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Small Business

The Ultimate Guide to Secured Business Loans

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Opening or expanding a small business usually involves a significant financial investment, whether it’s paying for building renovations, computers or additional inventory. For new business owners with ambitious plans, this type of investment often requires more capital than they have on hand, and existing businesses may not have enough cash available to grow while continuing to pay regular operating expenses.

One common solution is a business loan, which can be secured from banks or other private lenders for more favorable terms and lower interest rates than unsecured loans.

In this guide, we’ll cover:

Part I: Understanding Secured Business Loans

USBL Table

Business loans typically are secured or unsecured, and the type of loan that you can qualify for will depend on market conditions, your credit score, your assets and your business’s profitability and outlook.

Secured business loans require collateral – as much as 80 percent or more of the loan’s value, which shows that the borrowers can repay the loan if the business fails or the loan goes into default. That means that business owners need to show the lender that they are willing to take on significant risk, including the possibility of losing their house or business assets, to secure financing for their business venture.

Unsecured loans do not require collateral and typically are easier to qualify for. For secured business loans, on the other hand, lenders look for applicants who are in a position to pay the loan back regardless of the business’s success and are willing to risk their own assets for the business. Applicants also need to have good credit and businesses that are feasible in the current market.

“That’s why [lenders] want people to have a proven track record of doing things responsibly,” says Roman Starns, a business consultant with the Louisiana Small Business Development Center. “[Borrowers are saying,] ‘look, I’m willing to put my home equity in, I’m willing to pledge some real estate, I’m willing to put 20 percent down in cash to make this business work.’

“That’s going to mean they are more likely to run that business well and do well at it. If someone puts nothing into it, they have nothing to lose but their credit.”

Lenders also will investigate whether the business is viable in the current market. An entrepreneur who wants to open, for example, a VHS repair shop could have a solid business plan and financial backing, but lenders likely will reject the application.

“They are going to look at the market conditions for this loan as well,” says Starns, who has 20 years’ experience as an entrepreneur and small business owner. “No one has VHS anymore. They want to see that this is a workable business and the financial projections on it show that, within reason, you’re going to be able to pay back everything and the business is going to make it. It’s not as easy as, ‘Oh, I have a great idea that’s going to work,’ and you go get a loan for the money.”

Part II: Types of Business Loans

Traditional lending institutions, such as banks, offer standard secure business loans through a simple application process. Borrowers can apply in person or online, and bank professionals will work with the borrower on the terms and amount of the loan. For applicants and businesses in good financial shape, this process can be quick and easy.

The type of business loan a borrower applies for will depend on their need for cash, financial situation and availability of collateral. Here are some options for business owners considering secured business loans.

Term loans

Term loans are best for business owners who have a specific, one-time need for cash, such as buying an expensive piece of equipment or financing a major building renovation. A term loan will provide the money up front in a lump sum, and the borrower pays it back over time. These loans typically are approved for established businesses that need extra cash to expand or enhance their services.

The length of the repayment period will depend on the purpose of the loan and the amount of collateral the borrower can offer. Until recently, term loans were offered between two and five years, but now they can be repaid in as little time as six months or as long as 25 years.

Deciding which type of term loan you need depends a lot on how soon are prepared to repay the loan.

Up to 2 years: Short-term loans

Short-term loans, which are best for paying for a pressing business need, must be paid back quickly. Terms might require daily or weekly payments, which allow the borrower to pay back the money quickly and minimize financing costs.

2 to 5 years: Medium-term loans

Medium-term loans are ideal for companies that are growing and are optimistic about their future. These loans, which usually are repaid in two to five years, allow business owners to put plans for expansion into action immediately rather than waiting to save enough money to buy equipment or other assets that will allow the business to grow. Medium-term loans can be unsecured or secured, and approval is based on the applicant’s credit score and collateral, if required.

10-25 years: Long-term loans

Long-term loans are designed for businesses that can project growth years. The amount of these loans, which have repayment terms ranging from 10 to 25 years, is dependent on the need, and they can range from several thousand dollars for a small equipment purchase up to $1 million for buying a building or property.

SBA-guaranteed loans

It is a common misconception that the Small Business Administration, a government agency that provides assistance to small businesses, loans money to businesses. Instead of making loans directly, the SBA creates guidelines for loans and then guarantees to its lending partners that their loans will be repaid.

The SBA works with several different kinds of institutions, including traditional lenders, microlending institutions and community development organizations. When a business applies for an SBA loan through one of these partners, the partner provides a loan that is structured according to SBA rules and is guaranteed by the SBA.

Because the SBA is a government organization, its rules and practices can change as government fiscal policies adapt to the current economy. It’s important to always check with the SBA for its most current policies and loan programs.

The SBA typically will not offer loans to businesses that can secure financing on their own, and it does not offer grants to new or expanding businesses. It does provide several programs to help borrowers finance different aspects of a business.

  • General small business loans: These loans, called 7(a), are the SBA’s most common loan program and can be approved for up to $5 million, although the SBA states that the average 7(a) loan for fiscal year 2015 was about $371,000. These loans are assigned low interest rates, and the SBA will guarantee as much as 85 percent of the loan up to $150,000. Seventy-five percent of loans over $150,000 are guaranteed. The loans are generally available to small businesses that do business in the United States and have already used alternative funding sources, such as personal savings.
  • Microloans: Available for startups and business expansions, SBA microloans are provided through intermediary nonprofit community organizations for up to $50,000. The average microloan is $13,000, according to the SBA, and interest rates are between 8% and 13%. Business owners usually are required to pledge collateral and a personal guarantee.
  • Real estate and equipment loans: The CDC/504 program offers loans for buying land, improving property, constructing and improving buildings, and purchasing equipment and machinery. Successful applicants will have a feasible business plan, no available funding from other sources, good character, and business projections that show an ability to pay back the loan. Loan amounts are based on how the business will use the money and how closely the business’s plan meets the program’s goals.
  • Disaster loans: When businesses suffer losses due to a declared disaster and are in a declared disaster area, SBA low-interest disaster loans are available to replace or repair real estate, personal property, inventory, business assets, and equipment and machinery damaged in the disaster. Owners of businesses of all sizes can apply online, at designated disaster recovery centers, or by mail, and the loan can be repaid in monthly payments or a lump sum. Loans can be approved for up to $2 million.

Business line of credit

A business line of credit works much like a business credit card, allowing the business to access funds as needed and make minimum monthly payments to repay the borrowed money. Through this type of lending, business owners can set their own borrowing and repayment schedules, depending on their cash flow.

Lines of credit are appealing to businesses because they are easier to obtain than standard secured loans, and the business owner does not pay interest until they withdraw money from the credit line. This type of borrowing is best for established businesses with optimistic outlooks, as struggling businesses in danger of failing may leave the owner personally responsible for unpaid debt.

Chris Kline, co-owner of a pillow manufacturing business in Bucks County, Pa., says his business recently took out a $50,000 line of credit to buy more manufacturing equipment to meet increasing demand for their products. Kline and artist Eric Fausnacht opened the business manufacturing pillows printed with Fausnacht’s artwork five years ago, and Kline helped move the business from arts and crafts shows into the wholesale market.

The application process for a line of credit included a meeting with a bank official, who visited the company on-site and talked at length with the business owners about their company and business projections.

Kline, 45, says that he prefers to borrow conservatively, and he and Fausnacht pledged business assets rather than personal assets to secure the line of credit. While unsecured lines of credit are available for maximums under $100,000, secured lines of credit typically have lower interest rates and higher credit lines.

“I’m not looking to borrow more than 10 or 15 percent of annual sales,” Kline says. “And I’m confident we will be able to pay that back if something unforeseen happens.”

The new equipment purchased with the line of credit already increased production and revenues enough that Eric & Christopher now has eight or nine full-time employees and additional part-time staff.

Equipment loans

Many businesses require expensive equipment, such as an X-ray machine or a tractor, to get started. Without revenues from the business, a business owner may not have the capital to pay for the equipment. An equipment loan, which several types of lenders offer, can help a business buy the equipment it needs to begin or expand operations.

Unlike many other types of business loans, the equipment can serve as collateral for the loan and makes the loan easier to obtain. If the borrower can’t make the payments, the lender will repossess the equipment and sell it to recoup some of its losses. Applicants for equipment loans should have good credit and cash available for as much as a 20 percent down payment.

Equipment loans typically come with low interest rates and manageable payments, making them good tools to help businesses afford expensive purchases. Business owners must pay off the entire loan, even if the loan repayment term is longer than the life of the equipment.

Invoice financing (factoring)

Invoice financing, also called invoice factoring, is an easier way for an established business owner to raise capital than with a standard secured loan. This process allows business owners to sell their outstanding invoices at a discount to a third party, which then collects on them to repay a single-payment loan issued to the business owner.

These types of loans are beneficial for business owners who need cash faster than the repayment deadline on the invoices. Invoice financing can cover cash flow gaps and payroll, for example, and it is low risk because the money comes from completed sales rather than sales projections. The downside is that invoice financing requires substantial fees.

Inventory financing

Businesses that depend on a steady flow of inventory can use inventory financing to keep their shelves stocked or to buy more inventory for seasonal sales increases. Inventory financing also can help small businesses with cash flow during periods of slow sales.

Inventory financing provides a revolving line of credit that business owners can draw on as needed. The business owner pledges existing inventory as collateral for the loan.

Part III: How to Secure Your Business Loan

There are several ways to secure a business loan. You can use hard assets for collateral, like a house or a boat; paper assets, like investments and savings accounts; or your own inventory and invoices. We’ll dig into types of ways to secure your business loan here.

Securing your business loan with collateral

If you or your business has significant assets, you likely are a good candidate for a secured business loan. Lenders will consider the amount of collateral you have when deciding on your loan application, as they want to reduce their risk in case you can’t repay your loan. If you default, lenders will take possession of collateral and sell it to regain at least some of the money they lent you.

This is where risk can come in. While your business may be secure when you apply for the loan, downturns in the market or other unexpected events may push a business into hard times. For example, if an unsavory business moves in next door, your customer traffic may slow significantly. If a machine breaks down or needs to be replaced, production could be slowed and orders unfulfilled. Theft and natural disasters that destroy your business’s property also can severely reduce revenues and lead to unexpected expenses.

If unforeseen circumstances result in a business owner being unable to make loan payments, the lender can seize collateral. As a result, a business owner can lose their house, their car or their savings. If the collateral is property belonging to the business, seizure can be just as devastating, and losing significant business assets can cause the business to close.

The payoff for a secured loan, though, will be more flexible loan terms and significant financial savings over time. Borrowers with secured loans will pay lower interest rates and fewer fees, and they may not be penalized for paying off the loan early.

Hard vs. paper assets

Lenders typically will accept personal and business assets, which a business owner can pledge as collateral if they want to protect their personal property. Either way, borrowers must promise the lender something valuable that can easily convert to cash in the case of default to recoup losses.

Borrowers can pledge two types of collateral: hard assets and paper assets. Hard assets include houses, vehicles, boats and land, while paper assets include stocks, savings, investments, insurance policies and bonds. Lenders also will happily accept cash accounts as collateral, but they will not consider retirement accounts, such as 401(k) plans.

Business assets that qualify as collateral include inventory, insurance policies, accounts receivable, machinery and equipment, and unpaid invoices.

Some lenders may attach a blanket lien to a loan as collateral, and borrowers should be aware of the sweeping consequences this can have if the loan goes into default. Blanket liens give lenders a legal claim to all of your assets, business or personal, if you stop making loan payments.

Securing your business with a personal guarantee

In many cases, borrowers will be asked to provide a personal guarantee for a secured business loan. This requires the signatures of all principal owners, ensuring that they have assets they can put up as collateral. While the signatures are on unsecured promises, a personal guarantee does allow the lender to take signers’ assets if the loan is not paid. If you don’t have enough assets to personally guarantee a loan, business consultant Starns recommends finding a business partner who does.

Personal guarantees are different from collateral in that they give lenders access to a wide range of assets, while collateral typically specifies assets the lender can seize in case of nonpayment.

It’s important to know what you’re signing when offering a personal guarantee. If you do default on the loan, the lender may release you from the personal guarantee if you ask, and you also could try to arrange with the lender to first sell business assets to satisfy the outstanding debt before they seize your personal assets.

Part IV: Shopping for a Secured Business Loan

Borrowers can apply for secured business loans at several types of financial institutions. Banks and credit unions offer standard application procedures that include filling out an application in person or over the phone, discussing terms and the loan amount with a loan officer, and working with a business specialist to access funds if the loan is approved.

Business owners can apply for SBA loan programs through partner lenders, which can include banks and community organizations that work within SBA guidelines. Borrowers will need to download and complete an SBA loan application and be prepared to submit documents such as personal background and financial statements, business financial statements, and income tax returns. A list of SBA lenders is available on the agency’s website.

Online lenders typically have faster application processes and can get money to borrowers quickly, but they often come with higher interest rates than traditional lenders. Some online lenders often charge origination and monthly maintenance fees as well.

To compare offers from multiple business loan lenders, check out MagnifyMoney parent company LendingTree.com.

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Do your research

Before business owners begin shopping for a secured business loan, financial advisers recommend realistically assessing their business’s economic situation. Secured business loans come with great personal risk, as a failed business and inability to pay off a secured loan can cost a business owner significant personal or business assets. Online calculators can help borrowers estimate potential monthly payments and make good decisions about what amount of loan they can afford.

Bob Burton, a retired businessman who now volunteers as a mentor for the Charlotte, N.C., office of SCORE, a national organization that provides mentoring and education to small business owners, says he makes sure that clients understand the economics of their idea for a business.

“They have to make the call whether they want to put their money in it,” Burton says. “A lot of people don’t understand what’s involved in starting a business. It sometimes can look very simple, but it can be quite complex.”

Starns advises borrowers to think through how realistic their plan is, including whether they are truly committed to the endeavor and have enough experience to execute it, before taking on a secured loan.

“You’re risking a lot of things,” he says. “Owning your own business is rewarding, but it’s also risky and takes a special mentality to be able to do it.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Marty Minchin
Marty Minchin |

Marty Minchin is a writer at MagnifyMoney. You can email Marty here

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Small Business

Small Business Grants: 10 Programs to Get Started

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Small business grants
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When you need funding for your small business, receiving money you don’t have to pay back would be the best case scenario. Various organizations award grants to small businesses without expectations of repayment. The catch: steep competition and stringent standards.

Government grants for small businesses, as well as corporate and private grants, are highly sought after, and are given to businesses that meet specific eligibility criteria. The application process can be time-consuming and competitive, but your efforts could pay off if your business is selected.

We’ll help you better understand what types of small business grants you may be eligible for, as well as a few programs that could be a good fit for your business.

Who can apply for small business grants?

Many grants are targeted toward certain types of businesses or owner demographics, such as women, minorities or military veterans. Grants could also be industry-specific, and recipients could be restricted in their use of funds.

Business grants can be separated into two general categories – grants from federal agencies and those from private groups or entities, including nonprofits.

Federal grants are available to all levels of government entities, like city or county governments or independent school districts, nonprofit organizations and for-profit businesses. Grants.gov provides a searchable database of federal grant programs. State and local governments also have grant and assistance programs for small businesses. In these programs, federal money is typically awarded through state agencies. Recipients are typically chosen based on statewide social or economic concerns. You can find resources for business owners in your state at USA.gov. It’s also possible your city or county could have available grants for small businesses, so check your local government websites as well.

Private grants are available from for-profit businesses or nonprofit organizations. Corporations and foundations offer private business grants to small business owners, and these programs are usually competitive and focus on certain types of business.

Government grants are usually distributed to businesses that could help advance certain causes or initiatives or stimulate the economy in a specific way. Private grants are typically awarded with similar intentions, and grant makers would select businesses that support a particular focus or goal.

How to apply

Grant eligibility requirements would be based on the goals of the organization: who they want to give money to and how they want that money used. You could also expect a grant application to ask for common business information including how many years you’ve been in business and your annual revenue.

You may have to disclose additional personal information depending on the grant program. Your gender or income level could be a factor. You could be required to submit a personal statement or resume, as well as a business plan and a proposed use for the grant.

10 business grant programs to get started

The competitive nature and strict requirements of grant programs could make it challenging to receive a small business grant. But if you are chosen as a recipient, you would have access to debt-free funding for your company. We’ve compiled a list of general small business grant programs for which you could apply.

Government business grants

1. Small Business Innovation Research Program

The Small Business Innovation Research program, or SBIR, encourages research and development among small businesses. Through the Small Business Administration-powered program, federal agencies allocate a percentage of their research and development budgets to eligible businesses. Participating agencies include:

Grants for first-time applicants could be up to $150,000. Recipients can then apply for a second grant up to $1 million.

2. Small Business Technology Transfer Program

The Small Business Technology Transfer program is associated with the SBIR program and promotes technological innovation in business. Five federal agencies participate in the SBA-backed program:

The program has the same maximum grant amounts as the SBIR program – up to $150,000 for new applicants and up to $1 million for recipients continuing in the program.

3. Environmental Protection Agency Grant Programs

In addition to providing grants through the SBIR program, the Environmental Protection Agency offers grants for a range of environmental activity, such as making improvements to air quality and public health. Grants are available to small business owners, as well as community organizations, tribal programs and college students.

4. Challenge.gov

Government agencies post contests on Challenge.gov to crowdsource innovative solutions. Small business owners, academic researchers, hobbyists and students have won past challenges, which come with prize money to carry out the proposed solution.For example, the Department of Health and Human Services is awarding a total of $400,000 to three winning ideas for improving Alzheimer’s and dementia care through technology.

5. State Business Incentives Database

To help business owners find local assistance programs, The Council of State Governments provides information on available resources through the State Business Incentives Database. For instance, the site lists the Kansas Tourism Marketing Grant Program designed to help businesses and organizations in the tourism industry with innovative marketing strategies.You can’t apply through the database, but it could be a valuable resource when searching for state grant programs.

Private and corporate small business grants

1. NASE Business Growth Grant

The National Association for the Self Employed awards $4,000 grants each month to business owners looking to grow their enterprises. Applicants must be members of the organization to be eligible. Purchasing an annual membership for $120 would allow you to apply immediately after joining, but you would have to wait 90 days to apply after buying a monthly membership for $11.95.

2. Tory Burch Foundation Fellows Program

The Tory Burch Foundation, created in 2009 by fashion mogul Tory Burch, awards $5,000 to women entrepreneurs as part of a one-year fellowship. Recipients also receive four days of workshops with experts in the Tory Burch office in New York, as well as one year of access to the foundation’s online resources and peer network. Each year, 50 fellows are chosen to participate in the program, and a select few are also invited to pitch their businesses to industry professionals.

3. FedEx Small Business Grant Contest

FedEx chooses 10 businesses each year to receive grants and FedEx Office services. One grand-prize winner receives a $50,000 grant and $7,500 in print and business services, while a second-place winner receives a $30,000 grant and $5,000 in print and business services. Eight additional winners each receive a $15,000 grant and $1,000 in print and business services. The general public can vote for contestants online, and FedEx selects winners from a pool of 100 finalists who received the most votes.

4. Street Shares Veteran Small Business Award

Business owners who are veterans, active-duty military members, spouses of military members or children of military members who died on active duty can apply for grants from the Street Shares Foundation. Eligible businesses must have some sort of social impact on the military community. The Street Shares Foundation awards a $15,000 grant to a first-place winner, while a second-place business receives $6,000. A $4,000 grant is reserved for third place. The Street Shares Foundation is a philanthropic branch of Street Shares, an online lender that specializes in loans for veteran-owned businesses.

5. Visa Everywhere Initiative

Visa awards business owners in the financial technology industry who pitch winning solutions to various business problems. For instance, Visa challenged applicants this year to create solutions that make it easier for consumers to access digital payment tools. Applicants’ ideas must be relevant to Visa’s business and should have the potential to add value to the company’s clients. The winning business receives $50,000 from Visa and a possible partnership with the company.

Alternatives to small business grants

Applying for grants may feel like a pointless effort because of tough eligibility requirements that are often tied to the agenda of the grant sponsor, whether it’s a federal entity or a private corporation. The way you use the funding could be regulated as well.

There are other ways to secure business financing if you would rather avoid the grant application process and competition for funding. Consider these alternatives, but keep in mind you would typically have to repay the money you receive, possibly with interest.

Small business loans

Different types of small business loans are available to meet your funding needs. You could take out a long-term or short-term loan and pay back the money over a set period of time. You may need a strong credit profile to qualify for a business loan, and lenders would also consider your business history, cash flow and assets that could secure the loan. If you need funding right away, you may want to consider a short-term loan rather than taking your chances on a grant. Short-term financing typically has fast time to funding because of minimal application requirements.

Crowdfunding

Small business owners can solicit funding from the general public through crowdfunding. Platforms like GoFundMe, Indiegogo and Kickstarter provide a platform for you to collect contributions for your business. Some platforms require you to offer products or equity in your company in exchange for funds, but others allow you to accept donations. Like applying for a grant, starting a crowdfunding campaign doesn’t ensure you’ll receive funding. It could take time to generate contributions, and you may not raise as much money as you’d like.

Microloans

Microloans are disbursed in small amounts less than $50,000 and are typically reserved for businesses involved in community development. Like many grants, some microloan programs target underserved demographics, such as the SBA Microloan Program that prioritizes low-income, women and minority business owners. A microloan may have higher interest rates than a traditional bank loan, and the small loan amount could result in a quick repayment schedule.

The bottom line

Small business grants are often referred to as “free money” from government entities or private organizations. Although you wouldn’t have to repay a grant, it’s not a handout for just any business.

Many grant programs are designed for certain types of businesses or business owners. You may have to meet strict requirements to be eligible. Competition is usually fierce for business grants, especially those from giant corporations like FedEx. Your chance of receiving a coveted grant could be slim.

However, if you do qualify for a small business grant, you would be able to fund your venture without the worry of paying off debt. There are numerous small business grants available both nationally and locally, so it could be worth your while to find grant programs that align with your business.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Melissa Wylie
Melissa Wylie |

Melissa Wylie is a writer at MagnifyMoney. You can email Melissa at [email protected]

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Small Business

Most Profitable Industries for Small Businesses in 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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The economy is growing and the market is (mostly) thriving, so if you’ve been thinking of launching your own small business into the world, the time just might be right. But if you’re an entrepreneur, there can be such a thing as too many ideas. You might have a dozen or more brilliant concepts but perhaps you don’t know how profitable a certain industry is likely to be.

We’re here to help. Working with data from the U.S. Census Bureau, Bureau of Labor Statistics and software company Abrigo, we’ve pulled together the most profitable small business sectors. Whether you’re a small business owner interested in where you rank or an entrepreneur doing market research, there are some important insights ahead.

Most profitable industries

The Census Bureau ranks, among other things, profitability by sector in its Annual Survey of Entrepreneurs. Here are the top 10:

Industry

% businesses reporting profits

Finance and insurance

73.1

Professional, scientific and technical services

70.9

Management of companies and enterprises

70.5

Real estate and rental and leasing

66.9

Health care and social assistance

65.9

Construction

65.1

Wholesale trade

63.8

Administrative and support and waste management

63.5

Manufacturing

61.7

Retail trade; accommodation and food services (tied)

60

Source: U.S. Census Bureau 2016 Survey of Entrepreneurs

Management of companies and enterprises topped the list as well when Abrigo looked at the most profitable small businesses by net profit margin for a 12-month period ending April 30, 2019. Net profit margin is calculated by taking a small business’ revenue minus all expenses, including interest and taxes. As part of its services to the banking and accounting industry, Abrigo collects financial information on private companies that is then anonymized and aggregated by industry.

Industry

Net profit margin (%)

Management of companies and enterprises

22

Lessors of real estate

20.9

Financial investment activities

19.4

Commercial and industrial machinery and equipment rental and leasing

17.7

Accounting, tax preparation, bookkeeping and payroll services

17.7

Legal services

17.4

Agencies, brokerages and other insurance-related activities

16.4

Activities related to real estate

15.7

Offices of real estate agents and brokers

13.9

Support activities for mining

13.3

Source: Abrigo

Fastest-growing occupations

Clues may also be gleaned from the Bureau of Labor Statistics’ employment projections in the decade between 2016 and 2026. Clean energy and health fields dominate this list of the 10 fastest-growing occupations:

Occupation

% change in employment

Solar photovoltaic installers

104.9

Wind turbine service technicians

96.3

Home health aides

47.3

Personal care aides

38.6

Physician assistants

37.3

Nurse practitioners

36.1

Statisticians

33.8

Physical therapist assistants

31.0

Software developers, applications

30.7

Mathematicians

29.7

Source: Bureau of Labor Statistics

Steps to getting started

But before you start a business, you’ll need to put in some leg work. We’ve rounded up four key steps that are essential to starting a business. Here’s what it takes to get your business off the ground.

1. Do your research

If you’re reading this article, congratulations. You’ve already started tip No.1: doing your research.

To start a business, you’ll need to do your homework — a lot of homework. That means thorough market and competitor research, as well as an analysis of financial feasibility, before you start making any business moves. You want a good answer to the question: “What does your business do, and what sets it apart from competitors?”

Some questions to get you started include:

  • What’s the demand for your product or service?
  • How big is your potential market?
  • Which competitors are already out there, and how many are there?
  • What do these consumers already pay for your product or service?

2. Make a plan

You won’t get very far without a well-researched, clear and solid business plan. This plan is a map — it will outline where your business is right now, where it’s going and how you will get there. If you’re not sure what a good business plan looks like, the U.S. Small Business Administration has a few templates and samples to help you get started. Most business plans will have the same information, but how you structure it will depend on how much detail you want to use.

3. Figure out financing

This is one of the most crucial steps to making a successful business. You need funding to grow, but you may not be able to get it as easily as an established venture. The first step is to figure out how much funding you need. That will determine where you get it from: if you’ll be self-funded, need to find investors, or apply for a loan. Your funding will obviously have an enormous impact on what your business will look like in the future, so it’s important to make figuring out how you’ll get capital one of your first steps.

4. Make it legal

This is not the most exciting part of starting a business, but everyone has to do it. You can make the process more painless by figuring out early what permits, licenses and forms you’ll need to fill out in order to become a business in the eyes of the law. Figuring out what paperwork you need early on in the process is one way to stay on top of things and make sure there aren’t any legal surprises later on.

A closer look at top industries

Specialized services

Industries such as legal services and mining activities are regular fixtures on the list compiled by Abrigo and formerly Sageworks — Sageworks became part of Abrigo after it was acquired in 2018 — said Libby Sharman, Abrigo’s vice president of marketing. One reason for this is steep barriers to entry or high degrees of education required. Keeping the talent pool small benefits these businesses.

They also may not require steep overhead costs, added Sharman. In the case of businesses involved in support activities for mining such as exploration, “they’re not necessarily buying and maintaining all the heavy equipment necessary for running a mine,” she noted. Low overhead costs may also apply to some of the professional industries on the list, firms where their primary expense is the people they have in revenue-generating roles. Without much overhead to account for, “they can have a higher than average profit margin. So many of these industries, legal, accounting, there’s so much training [for business owners] to get to that point, their experience is going to be a calculable asset relative to other small businesses.”

Machinery and equipment rental and leasing

“Construction may be a significant driver of profitability for this industry,” Sharman said. Smaller, local stores that provide machines to rent are more likely to be able to charge a slight premium because of their convenience or react quickly to the inventory needs of their local clientele. According to industry research firm IBISWorld, a key factor of success in this industry is the ability to control stock, so keep this in mind.

Construction equipment rental

This business provides construction equipment rentals to local contractors and property owners alike. Swift delivery and pick-up and a commitment to customer service will set you apart from larger competitors.

Medical equipment rental

Medical equipment rental businesses are also a part of this sector. Customers can rent everything from a hospital bed to a breast pump from these businesses.

Activities related to real estate

This has been one of the hottest growing sectors in the country recently, both for residential and commercial real estate (albeit one predicted to grow slightly slower in the near future, in the case of the latter). “These shops can also benefit from a low overhead since there is no inventory carrying costs or high-tech needs in the business,” Sharman said.

Under the umbrella of real estate are other types of work:

Property management

Property managers deal with the operation, control, and oversight of real estate, often acting as a go-between for landlords and tenants. The key to building a property management company is building a robust client base — so network, network, network.

Property appraisal

Property appraisal is generally an area of steady work (particularly if you live near a hot real estate market). Different areas and markets will often have different licensing needs, so make sure you do your research before beginning your training.

Traveler accommodation

This is the sector that includes short-term lodging. Aside from a place to sleep, these businesses might offer other perks like food services or recreational activities. Location is key for these businesses — hotels in touristy areas are always a good bet, but filling a niche in a less-trafficked locale means there’s less competition. U.S. travel bookings and revenue swelled to nearly $800 billion in 2017, according to Deloitte. Even though the accounting giant predicted growth in 2019 as well, it warned of challenges ahead. Here’s how small businesses can fit into this global business.

Bed and breakfasts

Bed and breakfasts aren’t always the cheapest option for accommodations, but they can offer travelers character and charm that chain hotels can’t compete with.

Resorts

Small, seasonal resorts occupy a similar niche to bed and breakfasts. “Given their smaller operating levels and boutique experience, they may be able to charge a premium to guests and avoid franchise fees, which protect their profit margin,” Sharman said.

Motels

Location and upkeep is everything — weary travelers are more likely to choose a well-maintained and attractive motel near major roads to turn in for the night.

The bottom line

No single factor will determine whether your small business is profitable. Decisions you make as a business owner, conditions in your particular city and in the country as a whole may affect the success of your enterprise. The important thing is to leverage your particular expertise and follow best practices for developing a solid business plan. These will help you weather the inevitable ups and downs of starting and running your own business.

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Kate Rockwood
Kate Rockwood |

Kate Rockwood is a writer at MagnifyMoney. You can email Kate here

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