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If you’re in the process of starting a law firm, one of your main concerns is likely how much it will cost. There are many variables that factor into the actual cost to begin your own practice, not to mention how you will fund the whole endeavor. Some attorneys are able to create a firm on a shoestring budget. However, if you are planning on starting big, your initial costs may be more significant. 

Here are some things to consider when it comes to law firm start-up costs. 

How much does it cost to start a law firm? 

It’s impossible to pinpoint exactly how much it will cost you to hang a shingle. However, there are some ballpark considerations that can help you understand your initial budget. Some people are able to start a law firm with a couple thousand dollars. Others need $30,000 or more to begin practice. The exact amount you need depends on your overhead costs and the budget you decide on for items you will need. To determine this amount, consider the following.

Location 

Will you have a physical law office or a virtual workplace? If you, like many new attorneys, decide to work from home, you can easily rent a workspace or conference room when you need to meet with clients. On the other hand, having an office space may be important to you. Rent for a physical business location can range dramatically depending on where you are located. If you rent a traditional office space, you may pay $1,000 or more monthly, while renting conference space only when it is needed might cost $200 or less. 

Supplies and office equipment

Even if you opt to work from home, you will need certain supplies and office equipment. It’s important to have high-quality printers, scanners, phones, and copiers. For high-quality equipment leases expect to pay $1000/month. You will also need plenty of paper, stamps, pens, note pads, envelopes, and more. These items can add up. However, they shouldn’t amount to more than a couple of hundred dollars per month. 

Computer hardware and software

Computer hardware and software will be one of your highest costs when starting a law firm. You will need a quality laptop computer, as well as case management software and document and PDF processing software. These are generally one-time or annual costs, with hardware costing thousands of dollars and software hundreds. 

Most legal research databases and data storage in cloud services are subscription-based. You can lower your costs by joining the American Bar Association or your state bar association with free legal research databases. Data storage in cloud services like Dropbox are necessary to ensure your information is secure and you don’t lose valuable files if your hardware malfunctions. These overhead costs may amount to $100 per month or less.

Professional expenses and training

You will need to set aside a budget for professional expenses and training, including licenses, continuing education, conferences, and events. Most states charge companies to obtain a business license, and you will  have to pay to maintain your active status as an attorney with the state bar association. 

Continuing education is a requirement of all attorneys. While conferences and events are sometimes negotiable expenses, they should be heavily considered to maintain networking and positive appearance. These costs can amount to hundreds or thousands of dollars, depending on the details of the training and events. 

Insurance

All businesses need insurance, especially law firms. The types of insurance you need depend on the state you’re in, your practice areas, whether or not you have employees, and other factors. The cost of all these insurance types can vary also, but usually amount to $1,000 or less monthly total. 

At a minimum, you should have: 

• General liability insurance
• Property insurance
• Malpractice insurance
• Workers’ compensation insurance
• Cybersecurity Insurance

It’s best to consult with a professional business advisor in your state to ensure you get the right insurance for your new law firm. 

New law firm marketing

You will need to invest in marketing for your law firm. However, the amount you decide to put into building a website, social media, Google ads, and other advertising methods depends heavily on your goals. For example, if your target audience does not use social media often, then you can avoid spending money on developing a heavy Facebook presence. 

However, one thing you should not skimp on is the quality of your website. And you can achieve a professional site at a low cost or at significant expense. The choice is yours. Many low-cost template options allow you to build your own website. But if you really want to take advantage of SEO tools and rank at the top of Google, you may need to invest in a marketing agency. Many legal marketing agencies offer packages to new law firms for $2,000 to $5,000 monthly to create a website, juggle advertising, and track performance. 

Taxes

Every business must pay state and federal taxes. However, the amount you pay will depend on the type of business you form and your annual earnings. It will cost up to $1,000 to have a tax professional keep track of your revenue and expenses and help you complete and file your taxes when the time comes. 

Get the funds to start your own law firm

If you are ready to start your own law firm, you should consider all of the costs. Once you create a budget and know how much you need, complete a quick application on Lendio to receive and compare multiple law firm funding offers. Learn more about law firm financing options.

Many newly minted lawyers dream of one day hanging their own shingles. You may be ready to start your own law firm, but unsure of where to begin. Many lawyers, when they first start out, will work out of their home, use their personal cell phone and obtain liability insurance and a simple case management system. This post will explore the steps beyond that if your dream is to build and expand a practice. 

Create a business plan

How to create a law firm business plan

One of the first steps in starting a law firm is to create a business plan. This is a document that summarizes your goals and details about operations. It serves as a basis for creating the firm, as well as a roadmap for the future. 

Here are some key elements to include in a law firm business plan: 

• Executive summary stating what your company is
• Firm description
• Goals and a discussion of how your firm will be successful
• Market analysis
• Organization of members and management overview
• Services offered and practice areas
• Marketing strategy and sales goals
• Financial plan, including funding needs and fee structure
• Financial projections and start-up budget

Budget and financing

Creating a budget and financing a new law firm

Another essential part of starting any new business is figuring out the financial details. When you begin thinking about your new law firm, you need to have a solid understanding of how much it will cost to begin operations and how to get the money you need. 

Your initial budget should include everything from startup costs to necessary purchases of hardware and software, including personal computers and case management software. Long-term budgeting should consider: 

• Recurring subscriptions
• Annual bar dues
• Personal liability insurance premiums
• Law firm marketing costs
• Malpractice insurance premiums
• Workers’ compensation insurance costs
• Unemployment insurance costs
• Other expenses for employee benefits

It is possible to start a firm with less than $5,000 in the bank; however, these small businesses often need other financing options down the road. That’s where Lendio comes in. Lendio offers new law firms financing options with a single 15-minute application. 

Technology and services

Legal technology and services you may need

The legal industry utilizes a plethora of legal technology and tools that can help lawyers operate a successful practice. While many of these services are not required to practice law, they can make your operation much more efficient, saving time for your staff and money for your clients. 

Basic hardware new law firms need

You will need several pieces of hardware to communicate with other attorneys, clients, and courts. Some of the basic hardware you need include: 

• Computers (preferably laptops)
• Printers
• Scanners
• Phones

You can easily create a paperless law firm wherein you don’t need physical filing cabinets, but that will require additional software and data storage systems. 

Software new law firms need

There is an array of innovative software for law firms on the market. These programs benefit attorneys, staff, and clients by making work easier and helping everyone stay organized. Some important software you’ll want to consider for your new law firm include: 

• Legal practice management system (LPMS)/Case management software
• Word processing software (such as Microsoft Word or Google Docs)
• PDF readers and editing software (such as Adobe Acrobat)
• Interoffice communications (such as Slack or Google Hangouts)
• Email software (such as Google or Yahoo)
• Office calendaring software
• Client relationship management software (CRM)
• Data threat security tools (such as Webroot or Norton)

Data or cloud storage

You will need a place to store client documents and other firm information, so that it can be easily accessed by key stakeholders. The most convenient method is to utilize cloud storage through a service like Dropbox. 

This storage system can be customized to allow internal or external users to access, upload, and download documents, pictures, and other data. Since the storage is available online, you can have access to it from anywhere, whether you are in the office or about to head to court. 

Phone systems

All law firms need to have a phone system, so that clients can easily reach them. While you might be inclined to use your current phone, that will quickly become overwhelming when you gain dozens (or hundreds) of clients. As you’re practice grows it will be helptful to have a dedicated phone line solely for law firm use. 

You should also consider using a virtual receptionist who can answer the phones when you are unavailable. This will ensure your clients and potential clients always receive great customer service. 

Marketing

New law firm marketing

Legal marketing can feel overwhelming. There are a lot of moving parts, from creating a website to pay per click (PPC) advertising on Google and other platforms. While some firms spend tens of thousands on law firm marketing, that’s not necessary when you’re just beginning your firm. You should create a marketing plan that considers your clients’ needs and how you can meet them in the most efficient way possible. 

Branding your new law firm

Branding is one of the most essential parts of new law firm marketing. You want to use effective branding to connect with your clients and put your best foot forward. Develop a logo, slogan, and tone of voice that match your style. Your brand should be presented on everything that you create, from your website to your business cards. 

Creating a website 

Law firms need to have an online presence. However, it doesn’t have to cost five figures to create a website. If you have time, you can create your own website with templates available online. You may outsource content and SEO (search engine optimization) services to reduce costs and still get good copy. However, there are legal marketing agencies out there who will develop law firm websites for reasonable prices. 

Other considerations for running a new law firm

In addition to starting your new law firm, you will have to run it on a day-to-day basis. To do this, you should consider: 

• Organizational charts, including accountabilities of staff
• Hiring and staffing considerations
• Outsourcing whenever possible
• Coaching and mentorship to achieve goals

Get your new law firm started with Lendio

Lendio offers many financing options for new law firms. We want to see you succeed. Learn more about funding options for law firms from Lendio. 

The American Dream, once the ethos of the United States, offering the highest aspirations and equal opportunities for a comfortable life, has changed. What is the American Dream in 2023, and is the American dream still attainable?

A recent Lendio survey of more than 350 small- and medium-sized business owners across the U.S. found that, while 49% of small business owners believe it is somewhat or much harder to own a small business than it was in the past, 89% still believe it’s possible to reach that goal.

American dream definition.

How small business owners define the American dream.

The original definition of the “American Dream” was based on the prospect of equality, justice, and democracy. Evolving into the belief that anyone can become what they strive to be—the opportunity for upward mobility, economic success, and attaining the life one has always dreamed would be fulfilling. 

As times have changed, so has the idea behind the dream. While traditional components, such as homeownership (46%) and starting a business (34%), are still identified as important by small business owners, 67% identify freedom to live how you want as the primary component of the American Dream.   

American dream challenges.

Small business owners remain optimistic but see growing challenges.

Starting a business is a significant step in obtaining the American Dream, and entrepreneurs can face many challenges. There’s no one solution for all businesses. But making a plan and accessing tools make it easier in today’s environment, where small business owners are one click away from equipping themselves in advance. Some of the biggest obstacles to tackle for small business owners include the following:

1. Funding a business
2. Finding and keeping customers
3. Finding and keeping good employees

According to the survey, small business owners primarily face challenges related to the economy (23%), inflation (21%) and other financial concerns (14%). Hiring remains a primary challenge for 11% of small business owners. 56% of small business owners state that large corporations, such as Amazon and Google, have a negative impact on growth opportunities for their business.

Generational Differences

Generational differences

Millennials are a highly entrepreneurial group of business owners, with ages ranging from 27 to 42. In this high-rate environment with rising costs, layoffs, and the Great Resignation, we’ve seen a surge in startups. And according to Bloomberg, “creating successful companies is a young person’s game.” 

But being an entrepreneur is not just for the young at heart, it’s the American Dream for people of all ages, with 31% of respondents aged 45+ stating that starting a business is part of achieving the American dream. Perhaps unsurprisingly, those owners 45 and above place greater importance on retirement (46%), while those under 45 place more importance on becoming wealthy (36%) as part of the American dream.

At a certain age, the American Dream can seem easy to give up on or unattainable. The analysis finds a clear correlation between age and sentiment among small business owners. Those over 45 are more pessimistic, seeing the American Dream as more challenging to attain in the current environment. In contrast, those under 45 find it slightly easier to achieve. But entrepreneurship is a reality for both the young and old, with 89% of those age 45+ still believing owning a small business is attainable.

The two generations also fund their businesses differently. While both generations rely heavily on personal funds to start their businesses, those under the age of 45 have started to turn to alternative sources as well, such as crowdfunding (6%) and online lenders (5%).

Access to funding.

Access to funding is key for small businesses.

Access to capital and lower expenses are the key factors for creating an environment where entrepreneurs can start a business.

• 66% of small business owners state having a financial safety net would have had the most impact on their ability to start a business, followed by access to capital at 53%. 
• Of the respondents, 52% state that living in an area with lower business costs and a lower cost of living would be helpful. 44% state lower taxes would have an impact. 
• 54% of SMB owners started their business with personal funds with another 12% relying on friends and family. 
• 79% of SMB owners needed less than $100,000 to start their business with 43% needing less than $10,000.

Although 49% of respondents believe it’s somewhat or much harder today than in the past to achieve the dream of owning a small business, online loan marketplaces are making it much easier. Lendio is committed to helping entrepreneurs find the right small business loans for their small businesses, so they feel supported and optimistic in achieving their piece of the American Dream. 

*Disclaimer: The information, methodologies, data and opinions contained or reflected in Lendio’s Small Business Owner Pulse Survey (the “Survey”) are proprietary of Lendio and is intended for informational purposes only. The Survey does not constitute business or legal advice, and is not a substitute for professional advice. The recommendations provided by Lendio are general industry recommendations, and are not a substitute for your business judgment. The Survey is based on responses to a survey provided by Lendio, but the opinions of those businesses may change over time. Thus, the Survey is not warranted as to its merchantability, completeness, accuracy or fitness for a particular purpose. The Survey is provided “as is” and reflects Lendio’s opinion at the date of their elaboration and publication. Lendio does not accept any liability for damage arising from the use of the Survey in any manner whatsoever. While every effort has been made to ensure that this Survey and the sources of information used herein are free of error, Lendio is not liable for the accuracy, currency and reliability of any information provided in the Survey.

Financing your business with an SBA loan can help you invest in the things you need to grow your revenue. However, in addition to your financial documents and business plan, some SBA loans come with insurance requirements. When your loan terms come with collateral obligations, that property also needs to be covered with a hazard insurance policy. 

Here's what to know about hazard insurance and when you need it.  

Hazard Insurance Explained

Hazard insurance is a type of business property insurance that covers damage caused by accidents or natural disasters. Your insurance policy will outline "covered events." These are the types of events that may occur and cause damage. When that happens, your hazard insurance kicks in and covers the damage (within the limits of your policy).

Most hazard insurance policies include the following covered events:

• Theft
• Vandalism
• Fire damage
• Some water damage (caused by things like burst pipes, but not natural flooding)
• Storm damage 

In addition to covering the building itself, hazard insurance also covers the property inside. This includes any damage caused to:

• Furniture
• Equipment
• Inventory
• Tools

Limitations Of Hazard Insurance

Hazard insurance policies don't give your business an automatic blank check when a covered event occurs. Each policy comes with a coverage limit for both the building and the property within. So it's important to get a policy large enough to cover a worst-case scenario, such as a total loss.

Your hazard insurance policy will also come with a deductible—the amount you're responsible to pay before your coverage kicks in.

SBA Hazard Insurance Requirements

The SBA hazard insurance requirement applies to property that is used as collateral. Most SBA loans, including 7(a) and 504 loans, require some type of collateral in order to be approved. 

Because it's used as collateral, the property must be properly insured. That way, if there's any damage done that's out of your control, the building can be repaired or replaced and still maintain its value.

Here's the breakdown on hazard insurance requirements for each type of SBA loan:

• SBA 7(a) loans - Hazard insurance is required for loans of $25,000 or more.
• SBA 504 loans - Usually the property being renovated or purchased is used as collateral.
• Microloans - Hazard insurance is not required, but flood insurance might be.
• Economic Injury Disaster Loans (EIDL) - Hazard insurance is required for loans of $25,000 or more.

Types Of Business Property Insurance

Not all insurance companies refer to property insurance as hazard insurance. Instead, they may call it commercial property insurance. Here are some options to explore as you look for coverage required by the SBA.

Commercial Property Insurance

Commercial property insurance is the same thing as hazard insurance. Any covered events provide reimbursement for building repairs, as well as damaged items within the building. With this type of insurance, you would need to file a claim for your business. Then an insurance adjuster would assess the damage and provide you with reimbursement accordingly.

Flood Insurance

Anytime your commercial property is located in a flood zone and used as SBA loan collateral, you'll need a flood insurance policy as well. That's because damage caused by flooding is not typically included in most hazard or property insurance policies. 

To see if you need flood insurance, first visit FEMA’s online flood map tool to see if your property's address is located in a flood zone and then check your need for insurance when you apply for an SBA loan. If you do, you will need to pay an extra premium, but it will be worth the investment, if you're in an area at risk of flooding. 

How To Get Business Hazard Insurance For An SBA Loan

If your commercial property isn't properly insured, you'll need to purchase a hazard policy as part of your SBA loan funding process.

Follow these steps to ensure you're in compliance with your loan terms:

1. Choose a licensed insurance agent - Even though licensed insurance agents typically receive a commission on your purchase, they are best equipped to help you find the right business coverage for your needs. Specifically seek out one who is experienced in meeting SBA loan requirements. 
2. Compare policies - With the help of your insurance agent, compare the terms of all of your hazard insurance policy offers. Compare premium costs and coverage to make sure you get the right balance between the two.
3. Name your lender as the loss payee - It's standard practice to name the SBA, your lender, or CDC as the loss payee on your hazard insurance policy. They have a vested interest in ensuring the property is repaired or replaced. In some instances, they may monitor how the insurance funds are used.
4. Maintain your hazard insurance policy - Keep up with your insurance premiums to stay in compliance with your SBA loan terms. You cannot cancel or reduce the insurance policy unless there is some justification that the insured assets have been reduced or depreciated.

Getting proper hazard insurance is just one step in obtaining an SBA loan. Lendio's team of experts can help you throughout the entire process. Apply for an SBA loan now!

We surveyed 350+ small business owners across the U.S. Here’s what they had to say.

KEY STATS

• 49% of small business owners believe it’s somewhat or much harder to achieve the dream of owning a small business than in the past.
• Those under the age of 45 skew slightly more optimistic with 46% stating owning a small business is slightly or much easier to achieve.
• Those over 45 skews more pessimistic; 58% believe it is slightly or much more difficult to reach that dream.
• Small business owners are primarily facing challenges related to the economy (23%), inflation (21%) and other financial concerns (14%).
• 66% of small business owners state having a financial safety net would have had the most impact on their ability to start a business, followed by access to capital at 53%. 
• 54% of SMB owners started their business with personal funds with another 12% relying on friends and family. 
• 79% of SMB owners needed less than $100,000 to start their business with 43% needing less than $10,000.
• A small business has been in business about three years (a median of 40 months) when it is first funded by an outside lender and receives a median amount of $47,000.
• 56% of small businesses state that large corporations have a negative impact on growth opportunities for their business.

Executive Summary

Lendio surveyed more than 350 small-and medium-sized business owners across the U.S. to gather insights about their ability to start and run a small business. The survey included measures of business owners’ most significant challenges, access to capital, impacts on growth, and their ultimate goals for starting a small business. 

The analysis finds a clear correlation between small business owners’ age and sentiment. Those over 45 are more pessimistic, seeing starting a business as more challenging to attain in the current environment. In contrast, those under 45 find it slightly easier to achieve. 

Inflation, economic distress, and labor force were the biggest challenges small business owners cite. 

 When asked how respondents funded their small businesses, 54% indicated personal funds, followed by bank loans. This survey, along with demographic indicators, can help identify and illuminate the experiences of current and future business owners spanning the different regions of the U.S. Overwhelmingly, responses have consistently shown that access to funding can make or break a company. 

“With every business success story comes the ability to have an impact on your community—a ripple effect. 2022 was a challenging year. As we think about the coming year, we’re in your corner, we’re excited to cheer you on, and to help you overcome some of the business challenges you’re facing. We’re optimistic for 2023. We look forward to working with you to get you access to the capital you need to grow your business best.”

Although 49% of respondents believe it’s somewhat or much harder to achieve the dream of owning a small business today than in the past, online loan marketplaces are making it much easier. Lendio is committed to helping entrepreneurs find the best funding options for their small businesses, so they feel supported and optimistic about starting their small businesses.

Key Recommendations*

Based on survey results, we recommend the following to support small business owners: 

1. Loan Access - The rise of online lenders and lending marketplaces has increased access to small business loans, but there is still work to be done to improve small business’s access to funding through automationand faster approvals.
2. Target Underserved Areas -  Lenders should target underserved areas where respondents believe starting a business is less attainable. Those areas tend to also feel greater negative impacts caused by inflation, increasing costs, and economic strains.
3. Educational Resources - Empowering small business owners through education and resources within their communities can be a major benefit to getting businesses off the ground.

Small Businesses Owners Face Challenges But Remain Optimistic

KEY STATS

• 49% of small business owners believe it’s somewhat or much harder to achieve the dream of owning a small business than in the past. 33% of SMB owners believe it is somewhat or much easier. 19% say it's about the same.
• 89% of small business owners believe it’s possible to attain the goal of owning your own business.

While 49% of small business owners believe it is somewhat or much harder to own a small business than it was in the past, 89% still believe it’s possible to reach that goal.

Entrepreneurs can face many challenges when starting a small business. There’s no one solution for all businesses. But making a plan, and accessing tools make it easier in today’s environment where small business owners are one-click-away from equipping themselves in advance. Some of the biggest obstacles to tackle for small business owners include the following:

1. Funding a business
2. Finding and keeping customers
3. Finding and keeping good employees

The Economy’s Effects On Small Businesses

KEY STATS

• Small business owners are primarily facing challenges related to the economy (23%), inflation (21%) and other financial concerns (14%).
• Hiring remains a primary challenge for 11% of small business owners.
• 56% of small business state that large corporations have a negative impact on growth opportunities for their business.

The economy is experiencing a slowdown, and the Federal Reserve continues to increase interest rates to tame inflation. Business owners are feeling the effects. In a recent World Economic Forum poll, nearly two-thirds of the economists believe there will be a 2023 recession. 

The post-pandemic environment has created many challenges, and small business owners still feel the ripple effects of COVID-19 protocols coupled with inflation. With inflation still at a 40-year high, we asked small business owners about their current biggest challenges. 

Small business owners are primarily facing challenges related to the economy, inflation and other financial concerns. Challenges related to Covid recovery and supply chain issues are less of an issue.

Creating An Environment Where Small Businesses Can Thrive

Location, taxes, and socioeconomic factors help to evaluate the best environment for a business which is why we asked respondents to select three choices that most affected their ability to start a business.

Access to capital and lower expenses are the key factors for creating an environment where entrepreneurs can start a business.

KEY STATS

• 66% of small business owners state having a financial safety net would have had the most impact on their ability to start a business, followed by access to capital at 53%. 
• Of the respondents, 52% state that living in an area with lower business costs and a lower cost of living would be helpful. 44% state lower taxes would have an impact. 

Funding Stats

Start-up funding for a small business can come from one or multiple resources. One of the most common ways entrepreneurs fund their businesses is through savings or friends and family. Alternatively, an infusion of cash from a small business loan may be the way to go. With no shortage of financing options, we asked survey participants how they first funded their businesses.   

KEY STATS

• 54% of SMB owners started their business with personal funds with another 12% relying on friends and family. 
• 79% of SMB owners needed less than $100,000 to start their business with 43% needing less than $10,000.
• The average loan amount for a small business owner is $47,000.*
• A small business has a median of five employees when it is first funded by an outside lender.*
• A small business has been in business for about three years (a median of 40 months) when it is first funded by an outside lender.*

*Based on internal Lendio data of 300,000+ loans funded since 2013.

How Small Business Owners Define The American Dream

The original definition of the “American Dream” was based on the prospect of equality, justice, and democracy. As times have changed, so has the idea behind the dream.

The definition for most small business owners is relatively fluid. While traditional components, such as homeownership (46%) and starting a business (34%), are still identified as important, 67% identify freedom to live how you want to be the primary component of the American Dream.   

Generational Differences

KEY STATS

• Those under the age of 45 report needing more money to start their business with 23% needing $100K-$250K while only 10% of those aged 45+ needed that amount.
• While both generations rely heavily on personal funds to start their businesses, those under the age of 45 have started to turn to alternative sources as well such as crowdfunding (6%) and online lenders (5%).

Millennials are a highly entrepreneurial group of business owners, with ages ranging from 27 to 42. In an environment with rising costs, layoffs, and the Great Resignation, we’ve seen a surge in startups. And according to Bloomberg, “creating successful companies is a young person’s game.” 

But being an entrepreneur is not just for the young at heart; it’s a dream for people of all ages, and where economic downturns have historically driven growth, the generations looking to start anew fund their businesses differently. 

At a certain age, owning a business can seem easy to give up on or unattainable. But entrepreneurship is a reality for both the young and old. The survey showed a distinct difference in sentiment between younger and older business owners, with older business owners feeling more pessimistic and younger business owners feeling more optimistic.

KEY STATS

• 46% of younger business owners (18-44) believe owning a small business is somewhat or much easier to achieve. 
• 58% of older business owners (45+) believe owning a small business is somewhat or much harder to achieve.
• Despite differing perceptions of challenges both generations agree it’s possible to attain the goal of owning your own business.

The survey also found generational differences in what helps or hinders a small business’s success and what those business owners value most in their life.

• While a large majority (71%) of SMB owners aged 18-44 believe large corporations have a negative impact on growth opportunities for their business, 57% of those 45 and above disagree, stating large corporations don’t have a negative impact on their business.

• While the generations agree that a financial safety net, access to capital and low costs are most critical to success, those 44 and younger place greater importance on access to educational resources and see cultural bias as a larger inhibitor. 

• Both generations agree that the freedom to live how you want is the most important component of the American dream. Perhaps unsurprisingly, those 45+ place greater importance on retirement (46%) while those under 45 place more importance on becoming wealthy (36%).

Gender Differences

The survey found relatively few differences between genders other than the amount of funding needed to first start the business.

• A significantly greater number of women (49%) needed less than $10,000 to start their business than men (36%).
• A significantly greater number of men (21%) needed $100K-$250K to start their business than women (12%).

Geographic Differences

There were few significant differences across regions. 

• The Middle Atlantic region (New York, New Jersey, Pennsylvania) had the most positive sentiment toward being able to start a business with 96% of respondents believing it’s possible.
• The East South Central region (Kentucky, Tennessee, Alabama, Mississippi) had the most negative sentiment, with 30% of respondents stating they didn’t believe it was possible to attain the goal of owning your own business. 

*Disclaimer: The information, methodologies, data and opinions contained or reflected in Lendio’s Small Business Owner Pulse Survey (the “Survey”) are proprietary of Lendio and is intended for informational purposes only. The Survey does not constitute business or legal advice, and is not a substitute for professional advice. The recommendations provided by Lendio are general industry recommendations, and are not a substitute for your business judgment. The Survey is based on responses to a survey provided by Lendio, but the opinions of those businesses may change over time. Thus, the Survey is not warranted as to its merchantability, completeness, accuracy or fitness for a particular purpose. The Survey is provided “as is” and reflects Lendio’s opinion at the date of their elaboration and publication. Lendio does not accept any liability for damage arising from the use of the Survey in any manner whatsoever. While every effort has been made to ensure that this Survey and the sources of information used herein are free of error, Lendio is not liable for the accuracy, currency and reliability of any information provided in the Survey.

The U.S. Small Business Administration (SBA) offers a variety of attractive loans to small businesses in the U.S. SBA Express loans are one popular loan option you might want to consider if you need no more than $500,000 in funding. Just like other SBA loans, Express loans offer low interest rates and flexible repayment terms that you may not find elsewhere. 

Compared to other SBA loans, however, these financing solutions come with much easier applications and faster approval times. Let’s take a closer look at what SBA Express loans are and how they work, so you can decide if they make sense for your unique situation.

What is an SBA Express loan?

An SBA Express loan is part of the SBA 7(a) loan program, which is the most popular SBA funding option. Upon approval from an SBA-approved lender, you can use the funds for a wide variety of business-related expenses, such as commercial real estate, equipment, working capital, debt refinancing, or business expansion. 

You can choose from the standard Express loan or Export Express loan and lock in up to $500,000 in funding. While repayment terms depend on loan type and purpose, they go up to seven years for lines of credit, 25 years for real estate loans, and five to 10 years for other loans. 

The lender, loan size, and your financial situation will dictate the interest rate you may receive, but SBA Express loans cap out at the prime rate plus 6.5% for loans of $50,000 or less and the prime rate plus 4.5% for loans greater than $50,000. The chart below outlines the key components of these loans.

Types of SBA Express loans.

There are two types of SBA Express loans, including standard Express loans and Export Express loans. Let’s dive deeper into the details of each one.

Standard SBA Express loans.

Standard SBA Express loans are designed for qualifying small businesses that operate in the U.S. or the U.S. territories. The SBA responds to applications for these types of loans within 36 hours. With a standard SBA Express loan, you can borrow up to $500,000 and enjoy an SBA guarantee of 50%. While interest rates max out at the prime rate plus 4.5%, they ultimately depend on your qualifications, lender, and loan amount.

SBA Export Express loans.

SBA Export Express loans differ from standard SBA Express loans in that they’re geared toward exporters. If you’re in search of funding to support export activities for your business, this option is worth exploring. The SBA will guarantee 75% of loans that are larger than $350,000 and 90% of loans that are less than $350,000. Approval times are also shortened as the SBA will respond to applications in no more than 24 hours.

How SBA Express loans work.

You can apply for an SBA Express loan through an SBA-approved lender, which may be a bank, credit union, or online lender. To do so, you’ll need to complete SBA Form 1919 and any other forms the financial institution requires. While down payment requirements vary, 10% is typical and startups may have to put more down. 

Also, if you opt for an Express loan of over $25,000, you will need to back your loan with collateral. If you choose an Export Express, you’ll need to adhere to the particular collateral requirements set forth by your lender. 

Even though each individual lender will make their own eligibility decisions, the SBA will respond to Express loan applications within 36 hours and Export Express loan applications within 24 hours. This is much faster than the five to 10 business days the SBA usually takes for other types of loans. Keep in mind that funding times are also lender-dependent, but are typically completed within 30 to 60 days.

How to take out an SBA Express loan.

If you’re interested in an SBA loan, follow these steps to get one.

1. Determine your borrowing needs: Since SBA Express loans cap out at $500,000, it’s important to figure out how much money you need. If you’d like to borrow more than $500,000, you may have to explore alternative financing solutions.
2. Verify your eligibility: Before you go ahead and apply for an SBA Express loan, make sure you meet all the criteria. Your business must be considered a small business by the SBA and have reasonable owner equity to invest. Plus you’ll need to prove that you’ve already invested financial resources toward the business. In addition, you’ll be required to meet the individual lender’s criteria, which may include a minimum credit score of 650, at least two years in business, and strong annual revenue. 
3. Choose a lender: Not all SBA lenders are created equal. That’s why you should shop around and find the ideal option for your unique situation. You can always use the SBA lender matching tool on the SBA website to help you out.
4. Fill out SBA Form 1919: Once you decide on a lender, complete SBA Form 1919. Be prepared to share information about who owns the business, what you intend to do with the funds, the number of employees you have, and whether you’ve received any SBA loans in the past. Double-check your work to avoid errors and inaccuracies, which may lead to delays with approval and funding. 
5. Submit documentation: Some lenders will ask you to provide certain supporting documents with your application. These may include business credit reports, financial statements, personal and business tax returns, and a business plan.
6. Wait for approval: As stated, the SBA will respond to standard Express loan applications within 36 hours and Export Express loan applications within 24 hours. Once the lender receives the green light from the SBA, it’s up to them to approve your application and distribute the funds. In most cases, however, you’ll be able to close on your loan within 30 to 60 days.

Pros and cons of SBA Express loans.

Like most business financing solutions, SBA Express loans come with benefits and drawbacks you should consider, including: 

Pros

• Fast turnaround times: If you’re in need of an SBA loan with quick approval and funding times, the SBA Express loan may be a good option. Depending on the type of loan you choose, the SBA may approve your application within 24 or 36 hours. This is quite fast when you consider that it typically takes them at least five to 10 business days to approve other types of loans.
• Flexibility with collateral: As long as your loan is less than $25,000, the SBA doesn’t require collateral. If you don’t want to put your personal or business assets on the line, you’re sure to appreciate this type of flexibility. 
• Easier application: Compared to other types of SBA loans, SBA Express loans have simpler applications. It won’t take you as long to apply for them, so you can expedite the process of securing funding.

Cons

• Smaller borrowing amounts: SBA Express loans cap out at $500,000. While this might seem like a lot of money, it might not be sufficient if you have plans to purchase expensive equipment or acquire a business. You might want to consider the traditional SBA 7(a ) program if you need to borrow more money. 
• Must meet certain qualifications: Unfortunately, SBA Express loans aren’t available to just anyone. To take advantage of them, you must meet stringent criteria set forth by the SBA and the lender you choose. 
• Lenders may take a while to distribute funds: Even though the SBA approves SBA Express loan applications quickly, it’s up to the individual lenders to provide funding. Depending on the lender you choose, you may still have to wait weeks or even months for the money.

Bottom line

If you’re in the market for an SBA loan, but want to skip the lengthy application and longer approval times of the traditional SBA 7(a) loan, the SBA Express loan should be on your radar. Before you sign on the dotted line, however, weigh the pros and cons to ensure you’re making the most informed decision. Learn more and apply for SBA loans.

The CARES Act included provisions for several financial relief programs to support businesses during the COVID-19 pandemic. One of them, the Employee Retention Credit (ERC), rewards those that continued paying wages despite experiencing decreased revenues or operational shutdowns.

Initially, many taxpayers eligible for the ERC were uncertain whether wages paid to owners employed by their businesses qualified for the payroll tax credit. The Internal Revenue Service (IRS) issued a notice that answers the question definitively, but it can be challenging to decipher.

Here’s a more readily digestible explanation of the guidance to help you understand whether your owner wages qualify for the ERC.

Do Owner Wages Qualify For the ERC?

You probably won’t be able to include owner wages in your calculations when claiming the ERC. The IRS doesn’t expressly forbid it, but its interpretation of familial attribution and constructive ownership rules render most majority owners ineligible. The reasoning behind its position is circuitous, but doesn’t leave room for interpretation.

Previously, the IRS confirmed in its ERC FAQs that wages paid to employees related to their employers aren’t eligible for the ERC. For the purposes of the credit, relatives are defined as the following:

• A child or a descendant of a child
• A brother, sister, stepbrother, or stepsister
• The father or mother, or an ancestor of either
• A stepfather or stepmother
• A niece or nephew
• An aunt or uncle
• A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law

When the employer is a corporation, a related individual includes any person who has one of the relationships above with a majority owner. A majority owner is an individual who directly or indirectly owns at least 50% of the corporation’s stock.

However, the FAQs make no reference to wages paid to owners or their spouses, which led to the previously referenced confusion among taxpayers. To clarify its stance, the IRS issued Notice 2021-49.

Notice 2021-49 asserts that the constructive ownership rules for determining who is considered a majority owner of a corporation apply to the ERC. These rules state that an individual is considered to own, by extension, all stock their family members own. Family members include ancestors, siblings (whole or half), and lineal descendants.

Here’s where things get a little confusing. The notice then alleges that applying these rules to the ERC means that wages paid to majority owners with living siblings, ancestors, or lineal descendants don’t qualify for the tax credit.

Here’s the logic: If you’re a majority owner, your siblings, ancestors, and lineal descendants are also considered majority owners. Because they’re considered a majority owner, you’re related to a majority owner. As an employee related to a majority owner, your wages aren’t eligible for the ERC, per the original exclusion in the FAQs.

Ultimately, you must have no living ancestors, siblings, or lineal descendants to claim the ERC for your wages as a majority owner. Alternatively, you can be a minority owner with less than 50% ownership in your corporation after taking the family attribution and constructive ownership rules into account.

Note: Since only corporations can pay wages to their owners, they’re the only employers relevant to this discussion. If your business operates under any other legal entity structure, then owner compensation is automatically disqualified from the ERC.

Examples of Owner Wages and the ERC

The rules regarding owner wages and their eligibility for the ERC can be frustratingly abstract. Let’s discuss some examples to help you understand whether you can claim the ERC for your owner wages.

Owner Wages Ineligible

Corporation A is an employer that can claim the ERC for qualified wages paid in 2020. During that period, it paid wages to John, who owns 60% of Corporation A’s stock. John has a wife named Susan and a daughter named Mary, both of whom also work for the company.

Because Mary is related to John, a majority owner, her wages don’t qualify for the ERC. In addition, as his family member, she’s also considered a majority owner. Because John is related to Mary, a majority owner, neither his nor his wife’s wages qualify for the ERC.

Owner Wages Eligible

Corporation B is an employer that can claim the ERC for qualified wages paid in 2021. During that period, it paid wages to Lisa, who owns 100% of Corporation B’s stock. Lisa has no living ancestors, siblings, or lineal descendants. Her husband, Chris, also works for Corporation B.

Lisa is a majority owner, but she has no relatives who meet the requirements to share her status by extension. As a result, qualified wages paid to her and her husband are eligible for the ERC if the amounts satisfy the other requirements to be treated as qualified wages..

Apply For the ERC

The ERC can be incredibly lucrative, with the potential to reduce your payroll tax liability by $26,000 for each employee retained through 2020 and 2021. The window to earn the credit is closed, but eligible businesses can still claim the credit retroactively. Even if your wages don’t qualify due to the owner exclusion, you may still be eligible for a credit if you had employees on the payroll during the pandemic.

The CARES Act established several financial relief programs to help businesses manage the economic fallout from COVID-19. Among them was the Employee Retention Credit (ERC), which rewards organizations for keeping employees on the payroll during the pandemic.

Unfortunately, accounting for the Employee Retention Credit can be challenging. Many companies will encounter timing issues, and there’s a lack of relevant guidance in the Generally Accepted Accounting Principles (GAAP).

Here’s what you need to know to record the ERC in your financial statements correctly, including how the credit works, how to claim it retroactively, and which accounting models may apply.

How Does The Employee Retention Credit Work?

The Employee Retention Credit is a refundable payroll tax credit. It reduces your business’ payroll tax expense directly, dollar-for-dollar. If the credit exceeds your liability, you get a refund. That makes it significantly more lucrative than a tax deduction, which only reduces your taxable income.

However, businesses must meet strict requirements to be eligible for the ERC. Generally, these include having a limited number of employees on the payroll and suffering a significant decline in revenue or a suspension of operations during the pandemic.

Established organizations that meet these requirements can receive up to $26,000 in payroll tax credits per employee retained through 2020 and the first three quarters of 2021, depending on the amount and timing of the qualified wages paid.

Companies that opened after February 15, 2020, may also claim the ERC via the provision for “recovery startup businesses” if they have annual gross receipts under $1 million and one or more W-2 employees, though the credit limits are different.

If you didn’t claim the ERC because you thought receiving a Paycheck Protection Program (PPP) loan disqualified you, note that the Consolidated Appropriations Act expanded ERC access to allow recipients of PPP loans that meet certain conditions.

Fortunately, though the window for earning the ERC is now closed, eligible businesses can still claim it by filing an adjusted payroll tax return, Form 941-X, for each qualifying quarter.

Generally, you must do so within three years of filing the original Form 941. However, Forms 941 for a calendar year are considered to be filed on April 15th of the following year if filed before that date.

It’s also highly recommended that you consult a tax professional to help you navigate the process, maximize your benefits, and organize your documentation in case of a future audit.

How To Record The Employee Retention Credit In Your Financial Statements

When you claim the ERC, you must update your financial statements to reflect the credit. Depending on your circumstances, there are three standards you can implement to follow GAAP accounting for the Employee Retention Credit. They include:

• International Accounting Standards (IAS) 20, Accounting for Government Grants
• Accounting Standard Codification (ASC) 958-605, Not-for-Profit Entities – Revenue Recognition
• ASC 450, Contingencies

All not-for-profit organizations must follow ASC 958, but businesses can generally choose from any of the three options. However, if you accounted for your PPP loans using IAS 20 or ASC 958, you should do the same for the payroll tax credit.

Now, let’s explore how each ERC accounting method works.

ERC Accounting Under IAS 20

When following IAS 20, you should recognize the ERC over the periods in which you recognize the expenses it's meant to offset. To do so, you must have “reasonable assurance” that you’ll receive the credit.

Having reasonable assurance of an event means its occurrence is probable. In the case of receiving the ERC, you generally cross that threshold when your business meets the credit’s eligibility requirements and pays the necessary payroll costs.

IAS 20 lets you record the ERC on the income statement in two ways. You can show it as a separate credit, such as other income, or by netting it against the related payroll costs. In the latter case, you should include a disclosure explaining the presentation.

The other side of your journal entry to record the ERC would be a debit to reduce your payroll tax liability. If that reduces what you owe below zero, the excess amount shows on your balance sheet as a receivable.

ERC Accounting Under ASC 958

Under ASC 958, you must treat your ERC credit as a conditional contribution. That means you can recognize it on the income statement only once you’ve “substantially met” the conditions to earn it.

That’s a more difficult threshold to cross than IAS 20’s requirement of reasonable assurance, and some judgment is required to determine when you've reached it.

At the very least, you must meet the decline in revenue or suspension of service requirements and pay the eligible payroll costs. Preparing and filing the IRS forms to receive the credit may also be required, depending on whether you consider that to be “more than an administrative task.”

Not-for-profit organizations must record the ERC as revenue, while business entities can show it as either grant revenue or other income. However, neither entity type can net the credit against their qualifying costs.

Once again, the other side of the journal entry to record your ERC should be a payroll tax receivable or a debit to reduce your tax liability. Conversely, if you received an ERC advance before substantially meeting the conditions to earn it, you’d show a liability for any unearned portion until you clear the requirements.

ERC Accounting Under ASC 450

If your business accounts for the ERC using ASC 450, you’d treat the credit as a gain contingency. That involves recognizing it on the income statement only once you’ve resolved all uncertainties regarding receipt of the credit and the income becomes “realizable.”

That’s the most restrictive of the three ERC accounting approaches and generally requires deferring recognition of the credit until you’ve received your funds from the IRS or at least a formal letter approving your claim.

Either way, you should then record the credit as a separate account on your income statement like you would under ASC 958 rather than netting it with the related payroll expenses.

Apply For The ERC

The ERC can significantly reduce your payroll tax liability, with up to $26,000 in credits available per employee retained through 2020 and 2021. Even though the window for the ERC is closed, qualifying businesses can still claim the credit retroactively.

Because of the complexity of the ERC accounting rules, the repeated program revisions, and the timing complications, it’s essential that you consult a tax professional for assistance with claiming the credit.

In the meantime, apply for the ERC using our guided online application tool to determine whether you qualify.