Where Do You Stand?

Where's the Money, Honey?

Undoubtedly, one of the biggest concerns for the majority of new entrepreneurs is where to get money to start up. Venture capital is not the answer for most start-ups, and even those who can tap into this source will find the spigot dripping instead of gushing these days.

To make matters worse, those who typically relied on bank loans are also finding the going just as tough. This fact was recently acknowledged in a hearing held on access to capital by Rep. Don Manzullo (R-IL), chairman of the House Committee on Small Business. "While stricter standards do not necessarily mean credit is unavailable, the data suggests that firms once barely qualifying for a bank loan will now seek other sources, such as SBA-guaranteed loans," said Manzullo in his opening statement.

Several new pieces of legislation coming down the pipeline could alleviate some of the strain on the lending environment. The first, H.R. 1923, has already been introduced in the House and referred to the Ways and Means Committee. Sponsored by Reps. Jim DeMint (R-SC) and Brian Baird (D-WA), the Start-Up Success Accounts Act (SUSA) of 2001 would allow small businesses with gross receipts of up to $2 million to deduct and place up to 20 percent of tax-deductible income in a SUSA account for each of the first five years of operation. Small businesses could then utilize those funds for growth over a five-year period.

Rep. DeMint has another proposal on the agenda as well: The BRIDGE Act (Business Retained Income During Growth and Expansion), which will target emerging-growth companies, would allow firms that have experienced sales growth of at least 10 percent above the average gross receipts for the prior two taxable years to temporarily defer a portion of federal income tax liability. The deferral would be limited to $250,000 of tax and would have to be repaid over a four-year period with interest. The deferred amount would be deposited in a separate trust account at a bank or other approved intermediary, and the firm could borrow against the deferred amount for business purposes. Businesses with up to $10 million in gross receipts and using the accrual accounting system would be eligible for the deferral.

Predicting the success of any of these efforts to help new businesses is like trying to predict which of the thousands of businesses that launch every year will be successful. But the issues must be dealt with decisively and soon if the American economy is to regain its vitality.

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This article was originally published in the July 2001 print edition of Entrepreneur with the headline: Where Do You Stand?.

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