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Starting and Funding Your Small Business in 2021

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Guidant Financial and the Small Business Trends Alliance’s (SBTA) Small Business Trends: 2021 report is a survey among more than 2,400 current and aspiring small business owners across the United States. Among them, 31 percent have been operational for ten years or more, 19 percent have been operational for two to three years, and 19 percent have been operational for a year or less. The majority or 44 percent of respondents had one to five employees, while 20 percent were sole entrepreneurs with no employees, and 17 percent had six to ten employees. One percent had more than 100 employees.

When COVID-19 struck, 23 percent lost revenue, 11 percent reduced their budget, 11 percent closed temporarily, ten percent cut their own wages, seven percent did a temporary business pivot, six percent furloughed employees, and five percent laid off employees. Those who pivoted their business turned to remote workers, digital marketing, hands-free point-of-sale (POS) systems, curbside pick-up, delivery, or added new product lines such as anti-microbial products.

Positive Markers

Despite the drawbacks, 78 percent of the respondents expressed confidence that their business will survive the pandemic. Regarding the future of small businesses after the pandemic, 49 percent expressed confidence about it, 34 percent were not confident, and 17 percent were neutral.

The Dun & Bradstreet U.S. Economic Health Tracker June 2021 Report’s Overall Business Health Index (OBHI) determines the level of business financial stress. Level zero means all businesses have high levels of risk, while 100 percent means all businesses have low levels of risk.

In April, the OBHI increased by 0.6 percent over March. This continues the trend of monthly increases since July 2020. The annual change in April was also positive for the first time from September of 2018. All these represent good news, even if the current OBHI level is still 65 points below the pre-pandemic level.

Taken together, the results of the Small Business Trends: 2021 survey and the OBHI trend provide a positive outlook for would-be entrepreneurs who plan to start a business in 2021.

Starting a Business

Among the respondents to the Small Business Trends: 2021 survey, 29 percent stated they started a venture because they were prepared to be the boss, 17 percent were dissatisfied with corporate life, and 16 percent wanted to focus on their passion. The opportunity presented itself to 12 percent, inspiration for a new business came to nine percent, and seven percent did not want to retire. Meanwhile, seven percent were laid off.

The majority, or 58 percent, started their business from scratch, while 19 percent invested in a franchise. The other 18 percent bought a business, and six percent purchased an existing business location.

Men comprised 68 percent of business owners, and women comprised 32 percent. The biggest group of owners, or 46 percent, are from Gen X, 41 percent are Baby Boomers, 13 percent are Millennials, and one percent are from Gen Z.

man working

How to Fund the Business

When they started the business, 39 percent of respondents used cash presumably from their savings, and 20 percent used Rollovers for Business Startups (ROBS) or 401(k) Business Financing. The latter means tapping into their retirement account without early withdrawal or tax penalties and no interest. Loans from family and friends funded ten percent of respondents, a loan from the U.S. Small Business Administration (SBA) funded nine percent, lines of credit funded nine percent, unsecured loans funded five percent, equipment lease funded three percent, and home equity lines of credit (HELOC) funded three percent.

Homeowners who have enough equity in their homes can avail of HELOC, a home equity loan, or cash-out refinance. HELOC allows the homeowner to draw various amounts as needed over ten to 15 years, with interest charged only on the amount drawn. Interest rates are variable but lower than credit card rates. Home equity loans have a fixed interest rate and are disbursed as a lump sum but have higher up-front costs than HELOC. A cash-out refinance is a larger loan that replaces the homeowner’s current mortgage. This is beneficial if the current interest rate is lower than that of the current mortgage. The balance of the new loan amount and the old mortgage is disbursed as a lump sum.

Whatever type of loan homeowners choose, lenders will screen them based on income, good credit history, a credit score of at least 620, and a debt-to-income ratio of 43 percent or lower. Lenders also require homeowners to have home insurance. Hence, they need to shop around for the best home insurance offer if they do not have one.

Would-be entrepreneurs must also look into the various government and private grants for small businesses. The U.S. Chamber of Commerce provides information and links to many of these grants, programs, and other forms of assistance.

Ride the Momentum

It is a good time to start a company this year. Fully vaccinated people are increasing daily, and they are free to return to normal life, including supporting businesses as usual. There is also a wide variety of aid intended to rev up new businesses. Circumstances are ripe for an economic upturn, and new businesses can ride on that momentum.

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