Frequently Asked Questions
1. What is the Arkansas Small Business and Technology Development Center (ASBTDC)?
The ASBTDC is a university-based economic development program which provides assistance to small businesses throughout Arkansas via a statewide network of six offices. The ASBTDC offers a variety of services to assist entrepreneurs at various stages of business development and growth. The ASBTDC makes available a wealth of information online. Additionally, the ASBTDC'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 ASBTDC give business loans or grants?
No. The ASBTDC does not provide loans or grants for small businesses
Refer to:
3. What assistance does the ASBTDC provide to me if I am seeking a small business loan?
The ASBTDC 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 ASBTDC 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 ASBTDC 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 ASBTDC 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 ASBTDC does not have any money to loan to individuals or businesses.
The ASBTDC 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 ASBTDC 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 ASBTDC 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 ASBTDC 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 SBTDC'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.
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 ASBTDC 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 ASBTDC 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 ASBTDC business plan outline to use as the basis for developing your plan as well as the ASBTDC 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 ASBTDC 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 ASBTDC 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 ASBTDC give small business loans or grants?
No. The ASBTDC does not provide loans or grants for small businesses.
27. What assistance does the ASBTDC provide to me if I am seeking a business loan?
The ASBTDC 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 ASBTDC 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 ASBTDC 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 ASBTDC recommends that anyone who is considering applying for a small business loan review the following information:
Obtaining Small Business Financing
The ASBTDC 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 ASBTDC 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 and Technology Development Center. Why?
Lenders often refer their customers to the ASBTDC for assistance in preparing to apply for a small business loan. The ASBTDC 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 ASBTDC in order to obtain a small business loan?
No. Working with the ASBTDC is optional. However, working with the ASBTDC better equips you as you proceed through the loan application process. We often hear from lenders that their customers who work with the ASBTDC are better prepared and have better business plans/loan proposals than those who do not. An added benefit of working with the ASBTDC 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 ASBTDC 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.
ASBTDC's NAICS Database - search for NAICS and SIC codes by keyword