Small Business Basics: The SBA Loan

 If you are thinking about starting or acquiring a small business, you will need to know what an SBA loan is. SBA stands for Small Business Administration, which is a Federal Agency that is dedicated to assisting entrepreneurs obtain small business loans. The SBA does not provide financing directly to small business owners; it simply works with banks to provide financing to those who are classified as small business owners. 

How To Obtain an SBA Loan

To obtain an SBA loan, you should expect to provide an analysis of your credit, financial statements, and some source of collateral to secure the loan. In order to apply, an extensive loan application will need to be filled out along with any documents the lender deems necessary to analyze whether or not you qualify for the loan. These packages will often require you to provide a description of the business, information on the type of collateral you are using to secure the loan, and ways that you will use the loan proceeds. Historically, strong candidates for SBA loans have good credit, a solid business plan, collateral, and the ability to repay the loan.

What Kinds of SBA Loans Are There?

There are several kinds of SBA loans that a small business can apply for and the categories are divided into different uses. First, there is a General Small Business Loan 7(a), which is the SBA’s most common program that provides financial help for businesses with special requirements such as what the business does to make money, the character of the ownership and where the business operates. Second, there is the Microloan program that will lend up to $50,000 to help small businesses and not-for-profit childcare centers start up or expand. According to www.sba.gov, the average Microloan is about $13,000. The third loan option is the Real Estate & Equipment Loans: CDC/504 which provides financing for major assets such as equipment or real estate. As with any of the mentioned loans, there are requirements for the CDC/504 loan as well, the most notable is that this loan is not available to businesses engaged in speculation or investment in real estate. Lastly, the SBA provides Disaster Loans which carries one of the lowest interest rates and is available for small business owners to replace or repair items that were damaged or destroyed in a declared disaster (like Hurricane Sandy). The Disaster Loan can be used for any of the following items: real estate, personal property, machinery and equipment, and inventory and business assets.

Net To You

Now that you know what the SBA is and what an SBA loan is, take advantage of the loan programs that are made available to small business owners as they are pertinent for those looking to start or expand a small business. All of the information found in this article can be further researched at www.sba.gov.  

Written By: Tayler M. Hudson, Summer Associate at the Marzella Law Group, PLLC and Rising 2L at North Carolina Central University School of Law.

Reasons to Use an Attorney When Buying or Selling a Business

Buying or selling a business can be both exciting and frightening; using an attorney to assist you can ensure that this process remains exciting and profitable. The goal of this article is to explain why you need an attorney when buying or selling a business, the benefits to engaging an attorney for the purchase and sale of a business, and how to make the purchase or sale of your business a positive experience.

Why Do I Need an Attorney?

The first reason for using an attorney is knowledge. Attorneys are professionals and those who specialize in the purchase and sale of business have the industry and legal knowledge required to complete the transaction. For example, an attorney will know what documents are needed to ensure that both the buyer and seller’s interests are adequately represented and protected. Most transactions require an Asset Purchase Agreement, Certificate of Incumbency, Non-Compete Agreement, and a variety of other corporate and lending documents.  Engaging an attorney to assist you in the sale of your business will ensure that all of the documents are in compliance and completed properly so that the sale goes smoothly.

Second,  protection is essential especially when engaging in the legal process of buying or selling a business. Those selling their business without the assistance of an attorney may often be taken advantage of, forget a clause relinquishing all liability and debt, or forget a document that leaves the selling party open to risk of litigation or open taxes and liens. Protection may also present itself through the presence of a Non-Compete agreement, which protects the purchaser of a business from potentially competing with the seller if the seller decided to open a similar business close enough to compete with the buyer. An attorney would prepare a Non-Compete Agreement that is both applicable and legally binding to provide the said protection to the parties of the transaction.

The final reason to use counsel is efficiency, which may be the most important aspect of hiring an attorney when buying or selling a business, especially if one of the parties is already using one. As professionals concentrating their practice to business law, an attorney would be able to quickly communicate, prepare documents, negotiate terms, and exchange information on behalf of his or her clients. For example, at the Marzella Law Group, all of the requisite documents for the buyer or seller (whomever is being represented) are completed shortly after the engagement so that the transaction can be closed as quickly as possible at the convenience of both parties.

Net To You

At the end of the day, buying or selling a business is complex. Allowing an attorney to assist you with this process will help ensure that the transaction is handled appropriately, efficiently, and that all parties’ interests were represented and protected.

The next question is how much does an attorney cost? Typically, fees for the purchase or sale of a business range from about $3,500.00.  However, the modern trend is charging a percentage of the sale price similar to real estate agents in a property transaction; the most common percentage is 1.00% of the purchase price for Sellers and 1.25% for Buyers.  

Your key takeaway from this article should be that the next time you are buying or selling a business, the question should not be “do I need an attorney?” but rather “which attorney am I using?”

Written By: Tayler M. Hudson, Summer Associate at the Marzella Law Group, PLLC and Rising 2L at North Carolina Central University School of Law

The Importance of Using Wires for Closings and Any Legal Transactions

When engaging an Attorney in a legal transaction involving any transfer of assets or money, the term “wire” or “wire transfer” will often come up. The purpose of this article is to explain: 1) what a “wire” is; 2) the benefits of using a “wire”; and 3) why it is pertinent than you opt to use a “wire” in future legal engagements.

What is a Wire?

A “wire” is a term used to describe a wire transfer which is often used in reference to any electronic transfer of money from one person to another through a bank or credit union. So how does it work? A “wire” consists of instructions as to who will be receiving the money, including the account number and how much the recipient of the money will be receiving. The money doesn’t simply go straight from one bank to another; a real-time wire processing system clears the payments similar to the Automated Clearing House processes or ACH transfer. Domestic “wires” within in the United States get processed the day it goes out, usually within several hours of the “wire” instructions being received.

What Are The Benefits of Using a Wire?

First and foremost, speed and security is the greatest benefit of using a wire transfer. A “wire” cannot be cancelled once it is sent unless you attempt to stop it almost immediately after it is sent, or else you cannot get your money back. Speed is another benefit, a wire transfer only takes a few hours or less to complete whereas personal checks can take up to two days depending on the bank or the form in which the check is processed.

Secondly, using a wire transfer insures that the funds cannot be taken out of the account to which it was transferred. When using a check, you are relying on the other party having the funds available in their account which can often lead to bounced checks, bank holds, and other various regulatory deterrents that lead to a delay or non-payment. When using a wire transfer, the funds are certified and paid up front or else the wire transfer could not occur.

Lastly, using a “wire” will eliminate the risk of check fraud. Today more than ever, the technology exists to seamlessly alter checks on computers, as well as chemically so that someone can fraudulently use a check as if it was their own for any purpose. An example of such fraud would be when engaged in the purchase and sale of a franchise and the buyer issues a check at closing, however, the check is fraudulently created and several days after the closing, the funds are taken from the seller’s account due to said fraud. The preceding example can be avoided by using a wire transfer since the funds and the identity of the bank account and the individual making the payment are certified.

Net To You

Using a “wire” or wire transfer is the safest, fastest, and most effective method of transferring money when engaged in a legal transaction. The next time you need to exchange money, whether it be the sale or purchase of a business or a real estate closing, use a wire transfer and avoid the risks associated with checks. 

Written By: Tayler M. Hudson, Summer Associate at the Marzella Law Group, PLLC and Rising 2L at North Carolina Central University School of Law

What Does Estate Planning Have to Do With My Business?

The business that you and your partners have been building for years is finally running at peak efficiency. You have all put in many hours to make it work the way you want it to. Then tragedy strikes when one of your partners dies suddenly.

Many questions surface among you and your partners, such as:

What Will Happen to My Deceased Partner’s Shares in Our Business?

Will We Be Forced to Pay the Family for the Value of the Shares?

How Much Will I Have to Pay and How Do We Determine the Value of the Shares?

Where Will I Get the Money to Pay for This?

This is an example of what could happen to any business owner, at any time. However, your Business Attorney should be able to plan adequately for such a contingency through the use of a BUY/SELL AGREEMENT.

This document is an agreement between business partners as to how a business will continue, or not, in the event of the death of one of the partners. It can set out the method to value the shares, provide for Key Man Insurance planning, and provide a payment schedule to the estate of your deceased partner based on known interest rate indicators.

This form of agreement is complex, in that it covers a multitude of provisions. It is much like the drafting of a Last Will and Testament, but for a business. It requires close communication with your Business Attorney.

Fortunately, this document, although complex, is not difficult to prepare. A well versed Business Attorney knows the right questions to ask, and the right solutions to offer, making the process of drafting a BUY/SELL AGREEMENT a painless process.

Due to the nature and complexity of this form of agreement, and how it must be custom drafted to fit you and your business, it is recommended that you do not purchase a form from a website that offers to sell such documents. Like a Last Will and Testament, it is specific to you and a basic internet form generally will not cover the critical areas satisfactorily.

As a final note, you should have your Business Attorney also review your Last Will and Testament, to determine if any changes are necessary to the document. Major life changes, such as the birth of a child, marriage, divorce, death of spouse or one your intended beneficiary, illness, or reversal of fortune or all valid reasons to have your Last Will and Testament reviewed to determine if redrafting is recommended. Most Attorneys do not charge their regular clients to review for changes.

You should always consult your Attorney, as state law varies. This article is not intended to provide legal advice, but rather to prompt you to seek advice from your Business Attorney to determine your specific circumstances and need.

Carmen Joseph Marzella, Esq.