Many small employers that pay at least half of the premiums for employee health insurance coverage may be eligible for the small business health care tax credit. This credit can enable small businesses and small tax-exempt organizations to offer health insurance coverage for the first time. It also helps those already offering health insurance coverage to maintain the coverage they already have.

Here is what small employers need to know so they don’t miss out on the credit for tax year 2010:

Sole proprietors who file Form 1040, Partners and S-corporation shareholders who report their income on Form 1040 and had requested an extension have until Oct. 17 to complete their returns. They would also use Form 8941 to calculate the small employer health care credit and claim it as a general business credit on Form 3800, reflected on line 53 of Form 1040.

Tax-exempt organizations that file on a calendar year basis and requested an extension to file to Nov. 15 can use Form 8941 and then claim the credit on Form 990-T, Line 44f.

Businesses who have already filed can still claim the credit. For small businesses that have already filed and later determine they are eligible for the credit, they can always file an amended 2010 tax return. Corporations use Form 1120X and individual sole proprietors use Form 1040X.
Businesses that couldn’t use the credit in 2010 may be eligible to claim it in future years. Some businesses that already locked into health insurance plan structures and contributions for 2010 may not have had the opportunity to make any needed adjustments to qualify for the credit for 2010. So these businesses may be eligible to claim the credit on 2011 returns or in years beyond. Small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014.

For tax years 2010 to 2013, the maximum credit for eligible small business employers is 35 percent of premiums paid and for eligible tax-exempt employers the maximum credit is 25 percent of premiums paid. Beginning in 2014, the maximum tax credit will go up to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible tax-exempt organizations.
Additional information about eligibility requirements and calculating the credit can be found on the Small Business Health Care Tax Credit for Small Employers page of IRS.gov.

Links:
Form 8941, Credit for Small Employer Health Insurance Premiums (PDF)
Form 3800, General Business Credit (PDF)
Small Business Health Care Tax Credit for Small Employer

Small Business Management (Online) at the College of Alameda.  This class will be conducted online and will begin during the week of January 23rd and end during the week of May 21.  For more information, contact me and to Enroll, click here.

Small Business Management (In Person) at the College of Alameda – this course will meet on Thursdays from Noon until 2:50 pm beginning January 26 and ending May 24th.  To Enroll, click here.

Simple Steps to Success at Women’s Initiative – Oakland Office.  This class will meet on Wednesdays and Fridays from 9 am until noon, beginning March 14th.  For more information, click here.

Developing a solid understanding of how business purchases are funded is essential for both business buyers and sellers. I encourage all business buyers and sellers to familiarize themselves with the most common forms of financing used for Main Street and Middle Market business transactions. 

Bank Financing

• Bank financing for Main Street businesses is typically in the form of SBA loans. SBA loans are originated by SBA participating lenders, which generally make the loan with the SBA guaranteeing the lender that the lender will be repaid. Instead, loans are approved and originated by SBA participating lenders. The SBA, in turn, agrees to guarantee some percentage of the principal balance of the load (usually 50%-70%). SBA-backed loans are subject to specific underwriting guidelines regarding fees, interest rates, collateral, personal guarantees, amortization, covenants, and other forms of debt. To learn more about the SBA and its loan programs go to www.sba.gov or talk to me. In specific circumstances, non-SBA bank loans may also be available for Main Street businesses but it is less common.If you are contemplating a Middle Market transaction, the following paragraphs summarize a number of basic concepts and terms with which I recommend you become familiar. I and your accountant, attorney and banker will be able to work with you to identify and evaluate your best bank financing options. Middle Market transactions typically include one or more of the following forms of bank financing.
• Asset Backed Lenders/Loans vs Cash Flow Lenders/Loans – An asset backed loan is any kind of loan that is secured by an asset, usually a tangible asset such as inventory, accounts receivable, machinery and equipment, etc. Cash flow loans are loans which are made against the future cash flow of the borrower. Cash flow borrowers are typically companies with minimal tangible assets; examples of these types of borrowers would be software companies, professional service businesses (such as law firms and medical practices), etc. If you are evaluating acquisition opportunities and plan to use bank financing, it is important to make an early determination as to whether you will be obtaining an asset backed loan or a cash flow loan. Most banks are asset backed lenders rather than cash flow lenders and, consequently, cash flow loans are typically more difficult to obtain.
• Senior and Subordinated Loans – Senior debt takes priority over other forms of debt in the event the borrower goes bankrupt or needs to be liquidated. Senior debt typically has a first lien or claim on specific assets. Subordinated debt, which is sometimes referred to as mezzanine financing, may also have a lien or claim on the borrowers’ assets, but the lien or claim would be subordinated to the claims of the senior debt holder’s claims. Because subordinated debt is less secure than senior debt, it carries a higher interest rate. Typically, the interest rate is an additional 3% to 6% for subordinated debt versus senior debt; however, the spread or difference can be higher or lower depending on the borrower’s circumstances. Despite the higher interest rate, many Middle Market business buyers use subordinated debt rather than diluting their equity ownership by bringing in equity partners.
• Interest Rates and Bank Fees – Interest rates on Middle Market bank loans are typically expressed as a function of either LIBOR or Prime Rate. LIBOR is an acronym for the London Inter Bank Offered Rate. The Prime Rate is the interest rate charged by US banks to their most creditworthy customers. Historically, LIBOR is lower than the Prime Rate, but the amount of the spread varies based upon credit market conditions. There are various reasons why a Middle Market borrower may want a LIBOR or Prime Rate based borrowing rate and you should discuss the relevant factors and options with your banker; that said, it is most likely that you will have a Prime Rate based loan. Whether you have a LIBOR or Prime Rate based loan, your interest rate will likely be variable and your repayment period will likely be less than five years. For example, your interest rate may be Prime, plus 100 basis points (bps – remember that 100 basis point equals 1%, so if Prime were 4% and your interest rate was Prime plus 100 basis points, your effective borrowing rate would be 5%). In addition to the interest payments on the loan balance, banks often charge fees to their borrowers. There is usually a loan origination fee, which includes the bank’s legal fees for preparing the loan documents and other costs. Depending upon the nature of the loan, bank fees can be significant, so you should make sure these are negotiated at the early stages of your discussions with the bank.
• Covenants – The legal documents used to document a bank loan typically include debt covenants. It is very important to carefully understand and negotiate your debt covenants as the bank will require you to comply with these covenants throughout the term of the loan. Failure to comply with the loan’s covenants may either (a) affect the interest rate being paid on the loan, or (b) give the bank the right to terminate the loan. While there are a myriad of loan covenants, common examples include: (a) the need to provide the bank with annual, audited financial statements and unaudited interim financial statements, (b) the maintenance of specified financial ratios during the term of the loan (common financial ratios that are considered include net working capital, EBIDA to debt service, tangible net worth to total debt, etc), (c) restrictions on the disbursements of funds to the owners of the business/borrower and (d) key man life insurance for the business owner. There are many, many other common covenants; don’t be surprised to see 20 to 30 debt covenants in a loan.

I am very familiar with the bank lenders and the current lending environment in your local marketplace.  Do not hesitate to contact me.

Check out this link to the full story:  http://www.cabb.org/newsletter/enews-12-10-11.asp

This week’s show
This Friday, December 9 at 2 p.m. (Eastern), Pino will discuss Garage Door Installation and Repair Companies with Steve Freitas, President, Precision Door Service of Detroit and Sunbelt Office Owner.  To listen to the show at VoiceAmerica, the world leader in internet talk radio, click HERE.  If you have a question for our hosts or guests, you can submit it in advance to insights@sunbeltnetwork.com; please identify the topic you are writing about in the subject line of the email.  You can also call in during the broadcast hour by dialing (toll-free) 866-472-5790.

Archived Shows
Last week’s show was on Signs and Graphic Design Companies and featured Mark Cline.  Click HERE to listen to that show.  All past episodes are archived and available on the Sunbelt website, and on the Voice America website.  For more information on Sunbelt or the show, contact a local Sunbelt office or visit the Sunbeltwebsite.

	Dignity and respectfulness: He respects others. An ethical leader should not use his followers as a medium to achieve his personal goals. He should respect their feelings, decision and values. Respecting the followers implies listening effectively to them, being compassionate to them, as well as being liberal in hearing opposing viewpoints. In short, it implies treating the followers in a manner that authenticate their values and beliefs.
	Serving others: He serves others. An ethical leader should place his follower’s interests ahead of his interests. He should be humane. He must act in a manner that is always fruitful for his followers.
	Justice: He is fair and just. An ethical leader must treat all his followers equally. There should be no personal bias. Wherever some followers are treated differently, the ground for differential treatment should be fair, clear, and built on morality.
	Community building: He develops community. An ethical leader considers his own purpose as well as his followers’ purpose, while making efforts to achieve the goals suitable to both of them. He is considerate to the community interests. He does not overlook the followers’ intentions. He works harder for the community goals.
	Honesty: He is loyal and honest. Honesty is essential to be an ethical and effective leader. Honest leaders can be always relied upon and depended upon. They always earn respect of their followers. An honest leader presents the fact and circumstances truly and completely, no matter how critical and harmful the fact may be. He does not misrepresent any fact.

It is essential to note that leadership is all about values, and it is impossible to be a leader if you lack the awareness and concern for your own personal values. Leadership has a moral and ethical aspect. These ethics define leadership. Leaders can use the above mentioned traits as yardsticks for influencing their own behaviour.  (http://www.managementstudyguide.com/leadership-ethics.htm)

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