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Small Business

How to Use a Working Capital Loan for Your Business

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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It takes money to make money, but sometimes it’s difficult to obtain the capital you need to run a profitable business.

Despite business owners’ best efforts to plan monthly expenses around anticipated revenue, unexpected costs can throw off the entire plan. For those struggling to fund their daily operations, working capital loans could provide a quick solution.

What is working capital?

Working capital is the money available to fund a business’ day-to-day operations. To determine working capital, business owners subtract their current liabilities from their current assets. The formula defines whether a company has enough cash on hand to pay its immediate expenses.

A business owner’s personal savings or a loan could supply working capital, which fills the gap between expenses and the amount of income the business is generating, Joel Youngs, regional director of the Eastern Iowa Small Business Development Center, told MagnifyMoney.

“There’s an ebb and flow in the expenses a business owner has to pay in a given month versus the money that’s coming in,” Youngs said. “When life throws a curve at you, you access that money to pay the bills.”

Business owners increasingly need help making ends meet on a short-term basis. Working capital was the main reason 66 percent of U.S. business owners sought financing in the second quarter of 2017, up from 54 percent during the same period in 2016.

“If you’re generating enough cash internally where you don’t have to borrow money, that’s great. That’s the ideal situation,” Leonard Briskman, team leader of advisory services for SCORE’s Washington, D.C., chapter, told MagnifyMoney. “But I would think most businesses would have to borrow money.”

Working capital can be both positive and negative. Positive working capital means a business has enough funds to pay short-term bills and finance their growth. Negative working capital shows a business isn’t using its assets effectively and may not be able to cover unexpected liabilities. This could lead to additional borrowing, late payments and a lower credit rating.

Understanding working capital loans

A working capital loan could fall under the broad umbrella of term loans — lump-sum loans paid back over a fixed amount of time (the term), generally with fixed interest rates and fixed payments. A working capital loan could also come in the form of a line of credit or a merchant cash advance, which both allow you to access capital quickly and pay the lender back at a later time.

Pros:

  • A working capital loan could be used to cover any business expense for an owner in any industry. You could receive the money in as little as three weeks if your financial details are in order, Youngs said.

Cons:

  • While working capital loans could quickly cover unexpected expenses, the loans could also get too big, too fast, Youngs said. If you took out a loan to cover six months’ of additional work and that work turned out to last seven or eight months, you would have to borrow more money on a short-term basis. That means you would go into more debt, which could lead to higher interest rates and, ultimately, profit loss.

When to consider a working capital loan

You should apply for a working capital loan long before you plan to use it, Youngs said. You should get an early start on the application with a bank or other loan provider, as it could be a few weeks to several months before you have access to the money.

The following situations indicate you may soon need a working capital loan:

An increase in hiring. If you’ve hired more employees to expand the business, a working capital loan could cover those employees’ salaries until the business becomes profitable enough to sustain the new paychecks.

An upcoming slow season. Some businesses perform better during certain months of the year. A working capital loan could cover expenses to keep the doors open until the busy season rolls around again.

An increase in orders. Oftentimes customers will place orders for products or services before paying, creating a lag between expenses and income. For example, a carpenter could be contracted to build a room extension in a house but would not receive a check until the work is completed in two or three months. A working capital loan would help the carpenter bridge the gap between starting the work and receiving payment from the customer.

Is working capital financing right for you?

Business owners who experience frequent ups and downs in revenue would benefit most from working capital loans, Youngs said. Any business owner could use this type of financing to hold them over until payday, and it isn’t limited to a specific industry or type of business.

“The more time your business has between getting the work done and getting it paid for, the more you should consider a working capital loan,” he said.

If you have the option to tap into personal money to support working capital, then you could avoid getting into debt with a loan, Youngs said.

Business owners should avoid a working capital loan if they’re not generating enough money to stick to a repayment schedule, Briskman said. Typically, a lender would be able to tell if you’re not equipped to handle debt and would not offer financing.

“After a while, if the company starts falling back on the payments, it creates all types of problems,” Briskman said.

Shopping for working capital financing

Business owners can apply for working capital financing from traditional banks and non-bank commercial lenders, many of which operate online. These institutions tend to lend to people who have an established business and a good credit rating, Briskman said. There are several different forms of working capital financing for owners looking for an infusion:

Short-term loans

Short-term business loans allow you to quickly borrow a small amount of money. The funding could be available in as little as 24 hours. However, you must pay off the debt within three to 36 months, and some loans carry a high APR.

Short-term loans could be a good solution for a temporary cash bind, like covering seasonal costs or an expensive project, Briskman said. He recommends keeping these loans within a 12-month repayment period to maintain low debt. Shorter loans do come with more frequent bills, and you could be required to make a daily payment. Short-term loans tend to be capped at $500,000, so you may have to turn to a different form of financing if you need more than that.

Business lines of credit

Rather than borrowing a large amount all at once, you can access money as you need it with a business line of credit. You only pay interest on the amount you borrowed, but interest rates are generally higher for lines of credit than for short-terms loans.

This type of financing would be best for covering an immediate, unexpected expense, Briskman said, and you only have to borrow the exact amount you need. Like a short-term loan, a line of credit should be paid back within 12 months because of high interest rates, he said. Once you’ve paid off the amount you withdrew, the full loan would be available again for future expenses.

Merchant cash advances

A merchant cash advance provides capital in exchange for a percentage of your future debit or credit card payments. This type of lending is available from non-bank lenders, many of which are online, and the repayment schedule is based on your business’ revenue trend. The more card transactions you process, the faster you pay off the debt. This option could be expensive, as you could pay back between 20 percent and 40 percent more than your original advance.

Merchant cash advances are commonly used to finance new equipment purchases, building expansions, remodels and seasonal merchandise. Businesses are required to make a minimum amount in or certain percentage of card transactions each month to secure a merchant cash advance. Repayments are integrated into your business’ credit card processing system, so the lender gets a cut of each transaction before you see any of the money. Some lenders may require you to move to an approved processing system before issuing the advance.

Unlike loans, merchant cash advances are practically unregulated and most are issued without disclosing APR or expected monthly payments. Lenders often target business owners with poor credit who are unlikely to be approved for a loan, but high interest rates and large, frequent repayments make merchant cash advances a risky choice.

SBA loans

An SBA loan is provided through a bank that is backed by the Small Business Administration. These loans typically have competitive terms and require low down payments. But SBA loans have strict eligibility requirements and they don’t allow you to borrow from another lender once you’ve been approved for an SBA loan. That means if the SBA doesn’t loan you as much as you’d hoped, you cannot go to another lender for additional funds.

Banks could charge between 7 percent and 9 percent in interest on SBA loans, Briskman said. SBA loans require a large amount of financial documentation and detailed business projections, and businesses have a better chance of securing this type of financing the longer they’ve been in existence, he said.

Applying for a working capital loan

When reviewing applications for any type of business loan, Youngs said banks look at five factors — the business’ cash flow, creditworthiness, collateral, capacity to repay the loan and the character of the owner. Lenders prefer to work with people who are trustworthy and have enough cash flow to cover the debt.

Applying for a working capital loan could take weeks or months, depending if the business owner has their financial documents ready to go. Small business loan providers need profit and loss statements, current cash flow for established businesses or projected cash flow for new businesses, and a balance sheet.

The application requirements vary by type of financing you’re looking for, as well.

Short-term loans

A traditional bank or a non-bank commercial lender would look at your credit score and cash flow projections before approving you for a short-term loan. Lenders usually prefer borrowers with an average credit score and consistent monthly revenue. They would also expect to review your business plan, balance sheet, tax returns, active accounts and proof of licenses related to your industry. If your documents are in order, you could be approved in as little as one day.

Business lines of credit

Lenders would check your personal credit score, generally preferring a score of 600 or higher. They would also take into consideration how long you’ve been in business, requiring anywhere from six months to two years of operation. Lenders’ revenue requirements would depend on how much money you’re looking to borrow through a business line of credit, but they would also look into your accounts receivables to determine what physical assets your business possesses. Like a short-term loan, you could receive a business line of credit at either a traditional bank or non-bank lender.

Merchant cash advances

You could also find a merchant cash advance through a non-bank lender. You would be required to provide several months’ worth of credit card payment processing data, as well as bank statements, your Social Security number and business tax ID. The lender may require you to switch to a new credit card processor before approving the advance. Once you’re approved, which could be in as little as 24 hours, the payments could start as soon as the next day.

SBA loans

The SBA backs hundreds of banks across the country. Check out this list of the most-active lenders of 7(a) loans, the SBA’s primary loan for small businesses, to find a bank in your area. To apply for a 7(a) loan, you would need to follow a multi-item checklist, which includes submitting business financial statements, the business’ existing debt schedule and documents supporting collateral, such as real estate appraisals or lease agreements. The application process for an SBA loan could take between two and five months.

Businesses become less risky to lenders the longer they’ve been around, so older businesses would be able to apply for larger loans to cover working capital expenses.

But whatever the reason behind your need for working capital or the amount you’re looking for, the best strategy to quickly obtain capital is maintaining a reputation as a trustworthy business owner, according to Youngs. “Not all lenders may want to approve your loan,” he said. “It’s important to get a good banking relationship with your lender so when you come up with some quirky idea they don’t think you’re nuts.”

How to improve your chances of getting a working capital loan

It could take months or years for new businesses to generate positive cash flow, Briskman said. These startups are the most likely to need working capital loans, but they have the lowest likelihood of being approved for traditional financing.

The majority of people starting a business have to rely on their own funds, money from friends and family or alternative solutions like crowdfunding to get the business going, Briskman said. They’ll have a better chance of being approved for working capital financing once they can show the business has made progress.

“They don’t necessarily have to be profitable, but they have to be close to profitable and showing that every month is better than the previous month,” Briskman said.

Financial institutions may also look for a business plan from new entrepreneurs showing how they plan to grow the business and make money in the future, as well as how much they expect operations to cost.

“They want to see projections,” Briskman said. “A business plan really gets you to focus on where you see your business going.”

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.

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

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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.

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.

Kate Rockwood
Kate Rockwood |

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

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