets.
An asset-based lending loan is one where the borrower pledges related business
assets as collateral.
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4. • Bootstrapping—A type of business funding that seeks to avoid relying on outside
investors. By not relying on outside sources of funding, the business will not have
to dilute ownership through issuing equity, and will not rely on outside banks for
debt.
• Bridge Loan—A short-term loan to fund a business project. It is not typically
acquired from a bank; it usually comes from private lenders or funding
companies.
• Business Credit Card—Small-business credit cards have become a much
demanded product and are often used as a source of funding to start up a business.
• Equipment Financing Loan—A type of business loan where equipment serves as
collateral.
• Factoring Invoice—Financing where an accounts receivable factoring company
purchases the invoices (accounts receivable) of other businesses at a discounted
price (usually 60–75 percent of the value of the invoice, depending on how old it
is), and takes on the risk and responsibility of collecting the money owed from the
smaller businesses’ clients.
• Franchise Loan—Used for purchasing a new franchise or expanding an existing
one.
• Hard Money Loan—Asset-based loan financing where the borrower receives
funds that are secured with real estate.
• Home Equity Loan—Personal property acts as collateral for obtaining this type of
a business loan.
• Inventory Financing Loan—Inventory serves as collateral for this financing.
• Line of Credit less than $100K and more than $100K A lender agrees to loan a
specific amount of money for a specified amount of time, and allows the borrower
to borrow the money again once it has been repaid.
• Retail/Merchant Cash Advance—A business loan based on projected credit card
receivables.
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5. • SBA Loan—Loans made by a local bank and guaranteed by the U.S. Small
Business Administration. There are various types of SBA loans, but the four
major categories are—
a. Basic 7(a) Loan Guaranty—Serves as the SBA’s primary business loan
program to help qualified small businesses obtain financing when they might
not be eligible for business loans through normal lending channels.
b. Certified Development Company (CDC), a 504 Loan Program—Provides
long-term fixed-rate financing to small businesses to acquire real estate,
machinery or equipment for expansion or modernization.
c. Microloan, a 7(m) Loan Program—Provides short-term loans of up to $35,000
to small businesses and not-for-profit child-care centers for working capital or
the purchase of inventory, supplies, furniture, fixtures, machinery and/or
equipment.
d. ARC Bridge Loans—The newest form of SBA loan, that began on June 15,
2009, and will be available through September 30, 2010, or when the money
is depleted. These are deferred-payment loans of up to $35,000 available to
established, viable for-profit small businesses that are suffering a current
hardship and need short-term help to make principal and interest payments on
existing debt. These loans are interest-free to the borrower (you), and 100
percent guaranteed by the SBA. (For other government assisted programs,
refer to the “Government Assistance” section below.)
• Term-Loan—Short-term loans must usually be repaid in a year or less. They are
often set at a fixed interest rate, and many require some sort of collateral or
security.
• Unsecured Business Loan More Than $25K and Less Than $25K—These lending
packages do not require you to put up collateral in exchange for financing.
• Working Capital Loan—A short-term loan that is used to help sustain a business
during a time of need.
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6. HOW TO OBTAIN AND USE SMALL-BUSINESS LOANS
Things to consider before requesting a loan
It’s a good idea to ask yourself these questions before applying for any type of small-business
loan:
• “Do I need more capital or can I manage existing cash flow more effectively?”
• “How do I define my need? Do I need money to expand or use as a cushion
against risk?”
• “How urgent is my need?” You can obtain the best terms when you anticipate
your needs, rather than looking for money under pressure.
• “How great are my risks?” All businesses carry risks, and the degree of risk will
affect cost and available financing alternatives.
• “In what state of development is my business?” Needs are most critical during
transitional stages.
• “For what purposes will the capital be used?” Any lender will require that capital
be requested for very specific needs.
• “What is the state of my industry?” Depressed, stable, or growth conditions
require different approaches to money needs and sources. Businesses that prosper
while other similar ones are in decline will often receive better funding terms.
• “Is my business seasonal or cyclical?” Seasonal needs for financing generally are
short term. Loans advanced for cyclical industries such as construction are
designed to support a business through depressed periods.
• “How strong is my management team?” Management is one of the most important
elements assessed by money sources.
• Perhaps most important, “How does my need for financing mesh with my
business plan?” If you don't have a business plan, you should make writing one
your first priority. All capital sources will want to see your business plan for the
start-up and growth of your business.
Source: Financing Basics, www.sba.gov
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7. Basics for applying for a loan
Once you have gone through the questions above and decide you still need a loan, here are the
steps to get you started:
• Determine what loan is right for you—do your homework, research the different
types of loans and seek the advice of an expert.
• Prepare a written loan proposal, including—
a) Description of Business: Provide a written description of your business,
including the type of organization, location, product or service, brief history,
proposed future operation, competition, customers and suppliers.
b) Management Experience: Resumes of each owner and key management
members.
c) Personal Financial Statements: The SBA requires financial statements for
all principal owners (20 percent or more) and guarantors. Financial statements
should not be older than 90 days. Make certain that you attach a copy of last
year's federal income tax return to the financial statement.
d) Loan Repayment: Provide a brief written statement indicating how the loan
will be repaid, including repayment sources and time requirements. Cash-flow
schedules, budgets, and other appropriate information should support this
statement.
e) Existing Business: Provide financial statements for at least the last three
years, plus a current dated statement (no older than 90 days), including
balance sheets, profit and loss statements, and a reconciliation of net worth.
Aging of accounts payable and accounts receivable should be included, as
well as a schedule of term debt. Other balance sheet items of significant value
contained in the most recent statement should be explained.
f) Proposed Business: Provide a pro-forma balance sheet reflecting sources and
uses both of equity and borrowed funds.
g) Projections: Provide a projection of future operations for at least one year or
until positive cash flow can be shown. Include earnings, expenses, and
reasoning for these estimates. The projections should be in profit and loss
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8. format. Explain assumptions used if different from trend or industry standards
and support your projected figures with clear, documentable explanations.
h) Other Items As They Apply: Provide items such as lease (copies of
proposal), franchise agreement, purchase agreement, articles of incorporation,
plans and specifications, copies of licenses, letters of reference, letters of
intent, contracts and partnership agreements.
i) Collateral: List real property and other assets to be held as collateral. Few
financial institutions will provide non collateral-based loans. All loans should
have at least two identifiable sources of repayment. The first source is
ordinarily cash flow generated from profitable operations of the business. The
second source is usually collateral pledged to secure the loan.
Be prepared to answer the following questions from your lender
• Can the business repay the loan? (Is cash flow greater than debt service?)
• Can you repay the loan if the business fails? (Is collateral sufficient to repay the
loan?)
• Does the business collect its bills?
• Does the business control its inventory?
• Does the business pay its bills, and on time?
• Are the officers committed to the business?
• Does the business have a profitable operating history?
• Does the business match its sources and uses of funds?
• Are sales growing?
• Does the business control expenses?
• Are profits increasing as a percentage of sales?
• Is there any discretionary cash flow?
• What is the future of the industry?
• Who is your competition and what are their strengths and weaknesses?
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9. GOVERNMENT ASSISTANCE
The American Recovery and Reinvestment Act of 2009 (Recovery Act) was signed into law by
President Obama on February 17, 2009. It is an unprecedented effort to jumpstart our economy,
create or save millions of jobs, and put a down payment on addressing long-neglected challenges
so that our country can thrive in the 21st century.
This Act is an extraordinary response to a crisis unlike any since the Great Depression, and
includes measures to modernize our nation's infrastructure, enhance energy independence,
expand educational opportunities, preserve and improve affordable health care, provide tax
relief, and protect those in greatest need.
The bill provides $730 million to the SBA and makes changes to the agency’s lending and
investment programs so that it can reach more small businesses that need help. The funding
includes—
• $375 million to temporarily eliminate fees on SBA-backed loans and raise the
SBA's guarantee percentage on some loans to 90 percent. The elimination of fees,
announced on March 16, 2009, will remain in effect until the end of the calendar
year or until the funding is exhausted. The elimination of fees is retroactive to the
day the Recovery Act was signed into law.
• $255 million for a new loan program to help small businesses meet existing debt
payments
• $30 million to expand the SBA’s Microloan program, enough to finance up to $50
million in new lending and $24 million in technical assistance grants to micro-
lenders
• $20 million for technology systems to streamline the SBA’s lending and oversight
processes
• $15 million to expand the SBA’s Surety Bond Guarantee program
• $25 million to staff up to meet demands for new programs
• $10 million for the Office of Inspector General
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10. TAX CREDITS
The following section includes tax credits your small business might overlook. For additional
information on small-business tax credits, visit the IRS website.
Source: AllBusiness.com, Published April 14, 2009
• Energy Breaks: Businesses can take advantage of a growing list of energy
conservation and alternative energy resource credits, offered to reduce
dependence on fossil fuels. The credits for alcohol used as fuel and biodiesel and
renewable diesel fuels provide additional benefits because businesses that use
alternative fuels for transportation can file for the credits on quarterly returns
(Form 4136) rather than waiting for the end of the tax year. Upgrading your
heating and air conditioning systems, adding solar energy to buildings, and
building alternative energy projects all trigger tax credits, helping lower these
project costs.
• New Assets: Every year, businesses can deduct the entire cost of new assets under
Section 179 rather than depreciating them over time. Using Section 179 saves the
cost of setting up depreciation schedules for relatively low-cost assets, such as
printers, cell phones, and office furniture, but also applies to vehicles, machinery,
and other equipment with a longer life. Businesses can elect Section 179
treatment on Form 4562 where they depreciate other assets. The limit on how
much can be written off in a year increases annually, so look up this limit as part
of your tax planning.
• New Hires: Hiring military veterans as they reenter the workforce can reduce
payroll expenses through the work opportunity credit, which reduces tax liabilities
by as much as $2,400 of the first-year salary paid to a veteran. The amount rises
to $4,800 if the new employee is a disabled veteran. There is no limit to the
number of veterans an employer can hire. Work opportunity credits also support
hiring nonveterans with disabilities, people who have received food stamps or
other temporary public assistance, participants in welfare-to-work, low-income
youth hired for the summer, and ex-felons. Use Form 5884 to claim these credits.
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11. • FICA Tax Credits: Food-service employers can receive credits for Social
Security and Medicare taxes on the amount of tips that raise an employee's pay
above the minimum wage. While the minimum wage is now $6.55 per hour, the
credit is for amounts more than the older level of $5.15.
• Retirement Plans: Self-employed IRA plans permit contributions to these
deferred-tax retirement programs of up to $49,000 per year for business owners
and for any participating employee. This is much higher than the $16,500 limit for
401(k) contributions (participants over age 50 can contribute $22,000). Adding
employees to a SEP-IRA can earn a credit for small-employer pension plan
startup costs that is $500 per year in each of the first three years of a new plan.
The employer may elect to take the credit in the year prior to starting the plan.
EXPERT OUTLOOKS ON OBTAINING SMALL-BUSINESS LOANS
Economic downturn has harmed the ability of small businesses to secure loans and lines of
credit; however the severity of the effects on entrepreneurs is still being debated by the experts.
Overall, the majority of experts believe that the lending outlook looks bleak—suggesting that it
is not a good time to borrow money. “I think the appetite for lenders, in general, is very dried up.
Lending for small businesses, which has always been difficult, will just get more difficult in this
environment,” said Dennis Ceru, professor of entrepreneurship at Babson College. Martha
Doron, associate professor for the School of Accountancy at the San Diego State University
mirrors Ceru’s sentiment: “It has always been the case that banks are not willing to offer money
when one needs it the most. New companies looking for cash still have to look at alternative
methods—banks do not want take the risk.”
Even when economic growth returns, however, experts don’t see banks planning to resume
normal lending too soon. The Federal Reserve’s most recent survey of senior loan officers found
that most expect to maintain higher lending standards throughout the second half of 2010. And
for riskier borrowers—including many small businesses—credit “will remain tighter than
average for the foreseeable future,” according to the survey. Credit-card lending, once an easy
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12. source of unsecured funds, has also been curbed: 58 million cardholders had their limits reduced
between April 2008 and April 2009, according to the Fair Isaac Corp. (FICO).
Source: Entrepreneurs Turn to Alternative Finance, Sept. 1, 2009 Business Week
But there’s reason to believe it’s “less dire for smaller businesses” than the numbers show,
according to Holly Wade, policy analyst at the National Federation of Independent Business.
Small businesses traditionally have a variety of capital sources—they tend to cut back on
borrowing when sales decline and/or borrow from smaller banks that have sidestepped the toxic-
loan issues. And the federal Small Business Administration is offering some stimulus-package
relief, reducing bank fees and increasing the percentage of each loan that the government will
guarantee. In fact, in the last two fiscal years, $3.3 billion of completely authorized funds were
left on the table unspent for SBA504 loans. Next year, this amount is expected to increase to $4-
4.5 billion, according to Business Week and Fox Business. All these factors appear to be
helping—the banks are at least saying they are open for business. As long as a borrower doesn’t
expect “pre-2008” terms, “we have money to lend and a strong desire to do so,” said Robert
McGannon, chief lending officer at the Kansas City, Mo.–based Country Club Bank.
Source: For Small Businesses, Borrowing Is Not So Dire, Sept. 2, 2009, The Wall Street Journal
While it may take a little more effort to secure their loan these days, small business owners have
never been shy to hard work. So the experts agree that the best place to start when securing a
small business loan is through smaller bank branches and credit unions. “Small community
banks are the way to go. These smaller lending agents provide the largest opportunity for you to
secure your loan,” said Bill Dunkelberg, chief economist, National Federation of Independent
Business, in Washington. “We let the big banks get so big that they are too big to manage and
that means, too big to fail.”
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