The latimes.com published a small business makeover plan to help entrepreneurs find affordable financing for expansion plans. The article reported that small business owners in struggling industries like construction and real estate are trying to increase existing credit lines to $100,000 or $200,000 and form joint ventures with larger companies to save face with lenders.

The recent sub prime collapse has stunted credit access for small businesses looking for long-term financing. Banks hesitancy to lend to sectors directly affected by the waning housing market – construction, real estate, mortgage brokerage – has prompted these entrepreneurs to explore alternate financing means. Apart from forming a joint venture or increasing existing credit lines, small businesses can look at leveraging up to 75 percent to 80 percent of their accounts receivables.

For more information on accounts receivables financing or other ways to build business credit read our breakdown of the best business loans according to industry type.

Small businesses suffering from an overly conservative lending market may find are now looking to hedge funds for asset-backed loans, according to a report by www.businessweek.com.

Banks, rattled by the $400 billion loss in bad investments over the past year, have largely cut off lending to small businesses throughout the U.S, forcing entrepreneurs to explore unconventional financing methods. Hedge funds providing asset-backed loans - commercial loans secured by the business’s inventories, equipment, accounts receivables, real estate or other collateral – have become a popular source of credit.

Since the 4th quarter of 2007 lending from 300 asset-based lenders has dropped substantially. Unlike larger corporations, small businesses don’t have large reserves to float the business through tough times. Asset-backed loans from hedge funds generally cost 2 to 3 percentage points higher than the prime rate, require asset appraisal, and may involve physical inspections. Fortunately, the processing time is only a 2 to 3 weeks.

A report published by www.bizjournals.com, small business owners in Massachusetts can claim state sales tax exemption on electricity, gas, heating fuel and steam purchases by filling a ST-13 form.The exemption is available to small business owners with five or less employees and generating less than $1 million in income.

The tax exemption can benefit small business owners to the tune of hundreds to thousands of dollars. To inform and alert small business owners, the Massachusetts Department of Revenue has released an online video explaining the details of the tax credit program.

Read more about state tax credits for small businesses.

The U.S. Small Business Administration has introduced two new free online courses to help small business owners understand the basic principles of finance and borrowing, according to the SBA’s San Diego District Office monthly newsletter, Newsline.

These courses will help small businesses find out which loan program is suitable for their financing needs and how to prepare loan packages correctly. Small businesses will learn how to avoid common mistakes like selecting the wrong financial package, miscalculating the amount of loan required and underestimating the interest charged on loans.
Read more about the two programs and how to register:

• Finance Primer: Guide to SBA’s Loan Guaranty Programs
• How to Prepare a Loan Package

For more information log on to www.sba.gov/training

Texas is the best place to own a small business, according to a study conducted by the Development Counselors International. Thirty-three percent of executives surveyed said Texas’s favorable tax system, low cost of living and business-friendly atmosphere merited the state the number one spot to own a business.

North Carolina came second in the list compiled by site selection consultants, mid-sized companies and large companies. Texas and North Carolina were the only ones chosen by each category of respondents. Executives from mid-sized companies also included Nevada, Georgia and South Carolina in their top five while larger companies opted for Tennessee. Site selection consultants ranked Alabama and Florida in their top five.

According to a report released by the Office of Advocacy, the dollar amount of small business loans between $100,000 and $1million rose by 8 percent and loans less than $100,000, comprising mainly business credit card debt, increased by 9 percent from 2006 to 2007.

The survival and growth of small businesses depend upon easier access to adequate capital for startup and expansion. This data suggests that the number of outstanding small business loans has risen by 15 percent over last year. After relatively stagnant growth in the previous year, the number of micro business loans jumped by 13 percent.

To view the complete report visit www.sba.gov/advo/research/lending.html.

The U.S. Small Business Administration (SBA) has selected InnerCity Entrepreneurs to provide training to 200 promising small businesses as part of the SBA Emerging 200 initiative. In effort to foster economic development among the region’s SMEs, the SBA will host the instructional training throughout the remainder of 2008 in 11 cities including Boston, Chicago and Atlanta.

The program provides insight to small business owners on how to accelerate growth, access financing, diversify markets and expand their network. The InnerCity Entrepreneurs (ICE) will use their businesses as an example case study. Throughout the course, entrepreneurs will develop a three-year strategic plan to grow his or her business and work with peers, experts, and coaches to gain greater access to new sources of capital, markets, and knowledge.

More information on SBA’s emerging 200 initiative can be found at www.sba.gov/e200.

Biz2Credit recently attended the TIE conference in Santa Clara, CA. At the entrepreneurial network and showcasing conference, we spoke with a lot of small business owners, most of which were in the tech sector and most of which were chasing Venture Capital funds to raise money for their businesses.

Though equity financing may seem like the ideal way to finance business expansion plans, all small businesses should seriously consider the road more traveled by. Debt financing can be a vying contender, if not a superior alternative to equity financing. Today’s Venture Capital market looks barren next to the funding spree of the late 1990s and early 2000s that gave VC financing its sexy reputation.

That’s not to say taking out a loan doesn’t have substantial drawbacks for a small business. Debt financing during the credit crunch can be challenging, unpredictable and expensive.

So which one is better – debt or equity financing? It’s a decision that most businesses face early in the life cycle of the company, and it’s not easy. We’ve outlined three essential situations where debt financing can provide quick working capital relief.

Years in Operation

Small businesses more than 18 months old should aggressively apply for an SBA-backed line of credit product. Even amid the credit crunch, banks will accept stated income from small business owners and lend to established companies.

Cash Flow

Small businesses with a strong cash flow can easily qualify for accounts receivables financing. Most entrepreneurs assume that factoring is the only debt option available, however, banks will accept accounts receivables for collateral on a line of credit product – a much cheaper and better alternative.

Owner Equity

Some banks even have a credit program that lends against the owner’s equity contribution. Small business owners that have invested a substantial amount of their own funds or have used angel financing should strongly consider this option.

Read on for more information on how to get the appropriate financing for your small business:

• SBA Loans
• Small Business Financing Alternatives

Lease agreements require a long-term commitment and must be scrutinized by small business owners, especially amid the current economic downturn.

Here are some words of advice about structuring a lease agreement:

• Push for a short-term lease agreement if you’re not certain on the stability of your business. You can easily find subleases on Web sites like Craigslist.
• For longer lease terms, negotiate hard with the landlord. Try to bargain two to three months of free rentals with little to no rent escalation at the end of the lease, free renovation and not more than two months of rent required upfront in case of early lease termination.
• Check to see if your business is located in a state enterprise zone. Companies within these areas receive state tax breaks on capital investments and job creation. Use our online tax credit locater tool to find out if your business qualifies for tax rebates.
• Take precautions. Always include a sublease clause in the agreement in case your business must vacate earlier than expected.

Work the recession to your advantage and negotiate the best possible lease agreement. Check out our recent blog post for more information on how to keep your small business afloat during the credit crunch.

Typically, people incorporate their business as an S-corp or Limited Liability Company (LLC) because of the tax benefits. Both structures are pass through entities, where the business income is passed along to the small business owner’s personal income, avoiding double taxation

There are 3 main differences between an S-corp and LLC:

Number of shareholders:

• Under an S-corp there is a 75 shareholder limit.
• There is no restriction on number of shareholders under LLC.

Management Body:

• S-corp is managed by board of directors.
• LLC can be managed by business owner or other management.

Employment/Payroll Tax:

• S-corp owner pays employment/payroll tax on salaries, but there is no tax on dividends to shareholders.
• LLC owner only pays self-employment tax on total net income. (Note: The owner also has the option to be taxed like an S-corp if the case is made before the 16th day of the third month of the tax year.)

However, beyond these direct benefits and limitations, entrepreneurs must strongly consider the long-term growth goals for the company during incorporation. Generally, venture capital firms and institutional investors favor S-Corp business structure. It provides a formal organizational framework and helps create stock option pools for employees.

For more information on how to start a business, check out our recent blog post on the benefits of registering your company with D&B.