Small Business Funding

"Small business funding...   where and how?"

Small business funding must be carefully chosen—especially small business funding for a buy-sell agreement and succession planning.

The most popular small business funding methods are summarized, below, along with evaluative comments. I admit we have a bias towards using life insurance. Is our bias well-founded? Read on, and see what you think.

• Personal funds
  This method requires your surviving business partners—or business buyers—to have sufficiently large personal funds, immediately available. But, how many successful business people keep large sums of liquid assets? Not many. Most have their money working in their businesses. So, don't count on your partners or your buyer.



• Sinking fund
  But, what happens if the death occurs before the fund matures? And, a corporation may develop an accumulated earnings tax problem.



• Borrowed funds
  Stop... and take a realistic look at this scenario. Is a bank going to be more likely—or less likely—to extend credit to a partnership that just lost a valuable member? That's right... less likely... so don't count on borrowed funding.



• Installment payments
  This method requires your business partners to pay your family the full amount of your business share, in installment payments over time. Considering the insecure state of the business (upon your loss), how confident would you be in that happening? Do you feel comfortable taking this risk?



• Life insurance
  This business funding method has many advantages, including:
  • Complete financing, guaranteed from the beginning.
  • Proceeds are free from income tax.
  • Cash values can be used for a buyout due to retirement or disability.
  • It is generally the most economical method.
  • And your business's credit position is strengthened.

Now, what do you think? Is life insurance right for your small business funding strategy? Please consult with a qualified financial advisor, before making any small business funding decisions.

Meanwhile, our next step is to discuss business valuation.

About the Author

Steven H. Kobrin, LUTCF, specializes in helping "high risk" clients obtain free life insurance prequalification. If you would like Steve to request prequalified life insurance quotes on your behalf, simply send him an email or call him toll-free at 1 (866) 633-1818.

Notice of Life Insurance License: Steven H. Kobrin, LUTCF, is life insurance licensed in all of the USA, except Alaska and Hawaii. Residents of these two states should not request assistance from Steven H. Kobrin, LUTCF. Use of this web site indicates understanding of these statements.