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Wilkes-Barre Business Law Blog

Angel investors provide support as well as cash

Entrepreneurs in Pennsylvania and around the country have traditionally approached venture capitalists when conventional lenders are reluctant to fund their new commercial ventures, but a new way to finance business startups has emerged in recent years. Angel investors are often friends, family members or acquaintances who provide advice and moral support as well as needed cash. Angel investors are generally more flexible when repayment terms are negotiated and might not pursue unpaid debts when new businesses fail to perform as expected.

Unlike venture capitalists, angel investors tend to view their loans as investments in people rather than business ideas. This kind of transaction is often seen as an act of goodwill that carries the possibility of a lucrative reward should the business succeed. Like venture capitalists, angel investors are generally repaid with an equity position in the commercial ventures they back rather than monthly payments.

About commercial real estate investing

People in Pennsylvania who want to begin investing in commercial real estate should understand exactly what it has to offer. The tenants that the investors will be dealing with are businesses, and commercial leases tend to be longer than residential leases so that the business are able to become established.

A single commercial building can have more than one unit, which corresponds to multiple tenants and multiple streams of income. Because there are longer leases, the vacancy rate for commercial properties tends to be lower than that of residential properties. The long-term nature of commercial property investments means that there is real opportunity for growth.

Corporate culture and successful acquisitions

When company owners in Pennsylvania want to improve their market reach and profitability, a merger can be an excellent way to achieve their goals. In the first half of 2018, mergers and acquisitions rose significantly. The value of acquisition activity reached $2.5 trillion, an increase of 64 percent over one year earlier. Experts say that the availability of capital and affordability of debt have inspired more companies to grow through buying another business. However, despite the popularity of mergers, many corporate acquisitions struggle to make the transition successfully.

According to management consultants KPMG, only 33 percent of North American mergers and acquisitions add value to the combined company. The vast majority of these transactions reduce the value of the company or are neutral at best. Share prices often grow less than if both companies had remained independent. One of the biggest problems businesses can face throughout the integration process is the combining of disparate corporate cultures. Culture is more than just perks in the office. It represents the way that employees and management relate to one another and interact. When cultures clash in a merger, the resulting fallout can lead to an employee exodus.

How to get an SBA loan

An entrepreneur in Pennsylvania who is considering financing options for their small business may want to consider getting an SBA loan. These loans, which are backed by the United States Small Business Administration, have competitive rates and come with a wide selection of options. However, it's important that a small business owner who applies for an SBA loan is aware of how the loans work and prepared to take the right steps to apply.

Despite popular belief, the SBA does not directly loan money to small businesses. Small businesses are able to obtain SBA loans through approved lenders. The role of the SBA is to create guidelines and guarantee the loans, making it less difficult for entrepreneurs to be approved and lowering the risk for lenders.

Language to include in contracts

It is important for construction companies in Pennsylvania to take care when they draft their contracts and to review all proposed contracts with which they are presented. The language in a contract can be used to help companies reduce their risks.

Developers and owners should include provisions in their agreements that require contractors to engage in competitive bidding processes for their subcontracted work. This helps them to ensure that the subcontracted work is being performed at competitive prices. A good way for businesses to keep the project costs in check is to include what the allowed labor rates are. This can help companies to figure out what the basis is for labor charges.

Considerations for companies planning to buy real estate

Many Pennsylvania entrepreneurs are interested in investing in commercial real estate. A property investment can provide much-needed space for office activities, retail, storage or other business activities. In addition, this purchase can be a long-term positive that goes beyond simply a space to work or do business. There are some key guidelines that business owners can keep in mind when planning for a real estate acquisition.

When deciding to purchase real estate, businesses need to consider the long-term future rather than simply immediate needs. If an owner continues to run their business for some time to come, it is important to think about how long their potential space will fit the needs of the operation. They may also want to think about the potential of reselling the business property in the future. Business owners may also want to think about the value of the locations that they choose. This can include retail value as well as accessibility to customers. If a business relies on client visits or walk-in appointments, choosing the right location can be critical to success.

Some S corps switching to C corps for lower tax rate

The reduction of the top tax rate for C corporations from 35 percent to 21 percent established by the Tax Cuts and Jobs Act has prompted some Subchapter S corporations in Pennsylvania to become C corporations. Because this switch might require a change from overall cash method to overall accrual method accounting, the Internal Revenue Service published Revenue Procedure 2018-44 to clarify the process.

When an organization terminates its S corporation status to become a C corporation and is required to adopt the overall accrual method of accounting, an adjustment arising from 481(a) should apply. This adjustment begins the first taxable year after the S corporation revocation and continues ratably for six years. For businesses that make the switch but are eligible to continue using the cash method, the same adjustment can be applied ratably for six years.

Why social media is still an important part of business growth

More small business owners in Pennsylvania and other parts of the country are feeling optimistic about their financial situations. Results from an annual ranking of business optimism show that 80 percent of small business owners are positive about their finances. However, only 54 percent report having plans to boost social media presence. Part of the reason for this hesitation may be stats showing a decrease in users of major platforms like Facebook, Twitter and Snapchat.

However, social media can still play an important role in business development, growth and visibility. Email campaigns, well-developed websites and direct mailers can all be helpful. Even so, many customers prefer to turn to social media to seek customer service assistance, see what other customers are saying, or share how pleased they were with recent purchases or the service they received from a business.

Tips for securing investor capital

Pennsylvania startup creators should always be ready when an investor shows interest in their businesses. One way to convince someone to invest in a business is to have real-time data available. This can make it easier to demonstrate that the company is growing and has a product that people actually want to buy. It is important to note that a company doesn't necessarily need to be profitable to secure venture capital.

It is also no longer necessary to seek out funding from a big firm in Silicon Valley. When pitching a potential investor, a startup owner's top job is to show the possibility of long-term revenue growth. From there, an investor needs to know when and how an exit from the company occurs. To increase the odds of obtaining investor capital, startup founders should develop connections with the right strategic partner.

Understanding the ins and outs of commercial real estate loans

When it comes time to build a storefront or office in Pennsylvania, most business owners must apply for a real estate loan. These loans can be very complex, and that is why borrowers need to spend some time researching how they work and what types of financing options are available. With the right loan, an entrepreneur won't have to worry about an unmanageable payment plan or hidden fees.

Commercial real estate loans generally range from five to 20 years, and they usually require a final 'balloon" payment. That final payment, which is much higher than the other monthly payments, will pay off the outstanding balance. The interest rates for commercial loans are also much higher than the interest rates for private home loans. Business owners can sometimes lower their interest rates by providing additional collateral or investing some of their own money.