Money Buzz 11/02
Bigger & Faster
Looking for a fast and fairly painless way to access up to $250,000 in capital? You've got good timing. The SBA has just expanded and modified its SBAExpress pilot loan program-a move that will both augment the pool of funding available and ease the loan process.
"We're extending the maximum loan amount from $150,000 to $250,000, and we're allowing more banks to participate," explains SBA administrator Hector V. Barreto. "In the past, we allowed only banks with significant SBA lending experience to participate, which eliminated a lot of smaller and rural banks."
So far, response has been overwhelmingly positive, with more than 200 new lenders joining the program. "There's no doubt it will create a significant increase in loan volume," asserts Barreto, who notes that since the program was launched five years ago, more than 50,000 SBA-guaranteed loans totaling more than $2.6 billion have been granted.
To get in on the action, ask lenders in your area about the program, advises Barreto, or check with the SBA at (800) U-ASK-SBA.
No Way In
Good, old-fashioned barriers to entry are back. In today's tight capital market, it's becoming essential to show VCs, banks and other capital sources that your company has an advantage that will discourage competition, explains Steve Brotman, managing director at New York City-based Silicon Alley Ventures. "In the past, barriers to entry was sort of swept under the rug under the assumption that the first-in advantage was enough. But now VC firms are more concerned about competitive advantages like referable customers, partnerships with distribution channels or secure patents."
For Ahin Savara, CEO of Burbank, California-based Filmport-an emerging firm that markets wireless and Web-based communications solutions to film and television production companies-letters of commitment (LOCs) from prospective customers proved a boon in approaching venture firms. "It helps show you have a real customer base," he explains. "It lets me go back to the VC and say 'Here's a list of clients who have committed to being involved with our services.'"
Of course, barriers alone won't win that all-important funding offer, cautions Savara. "A clear path to profit and a strong management team are first and foremost. An LOC or a patent on A, B or C alone is not enough."
When you plan to leave your kids or spouse an inheritance, you probably want to do just that-not bequeath a hefty donation to the IRS. Yet, if a traditional IRA is your legacy of choice, that's exactly what will happen. Fortunately, there's an easy alternative that can help you soothe the tax sting when leaving extra retirement cash to your family members-a stretch IRA.
This retirement vehicle extends the period of tax-deferred earnings of assets within an IRA beyond the lifetime of the IRA's primary holder, allowing relatively affluent investors to pass their IRAs down to their kids and even grandkids.
"A nonspouse beneficiary used to be required to take the money out as a lump sum or over a five-year period," explains Tom Anderson, CEO of Portsmouth, New Hampshire-based Pensco Trust Co. "But a stretch IRA allows the individual to inherit the IRA and, rather than take a significant distribution-which would be subject to higher taxation-leave the funds in the IRA over a period determined by his or her own life expectancy."
The result is that the IRA continues to grow at a compounded tax-deferred rate, yielding correspondingly large payouts along the way. "If, for example, an entrepreneur leaves a stretch IRA to his 20-year-old son, his son can let the IRA continue to grow tax-deferred while he takes distributions out over roughly 50 years based on his life expectancy," explains Anderson, who adds that stretch IRAs have grown more popular since tax changes in 2001, which modified restrictions so investors no longer have to establish a stretch IRA before they begin mandatory distributions when they reach age 70.
Thanks to the ubiquity of both IRAs and 401(k) plan rollovers, more and more Americans are retiring with significant funds in multiple IRAs, making the stretch IRA a powerful estate tool those nearing retirement may want to employ. But stretch IRAs aren't for everyone. To guard against problems, entrepreneurs considering a stretch IRA should be fairly certain that they won't need the IRA assets themselves-and also plan on reassessing their plans regularly. After all, tax benefits will be of little comfort to a grandchild accidentally left off of the beneficiary list.
Signed, CEO'd, Delivered
of the 250 biggest international companies will release corporate responsibility reports this year, compared with 35% in 1999.
In a push to reassure skittish investors, the SEC began requiring all CEOs and CFOs to personally certify information appearing in financial reports filed on or after July 30. How are top executives coping with the extra helping of high-pressure responsibility? Very carefully, says Robert Mittelstaedt, vice dean of executive education at the Wharton School at the University of Pennsylvania. "There's a dot every 'i' and cross every 't' attitude right now," he reports. "CEOs are not afraid of certifying financials because despite what we've seen in the media lately, most firms are not doing outrageous things. But they are concerned about making sure that even an honest mistake isn't made because the current environment is such that even an honest mistake would be viewed very harshly."
The measure also ups the ante by making CEOs and CFOs personally liable if the reports are later found misleading-a prospect fueling concern. "It is certainly causing more angst," asserts David Matheson, a partner at Perkins Coie LLP, a Seattle-based law firm. "Our public-company clients are concerned about both the potential personal liability of the executive officers and the need to comply with new requirements."
But such worries may prove to be unfounded. "While the new certification requirements may slightly change the manner in which plaintiffs bring action against CEOs and CFOs as individuals," says Matheson, "I don't think they will change the underlying substantive exposure of these individuals."
Jennifer Pellet is a New York City-based freelance writer specializing in business and finance.
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