Loans and Start-Ups

Financing the company car; launching a business when you're a teenager.

Tweet

Q Loans
Can I take out a business loan to buy a hybrid car for company use? I have an excellent credit history but my business, which manages authors and other artists, has low cash flow.

Vanessa May
Founder
May Creative Arts Management
San Francisco

Company cars buff image: When your Pulitzer Prize-nominated client asks you to accompany him to a gala you don't want to take BART. The Small Business Administration understands that, and while its 504 program doesn't apply to wheels, its 7(a) loans are more flexible. The terms are attractive, too: Interest rates for loans of up to $50,000 are pegged to prime plus up to 4.75 percent, with repayment periods as long as 25 years. Got a book tour next week? Consider the SBA Express Loan program with its head-snapping one-day turnaround time (regular SBA loans typically take up to two weeks for approval).

If you're thinking fleet or expect other expenses down the road, a larger line of credit from a bank may make sense. Many banks have programs for even the dewiest start-ups. Bank of America's (NYSE:BAC) Business Credit Express, for example, provides loans of up to $100,000 that can be used for any business expense; interest kicks in only when you withdraw cash. Rates depend largely on your personal credit history and range between prime plus .9 percent and prime plus 9.9 percent. As with the SBA loans, the asset requirements aren't exactly onerous. "We ask only that you've been in business one day," says Mark Hogan, president of Bank of America's small-business division. The Web presents other options in the form of person-to-person lending sites, such as Prosper. But interest rates on these loans vary widely, and there's no guarantee you'll land one.

Choosing a hybrid cements your green cred and may even save you some green under the Energy Tax Incentives Act. That legislation, in effect through 2007, provides a tax credit of up to $3,400 for the purchase or lease of a hybrid car. It applies, however, only to the first 60,000 units of a given model sold. After you've identified what you want, ask your accountant if the credit is still available.

Finally we come to the age-old question: Buy or lease? Lease, says Edward Bond, chairman of Bederson & Co., an accounting firm in West Orange, New Jersey, that advises small-business clients. The tax breaks apply in either case, and "with very, very low cash flow, I see no benefit in buying a car," says Bond. You heard the man.

Q Education
I'm 17 and recently got out of a juvenile detention facility. I want to start either a nightclub or an electronics store. Can I obtain the necessary licenses and capital without help from my parents?

Austin
Fledgling Entrepreneur
Xenia, Ohio

You're traveling with two pieces of baggage here: youth and a youthful offense. Fortunately, there are no age restrictions on getting a vendor's license, which you need to do business in Ohio. (Online applications are $25 at obg.ohio.gov.) But you must be 21 to own an establishment that sells liquor. That puts the kibosh on the nightclub idea right out of the gate.

The electronics store, though, is a possibility. MP3 players and such are eligible for sales tax, so you'll need to register with the Internal Revenue Service and the Ohio Department of Taxation. First, obtain a federal employer identification number by filing an SS-4 form with the IRS. To shield your personal assets from liability, set up a limited liability corporation, or LLC. (File online for $125 at sos.state.oh.us.)

Getting all officialed up is easy. What's harder is money. The enthusiasm of youth won't make up for a blank-slate credit history in the eyes of most banks and even the Small Business Administration. (You may have a stronger case if you scare up a co-signer.) What's more, unless your record is sealed, you'll most likely be required to disclose your offense on loan applications. The SBA handles such situations on a case-by-case basis, and is more forgiving of minor crimes. Even better, you may be able to have your record expunged now, which will wipe your slate clean.

You could try to win start-up capital. Youth-oriented entrepreneur groups, such as the National Federation for Teaching Entrepreneurship, or NFTE, and Junior Achievement, run dozens of business-plan competitions around the country each year. Entrants pitch their plans to a panel of judges. Prizes range from a few hundred dollars to $10,000. It's not much, but it may help you launch an eBay (NASDAQ:EBAY) shop--a base on which to build your credit history.

There's no need to go it alone. Many entrepreneur groups, including NFTE and SCORE, which has an office in Dayton, provide free mentoring. Most groups care not a jot about your stay at juvenile hall. "We do not take into account past behavior," says Steve Mariotti, NFTE's president. The organization even teaches classes on Rikers Island.

Sign-up for our Innovation Newsletter

Email Address: