Frequently Asked Questions
1. What is the Arkansas Small Business Development Center (ASBDC)?
The ASBDC is a university-based economic development program which provides
assistance to small businesses throughout Arkansas via a statewide
network of seven offices. The ASBDC offers
a variety of services to assist entrepreneurs at various stages of business
development and growth. The ASBDC makes available a wealth of information
online. Additionally, the ASBDC's knowledgeable staff can provide guidance,
recommendations, and resources that are specifically designed to meet the
various needs of small business owners. Most services are available at no cost.
Primary areas of focus include planning, growth, financing, marketing,
management issues, technology, and improving business profitability.
2. Does the ASBDC give business loans or grants?
No. The ASBDC does not provide loans or grants for small businesses
Refer to:
3. What assistance does the ASBDC provide to me if I am seeking a small business loan?
The ASBDC can help you throughout the business loan process including
assisting you with preparing a loan proposal containing the information that
lenders and the SBA need to review when you make a business loan request. The
ASBDC can provide information about general issues that lenders consider when
evaluating a potential small business loan and can guide you through the process
of assembling a good business plan and/or loan
proposal that presents your plans clearly. (Frequently, lenders refer loan
applicants to the ASBDC for assistance in gathering this information.) If you
already have a proposal, we can offer feedback on its contents and any
modifications that may be advisable.
The ASBDC is not a decision maker in the lending process. We cannot influence
the lender or the SBA in their decision about your loan or negotiate on your
behalf when applying for a business loan. The ASBDC does not have any money to
loan to individuals or businesses.
The ASBDC recommends that anyone who is considering applying for a small
business loan review the following information:
4. What do I need to do to start my own business?
One of the most important things to do before starting your own business is to
determine whether or not your business idea is feasible. To accomplish this,
you must plan and research your idea to ensure that your business has a
favorable chance for success, will meet your expectations, and will provide an
adequate reward for the risk involved. It is wise to validate your beliefs
about your plans through research and careful planning because you will not
have time to do it once you start your business.
As you begin, the ASBDC recommends that you attend a Starting a Business in
Arkansas class in your area or participate in the online learning course
Starting A New Business.
In addition, the ASBDC offers some excellent resources to assist you in the
evaluation and planning process. Action steps for
starting a new business as well as information and tools are available on
the ASBDC web site under New Businesses.
5. I want to start a business from my home, what should I do?
As with any other business, it is important to determine whether or not the
business idea is feasible. It is also important that a home-based business
have proper zoning approval and a business license. Check with the city or
county clerk to find out the zoning laws for a particular area and licensing
requirements. In addition, home-based business owners should work closely
with their insurance agent to obtain adequate coverage for the business and
related assets since a homeowner's policy may not provide coverage for
businesses
6. What do I need to do to obtain a business license in Arkansas?
Most Arkansas businesses will be required to obtain a license. It is recommended
that you review License, Permits and Taxes
for information on general business license requirements. For more information
on business license requirements contact your local city or county clerk's office.
Some occupations and industries in Arkansas further require specialized licenses and permits.
For example, restaurants must seek approval from the Arkansas Department of
Health. For more information, refer to publications such as the Directory of
Licensed Occupations in Arkansas, available at the Arkansas SBDC's Research Center or
the governing board or agency which oversees a particular occupation/industry.
7. How do I know if my business name is being used? How do I register my name?
A Doing Business As (DBA) Certificate is required for any sole proprietorship
or general partnership operating under a fictitious name or business names other than
the owners. There is a nominal fee that varies from county to county. The DBA
Certificate records the full name and address of the business owner and the
fictitious name and is kept on file at the county clerk's office.
To do a business name search for a sole proprietorship or partnership, contact
the county clerk's office in the county where the business is located. The
records are open to the public, so you can check to make sure the name is not c
urrently being used in that county.
To do a statewide business name search for a corporation, contact the
Arkansas Secretary of State's office at
(501) 682-5151.
8. Do I need an Employer Identification Number (EIN) or Federal Tax ID number?
If so, how do I obtain it?
The EIN is essentially the social security number for your business and is
the same as a Federal Tax ID number. A EIN is a nine-digit number assigned to
sole proprietors, partnerships, corporations, estates, trusts, and other
entities for filing and reporting purposes. Every business with employees has
to have an EIN as do corporations and businesses that need to collect and
remit sales tax. However, even businesses with no employees may choose to
have a Federal Tax ID number/EIN. For example, a sole proprietor might need
to have an EIN to open a business account at a bank or in order to work with
venders. Otherwise, sole proprietors can use their social security number for
tax reporting purposes.
Contact the IRS for additional information or to obtain
a Federal Tax ID number.
9. What should I take into consideration when hiring employees?
Making the decision to hire employees is a big and often necessary step for any
business. As an employer, you must consider many critical issues to ensure
compliance with employment rules and regulations. Key issues to consider when
hiring employees include obtaining an employer identification number, verifying
employee eligibility, recognizing the difference between employees and
independent contractors, understanding payroll tax responsibilities, and
complying with employment laws, and more.
BASICS OF HIRING EMPLOYEES
10. How do I estimate my start-up costs and project financial statements?
Creating financial projections is an important step in determining the feasibility
of your business. It is essential that a business is aware of its current and
future cash position to ensure sufficient cash is available for business
operations.
Additionally, financial projections are a critical part of your business
plan and/or loan proposal. The projections are estimates of the financial
future of your business. Although the numbers are based on estimates, do not
consider such projections as "a guess." Research plays an important role in
accurately determining future sales and costs. The projections serve as a
basis for planning and are likely to change as more information becomes available.
Creating financial projections may seem intimidating. It is important to
remain conservative throughout the development of the statements. In other
words, understate revenues and overstate costs.
11. I need to write a business plan. What do I do?
If you need to write a business plan, you are in the right place. The ASBDC
has a wealth of information regarding business planning, and we are here to
help you every step of the way. A great place to start would be to attend our
business plan training seminars that we offer throughout the year and online.
The ASBDC offers action steps for writing a
business plan that help guide you through the process and point you
towards helpful information and tools. We encourage you to use the ASBDC
business plan outline to use
as the basis for developing your plan as well as the ASBDC sample business plan
to use as a guide as you write your business plan.
12. What types of insurance will I need for my business?
It is very important that business owners maintain adequate insurance coverage
such as liability, property/casualty, loss of use, unemployment, workers'
compensation, and product liability insurance. We recommend that you review
your insurance needs with your insurance agent or one who handles commercial
coverage. Also, if your business is home based, be sure that you have additional
coverage for your business assets as most homeowner's policies do not cover any
losses related to a business.
Regarding health insurance, it can sometimes be difficult for small business
owners to obtain group rates, since they do not have the benefit of economies
of scale like corporations, which receive lower group rates. One option to
small business owners is to join a trade association that offers health
insurance to its members. These members are pooled together to receive a group
rate. Additionally many of the larger insurance providers offer special group
packages that are tailored to fit the needs of small business owners. Ask you
insurance provider for a small business quote. It is also helpful to contact
your local Chamber of Commerce and inquire about any insurance programs they
have developed specifically for small business owners.
A new option is a program called ARHealthNet which
is designed to assist small businesses, with low income workers, in offering a
package of health care benefits to employees.
13. What is the best type of business to start?
It is up to you to decide what kind of business would be appropriate for you to
start. The best business to start is typically one in which you have an
interest since business ownership requires a big investment of time and resources.
Having previous skills or knowledge relevant to a particular trade or industry
is also a plus when considering what kind of business to start. Regardless of
the type of business, you must determine whether adequate demand exists for
that product/service.
14. How do I sell my product or services to the government?
The Arkansas Procurement Assistance
Center (APAC) is an organization through which you can learn about and
access the government marketplace. APAC offers consulting and information to
help in becoming a successful government contractor. They also distribute the
Weekly Flyer, which lists upcoming contracts for state, city, and county
agencies. We receive this flyer weekly in our research center.
For more information, contact APAC at (501) 337-5355.
See also "Recommended
government contract and procurement links.
15. How do I know if a business is a "good deal"?
There are a variety of factors to consider when deciding whether or not to
purchase a business. The business purchase price in relation to the actual
value of the business is certainly one of them. Paying too much for a business
can cause many problems and lead to failure. In addition to purchase price,
there are other personal factors to consider including your financial situation,
goals, and risk tolerance. It is also important to determine whether or not
the business is a good "fit" for you in relation to your experience and skills.
A good deal for one person may not be a good deal for someone else.
The decision to purchase a business should only be made after carefully
investigating the business and considering your situation and objectives.
16. What kinds of information should I request from the seller?
In order to determine whether or not you are interested in purchasing a
business, you must thoroughly investigate the business and obtain information
from the seller. The ASBDC can provide you with a Buying a Business Checklist as a starting point
for the investigation process.
17. Can I get financing for buying an existing business?
Whether or not it is possible to obtain financing to purchase a business
depends on a variety of factors including the personal financial situation of
the borrower, the cash flow of the business, available collateral, business
history and expectations for the future, and business purchase price. The
lender will analyze the business, the borrower, and the structure of the deal
to determine whether or not to provide financing.
The ASBDC recommends that you review Can I Qualify for a Loan and
Obtaining Small Business Financing.
18. I'm buying an existing business. Do I still need to write a business plan?
It is likely that you'll make some changes to the business after acquisition.
It is recommended that at least some of the sections of a business plan, if not
an entire plan, are written and included in a loan proposal based on what you
expect the business to do under your ownership. Changes in personnel, business
structure, or location all should be disclosed to a lender. The best way to do
this would be writing a business plan for the business you intend to buy that
discloses all the changes you expect to make. However, a loan proposal that
includes this information is acceptable as well. It all depends on what kind
of information your lender will require and how extensive any changes might be.
19. There is substantial "goodwill" in the purchase price of the business.
Will that affect my ability to obtain a loan for the project?
It is often challenging to obtain financing for large amounts of business goodwill.
Typically, lenders don't like to finance goodwill because it does not represent
tangible assets and can't be used as collateral. If a project contains
significant business goodwill, the lender may expect the borrower to contribute a higher
percentage of cash to the deal to help finance the project, and/or the lender
may request additional collateral. In some instances, the seller may be willing
to finance the goodwill portion of the project.
20. Will I be able to obtain a loan for 100% of the purchase price of the business?
It is unlikely that you'll be able to obtain financing for the entire business
purchase price since lenders/SBA aren't typically interested in financing 100%
of any project. Lenders expect the borrower to contribute equity (cash) towards
the purchase.
21. The seller has told me there the business has "unreported cash sales".
Is that good?
No, inaccurate reporting to tax agencies is dishonest and illegal! Seller
claims of unreported sales should never be counted to determine the cash
flow of a business. These claims are unreliable at best. When making a
purchase decision, the buyer should rely on financial information which can be
documented (i.e. tax returns, accountant generated financial reports).
Lenders only consider documented financial information. When a seller makes
these claims, it brings into question the accuracy of financial data.
22. Is it better to buy an existing business or start a new one?
It depends. An existing business should have established procedures and processes,
operations, reputation, as well as a customer base which can result in a high
price tag. It should also have a positive cash flow. If the business is
lacking in these areas, that is problematic. Also keep in mind that an existing
business may also have "baggage" which can cause problems for the future owner.
Existing business typically sell at a premium.
A potential buyer should consider the return on the investment in an existing
business in comparison with the return on starting a new business. A new
business can start with a clean slate. While it may take less money to start
a new business than it does to purchase a going concern, it takes time and
can be very difficult to build the business. The new business also has no
track record on which to base decisions. Significant working capital is
often required to grow a new business.
The bottom line is that every business purchase situation is different and
should be carefully evaluated on its own merits.
23. I'm buying an existing business which happens to be a franchise.
Is there anything special I need to consider?
You should obtain a copy of the franchise agreement and review it carefully.
You should also determine if you'll be required to pay the entire franchise fee,
transfer fee, royalty fees, or advertising fees. In most cases, the franchise
will have to approve the transfer or sale of the franchise. If you are seeking
SBA financing, it is important to determine if the franchise is one which is
eligible for SBA financing.
For more information, visit the SBA franchise registry.
24. The seller won't provide any financial information on the business.
Is that a problem?
Yes, you need accurate financial statements/tax returns on the business in
order to make a good decision as to whether or not to purchase a business.
If you are seeking financing, the lender will also require this information.
25. Do I need to plan for additional operating capital when I purchase a business?
In most cases, you'll need to plan for additional operating capital when
purchasing a business. The amount of operating capital you'll need over and
above the purchase price of the business should be included as you calculate your
total project costs and consider your financing needs.
26. Does the ASBDC give small business loans or grants?
No. The ASBDC does not provide loans or grants for small businesses.
27. What assistance does the ASBDC provide to me if I am seeking a business loan?
The ASBDC can help you throughout the business loan process, including assisting you with
preparing a business loan proposal containing the information that lenders and the SBA
need to review when you make a loan request. The ASBDC can provide information
about general issues that lenders consider when evaluating a potential business loan and
can guide you through the process of assembling a good business plan and/or
loan proposal that presents your plans clearly. (Frequently, lenders refer loan
applicants to the ASBDC for assistance in gathering this information.) If you
already have a proposal, we can offer feedback on its contents and any
modifications that may be advisable.
The ASBDC recommends that anyone who is considering applying for a small
business loan review the following information:
Obtaining Small Business Financing
Can I Qualify for a Loan
The ASBDC is not a decision maker in the lending process. We cannot influence
the lender or the SBA in their decision about your loan or negotiate on your
behalf when applying for a business loan. The ASBDC does not have any money
to loan to individuals or businesses.
28. How can I receive grant money for my small business?
To our knowledge, there is no grant money available for starting a small business.
In some cases, there may be grant programs available to existing small businesses
or entrepreneurs for a particular industry serving a specific purpose, such as
a lunch program for a day care or research and development for technology businesses.
However, these programs are typically narrow in scope. Most small business
owners have to look to personal resources and loans to finance their small
business. Nonprofit organizations, 501(c)(3), are the most likely candidates to
receive grant monies.
29. I've never had any trouble obtaining a home mortgage, credit card, or
auto loan. Does this mean that I'll be able to easily obtain a loan for my
small business?
Obtaining a small business loan is not the same as obtaining a personal loan. It is
much more challenging to obtain a loan for a small business than a loan to
purchase a home or car. It is important not assume that just because you easily
obtained a personal loan that you'll be able to obtain a small business loan.
It is recommended that you review "Obtaining a Small Business Loan"
and "Can I Qualify for a Loan"
to gain a better understanding of the small business loan process, criteria for
obtaining business loan, as well as what to expect in the process.
30. I know that I have a successful business idea. All I need is money.
Why does all this have to be so complicated?
You may "know" that you have a successful idea, but that is not sufficient to
obtain a business loan. Banks do not lend a business money based only on your
opinion and are naturally cautious when extending loans. If you wish to obtain
financing, you have to demonstrate, in writing, that your idea will be successful.
This can be accomplished by developing a business plan. In addition to demonstrating
business feasibility by developing a good business plan, a lender will also
consider other criteria when making a loan decision. Issues such as owner
equity contribution, collateral, and credit history are also important factors
that determine the outcome of the loan decision.
For more information on small business financing, review
"Obtaining a Small Business Loan" and
"Can I Qualify for a Loan".
31. What is a SBA loan and how do I get one?
An SBA loan is a loan that has been guaranteed (backed) by the U.S. Small
Business Administration (SBA). The guarantee assures the lender that it will be
repaid a portion of the money it loans even if the borrower fails to repay the
loan. As a business owner, you will make a request to a lender (usually your
local bank) for funds needed for your business plans. The lender will evaluate
your request and decide whether it can make the loan to you on its own. If the
lender feels the request has merit but cannot make the loan without additional
support, then the lender can request a SBA guarantee. SBA considers issues
such as collateral, credit, equity, and loan repayment ability when making a
determination on a loan.
SBA does not provide grants to small business. With the exception of disaster loans,
the SBA does not provide direct loans to individuals or businesses. More
information on SBA loans can be found at www.sba.gov.
32. Where do I get a SBA loan application?
SBA loan forms should be obtained from your lender. With an SBA loan, the bank
is applying on your behalf for the loan guarantee from the SBA. In order to
apply for an SBA loan, you must have found a lender that is interested working
with you on your project. Some SBA loan programs use bank forms while others
use SBA forms. Therefore, you should not complete SBA loan forms until your
lender instructs you to do so.
(SBA forms are available online at www.sba.gov)
33. How long will it take to develop my plan and get a loan?
There is no specific time range for developing a business plan. The length of
time it takes to craft a plan and get a loan varies from plan to plan and person
to person. Several factors that affect how quickly your business plan can be
completed include the amount of time invested in the creation of the plan, the
scope of the research required for the plan, and the length of time a bank will
take reviewing the plan.
Similarly, the loan application and approval process differs in each situation.
Some factors that affect the application and approval process include the size
of the loan request, complexity of the project, and participation in guaranty
programs.
34. Is it possible to get 100% financing for my business?
No, it is extremely rare to see a small business obtain 100% financing from a
bank. Banks don't issue 100% financing for businesses because it places the
entire burden of the risk on the bank. They prefer if the owner shares some of
the risk, thus most banks will require the individual to cover at least 20% of
the financing cost to start their business. Some banks will require an even
larger owner equity injection depending on the industry or type of business.
35. How much money can I borrow?
The amount of money that you can borrow varies. The amount that you can borrow
depends on certain criteria such as how much you state that you require in your
business plan, how much collateral or personal investment you are willing to put
into the business, and, to some extent, personal credit history. It is up to
you to gather the appropriate financial data to make informed projections
regarding start up costs. These projections should show you how much you need
to borrow and help you determine your ability to repay the debt. However, the
decision regarding how much you can borrow rests ultimately with your lender.
36. How long will it take to get a loan?
The time it takes to get a loan varies with each situation and is determined by
the amount and complexity of the loan request as well as the type of business loan
you're pursuing. It is best to allow plenty of time. The best thing you can
do to reduce the time it takes to get an answer on your loan application is to
provide a thorough business plan or loan proposal. When you provide all of the
information a lender needs to make a decision, you can help the process go more
smoothly.
37. What kinds of things do lenders consider when making small business loans?
When making a decision on a small business loan request, lenders consider a
variety of factors such as cash (equity), amount of loan request, collateral,
credit, business plan, repayment ability, and project feasibility. Each of
these factors is important and can influence the loan decision.
38. I talked to my lender about applying for a small business loan.
He/she suggested I contact the Arkansas Small Business Development Center. Why?
Lenders often refer their customers to the ASBDC for assistance in preparing to
apply for a small business loan. The ASBDC uses a methodical, strategic, time
tested approach in business planning. Typically, lenders want to see a
business plan or loan proposal to make a decision on the loan. A lender may
refer their customer for assistance in developing a business plan, loan proposal,
or other information needed to apply for a loan. The lender may also feel as
though you'd benefit from talking with someone about your small business questions,
obtaining guidance on feasibility issues, or gathering information about the
industry or market.
39. Is it a requirement that I contact the ASBDC in order to obtain a
small business loan?
No. Working with the ASBDC is optional. However, working with the ASBDC
better equips you as you proceed through the loan application process. We often
hear from lenders that their customers who work with the ASBDC are better
prepared and have better business plans/loan proposals than those who do not.
An added benefit of working with the ASBDC is that you have the opportunity to
discuss your questions with an objective third party that is not involved in
marking the decision on your loan application.
If you are applying for an SBA Community Express loan which requires that you
obtain assistance from a certified technical assistance provider, you will be
required to obtain certification of this assistance. Your lender can provide
you with a list of approved technical assistance providers. The ASBDC serves
as a technical assistance provider for the Community Express program for some
lenders.
40. My personal credit is poor. Can I still get a small business loan?
When making a decision on a business loan, lenders will consider your personal
credit history. Poor personal credit can be the basis for declining a business loan.
Therefore, poor credit can be a problem and can prevent you from obtaining a
business loan. You should consider obtaining a copy of your personal credit report
to gain a better understanding of your credit history. If you have credit problems,
you may want to contact Consumer Credit Counseling Services
for guidance. You may need to rebuild your personal credit before applying
for a business loan.
41. What is a SIC code? What is a NAICS code?
A SIC code, or Standard Industrial Classification code, is a four-digit number
assigned by the government to various distinct business industries. Its purpose
is to numerically represent the entire field of economic activities: agriculture,
forestry, fishing, hunting, and trapping; mining; construction; manufacturing;
transportation, communications, electric, gas, and sanitary services; wholesale trade;
retail trade; finance, insurance, and real estate; personal, business, professional,
repair, recreation, and other services; and public administration.
The SIC code was developed for use in the classification of establishments by
type of activity in which they are engaged; for purposes of facilitating the
collection, tabulation, presentation, and analysis of data relating to establishments;
and for promoting uniformity and comparability in the presentation of statistical
data collected by various agencies of the United States Government, State agencies,
trade associations, and private research organizations.
The SIC classification system has recently been replaced by the North American Industry Classification System (NAICS). This
common classification system was created to replace the existing classification
system of each country in North America.
ASBDC's List of SIC Codes
ASBDC's NAICS Database - search for NAICS and SIC codes by keyword
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