Purchasing new facilities or large equipment is a big step for new and existing small businesses. Each move requires an act of faith on the part of the business owner predicated on the belief that the business will prosper. Making sure that belief becomes a reality could depend on how you fund the purchase.

Here’s a few ways to secure funding for capital projects:

Collateral loans: If your business already owns property, you can put this property up as collateral to secure a loan for your new capital needs. You can also put up other assets as collateral for a loan. For example, if you have a pretty large amount of account receivables, you may be able to put these up as collateral for a loan. If a bank is unwilling to make a loan, you can turn to an asset-based lender, although these lenders are likely to charge higher interest rates.

Refinancing existing loans: If you have a significant amount of equity in your current property, you may be able to refinance your loans to borrow additional money for a new facility. There’s a risk involved, as adverse circumstances that make you unable to pay the loan could put you in risk of losing your current property, but with good management, your equity in your current location can provide an excellent avenue to pursue for financing for new facilities or equipment.

SBA loans: Loans backed by the Small Business Administration can be extremely helpful. Businesses who can obtain SBA backing will have an easier time securing loans because of the reduced risk associated with a government-backed loan. The Obama administration has expanded SBA programs in recent years to help put more capital in the hands of small business owners to expand their businesses.

Many SBA sponsored loans are specifially for business expansion and capital purchases and many are awarded based on certain factors, such as minority ownership of the business or location in an economically disadvantaged area.

Legislation passed in 2010 upped caps on SBA loans and also allowed for the refinancing of loans to help pay for commercial real estate development.

When considering making capital improvements to your business, it’s also worth your while to talk to your accountant or financial advisor concerning any tax advantages you may realize by building new facilities or buying new equipment. Tax law changes from year to year, but lawmakers routinely try to incentivize certain activities by business, and your improvements may be tax-advantaged. Checking with your financial advisor can help you determine if now is the right time from a tax standpoint to make improvements, or if by waiting a few months you can take advantage of pending tax benefits.

Finding financing for your capital needs is key to the growth of your business. By careful evaluation of your options and the advice of a financial professional, you can find an option that’s well-suited to your business.

Workers’ compensation laws and requirements vary from state to state, with some states requiring the coverage if you have just one employee, while others may not require workers’ compensation coverage unless you have four or more employees. States also differ on their rules about coverage for part-time help and rules about reporting injuries.

How it works

Workers compensation insurance operates like any other insurance policy, insured businesses are charged premiums based on the assessed amount of risk their employees pose to the insurer. For example, a low-risk business such as a tax-preparation service will likely have lower premiums than more high-risk fields such as construction or an agricultural business.

Because workers’ comp is state-mandated, states offer government-run insurance programs to help employers obtain coverage, as many insurers may not be willing to offer coverage to small companies with few employees. In North Dakota, Ohio, Puerto Rico, the U.S. Virgin Islands, Washington, West Virginia, and Wyoming, workers’ compensation policies are available exclusively from state-run agencies.

The amount of workers’ compensation insurance you will have to buy also varies from state to state. In fact, states often use their workers’ comp laws as a competitive edge in luring business to their area as industries are often drawn to states that offer low workers’ compensation insurance requirements.

When purchasing workers’ compensation coverage, your inital rate will typically be based on your payroll and the average rates charged to other businesses in your industry. After maintaining coverage for a few years, insurers will typically begin offering discounts and you also may be able to renegotiate your premiums.

According to small business experts, state-run workers’ compensation insurance programs are often inefficent and costly. Experts recommend that larger companies acquire private coverage, however smaller companies may be forced to use state-run plans as insurance companies may not always extend coverage to companies with small employee pools.

Complying with the rules regarding workers’ compenation insurance is important, as fines, penalties and even criminal action may be levied against business owners who violate the law.

Keeping costs down

Businesses can keep their workers’ compensation insurance costs down by limiting workplace injuries. By following safety regulations set by state and federal authorities, as well as having good safety rules appropriate to your business in place, you can reduce workers’ compensation cost by curtailing the number of on-the-job injuries that occur at your business.

Having a competent HR staff can help you greatly in keeping workers’ comp costs down. Having a good corporate infrastructure and adequate staff to agressively manage workers’ comp claims can help keep insurance premiums down and lower the cost of resolving claims.

Also, if you’re in a state that offers private insurance solutions for workers’ comp insurance, you can get a better deal by diligently shopping around before purchasing a workers’ comp policy.

For businesses that use vehicles as part of their business, purchasing adequate auto insurance coverage is necessary to repair or replace vehicles damaged in the course of your business, or to pay for claims that may arise from parties injured in an accident with a company vehicle.

Even if you’re a one-person business, if you’re using your vehicle for business purposes, you may need to purchase commercial auto insurance as your auto insurer may not provide coverage for a vehicle used for business purposes.

Commercial automobile insurance is necessary for a wide variety of businesses. If you’re involved in a business that makes deliveries or use company vehicles for frequent business trips or visits to a client’s home or place of business, you’ll likely need commercial auto insurance to protect your vehicle and your business.

What Commerical Auto Insurance Covers

Commercial auto polices can provide the standard collision, comprehensive, uninsured/underinsured coverages that traditional auto insurance policies provide, but they also provide other coverages specific to commercial policies, such as:

Employer’s non-ownership liability – This provides coverage to employees running errands or performing other tasks for employers on non-company vehicles.

Hired auto – If your business needs to rent additional automobiles for a big job or project that requires vehicles other than your business’ existing fleet, this provision in your commercial auto policy will provide coverage for these vehicles.

Costs and Other Considerations

When choosing to purchase commercial auto insurance, you’ll need to consider a number of factors, such as how many employees will be using the company vehicle, the number of vehicles you’ll need to insure and the amount of coverage and deductible thresholds you want for the policy.

When quoting a rate for your business, insurers will examine a number of factors, including the number of employees and vehicles you want to insure and the nature of

your business. The riskier a prospect you seem to them, the more the insurer will charge you for insurance.

Many insurers have specific rules about coverage, including rules about employees driving records and the proper use of business vehicles. To ensure that you get a competitive rate for coverage, and to make sure that coverage isn’t denied in an accident because you’ve run afoul of the rules, it’s important to study your business auto insurance policy carefully and make sure that you and your employees comply with your insurer’s rules.

Coverage amounts for commercial auto insurance policies are typically higher than that of personal auto insurance. Most small businesses carry at least $500,000 in coverage, but amounts of $1 million or more are also common.

Business auto insurance is tax deductible only if you use the actual expense model for deducting vehicle expenses. If you deduct mileage, you may not deduct insurance premiums from your taxes.

Don’t rely on individual insurance

If you’re a one-man band and use your vehicle for business purposes, don’t automatically assume your individual insurance policy will provide coverage for your vehicle if it is damaged in the course of your business activities. Individual policies are crafted to provide coverage for personal use, not business use, as they are evaluated by most insurers as separate and distinct risks. If you’re using your personal vehicle for business uses, your insurer may cancel the coverage if it gets wind of your activities or it may deny claims, even if the claim arises from a non-business activity.

If you’re using your own vehicle for business, check your insurance policy to see if personal use is excluded from coverage. If it is, you’ll probably want to inquire into getting a commercial policy to make sure you’re covered in the event of an accident.

Saving on commercial auto insurance

If you’re interested in saving on commercial auto insurance, there are a few proactive measures you can take to reduce your bill, including:

- Limiting the number of employees who are authorized to drive company vehicles. The fewer people driving your vehicles, the less risk you pose your insurer. As a result, your insurer will charge you lower premiums.

- Hiring employees who are experienced drivers and providing training for your drivers. If your drivers are operating big trucks or other specialized vehicles, hiring drivers experienced in the use of those vehicles can score you a substantial discount. Some insurers also offer discounts for employers who require their employees to take driver’s safety and other driving training courses.

- Bundling with other policies. Many insurers provide discounts for customers who also purchase their commercial general liability and other business insurance from them. By buying an insurance package from one insurer, you may achieve substantial savings. Small business owners may also realize a benefit from insuring their personal and business vehicles with the same insurer.

- Reducing coverage limits. Most states have minimum coverage limits for vehicles. For example, in Alabama, the minimum liability coverage amounts a vehicle owner must have is $25,000 in bodily injury coverage for one victim per accident, $50,000 for multiple victims per accident and $25,000 in property damage coverage per accident. By reducing your coverage amounts down to the minimum, you’ll reduce your premium, but you will also reduce the amount of coverage your insurer will have to provide if you’re company vehicles are involved in an auto accident.

- Raising deductibles. By increasing your deductibles, you’ll save on monthly premiums but will pay a higher price should one of your vehicles get involved in an automobile accident. While it may be wise to raise the deductibles somewhat, don’t raise them to a potentially ruinous point.

- Shopping around. It’s a free market. Insurance rates may vary greatly from insurer to insurer. By shopping around, or hiring an insurance broker, you may be able to find a great deal.

By properly insuring your business vehicles, you protect a valuable asset to your business. Exercising a few prudent shopping and policy management suggestions can help make small business auto insurance coverage affordable.

If you’re just running a part-time, home-based small business (for example, a home-based sewing business), you may not need to purchase business insurance. However, if your small business expands, or if you’re running a home-based business that provides professional advice, you may need to purchase business insurance that provides coverage from potentially expensive claims that may arise. Even if your business never puts a foot wrong, you may at some point be hit with a frivolous lawsuit that can be expensive to defend.

Most insurance policies provide coverage of not just damage awards, but legal costs that arise from lawsuits. Remember, even if you obtain a favorable judgment, you may be stuck with large legal bills from the costs of your defense, making insurance a good investment.

Most small businesses, particularly stores and service-based businesses, purchase a commercial general liability policy. These policies provide coverage for bodily injury, property damage, personal injury or advertising injury that may occur at your business or at a client’s site. The policy also obliges the insurer to defend the client in court, indemnify the client from damage awards up to policy limits, to settle reasonable claims. Failure to meet these three requirements can lead to a bad faith judgment against the insurer.

Commercial general liability policies allow businesses to continue to operate while facing legal action, and prevents lawsuits from financially breaking businesses.

A good example of a covered claim under a CGL policy would be a claim arising from a client being injured at a store. Unless the circumstances of the injury are specifically excluded from coverage under the policy, the insurer will be obliged to defend the insured against the claim in court, settle the claim if there’s a clear claim or indemnify the insured up to policy limits if the case goes to trial and a jury or judge finds in favor of the plaintiff.

CGL policies typically cost about $500 per year, but prices can vary depending on where your business is located, how much coverage you buy, the nature of your business and the track record of its management. For example, management that has faced frequent lawsuits in the past may pay a higher rate than management with a relatively clean record.

Commercial general liability policies provide coverage for many of the pitfalls a small business can run into but not all. There are a variety of other insurance policies that can help small businesses reduce risk.

- Theft insurance is a good policy for stores and businesses with significant physical inventory or assets to have. Theft insurance can indemnify insureds from losses that occur from outside theft or employee theft.

- Business auto insurance provides coverage to business owners from property damage or injury that may occur as a result of the use of vehicles owned by the business. Pretty much any vehicles, including cars, trucks, tractors or forklifts owned by your business needs to be covered. You’ll likely want to purchase collision and comprehensive coverage and also buy uninsured driver coverage as more than 10 percent of all drivers are uninsured, and an accident with an uninsured driver may leave you with a large repair bill if your coverage doesn’t pay for the accident.

- Property coverage will provide your business with coverage for damages that may occur to your business’ real property and the contents inside the business. The good thing about this coverage is that it will pay for replacement costs, not the depreciated value of your property.

An example of property coverage in action would be providing coverage for damage to your business property after a fire. Your property coverage, unless an exclusion exists, would cover losses that resulted from the fire.

- Employers liability coverage provides protection to the business owner from employee-brought suits, such as suits for discrimination, wrongful termination, sexual harassment, etc. Businesses that have a significant number of employees should purchase this coverage, as these suits can be costly and are typically not covered under CGL policies.

- Life insurance policies for key personnel provide benefits to the business should the owner or a key employee die. This provides funds for keeping the business open while inheritance or other issues caused by the death of a key player die. Life insurance policies are advisable for sole proprietor businesses, or partnerships where one partner would need to buy out the other partner’s stake in the business in the event of a death.

- Business interruption coverage provides coverage of interruption of business due to a covered event such as a natural disaster or terrorist attack. This provides business owners with income while their businesses are closed because of a covered occurrence. An example would be the aftermath of a major hurricane which left a business destroyed or inoperable. A business interruption policy would provide monetary compensation to the business owner to make up for lost income.

- Umbrella coverage provides additional coverage for claims that exceed the coverage amounts of underlying insurance policies. Consider it a firewall in case a suit or series of suits or other damages exceed the coverage amounts of your CGL or other policies.

Seek Professional Help

If you’re a first-time business owner, it may be worthwhile to seek the advice of an insurance professional when you shop for insurance. An insurance broker can help evaluate the insurance needs of your business and suggest options. Unlike agents, brokers are not bound to specific insurers, and can help you shop around to find the best policies at the best prices.

Things To Remember

Many business owners purchase insurance policies and never review them again. This is a mistake. Policies have set periods and exclusions that could leave you exposed to risk. Periodically review your insurance policies to make sure they’re still in force and to ensure that they provide coverage for all reasonable risks that your business may face.

It’s also a good idea to be aware of your policy limits. Most policies provide coverage only to a certain dollar amount, so if upon review your policy limits seem likely to be inadequate to cover possible damages, you may want to increase your coverage. Also be sure to understand whether the limits to coverage are lifetime limits or are per year limits. It’s recommended that most businesses have at least a $1 million limit CGL policy.

Most small businesses don’t last after the first generation of owners die. If you’re starting a family business, or if you have a partner and want the business to be able to continue after you or your partner die, purchasing life insurance can be extremely helpful.

For example, let’s say you and two partners own a business and each of you has a family. Now let’s say one of the partners dies unexpectedly, and the other two partners want to purchase the deceased partner’s interest in the business from his or her spouse. Having a life insurance policy on each partner worth the value of each partner’s share in the business will help surviving partners purchase the deceased partner’s share without undue financial hardship on the business or the surviving partners’ personal finances.

Here’s another example of how life insurance can be beneficial to small businesses. Let’s say your small business has a key employee who performs tasks that require unique training or experience. Now let’s say that employee dies. A life insurance policy on that employee can help provide your business with the money it needs to stay afloat if the employee dies and projects he or she were working on must be outsourced to other businesses and while you search for a replacement.

Prior to purchasing a life insurance policy on proprietors, partners or key employees, it is important to value the worth of your business.

Valuing your business

Business valuations are made based on the current value of cash flows the business is expected to have in the future. Regardless of what method you use to value your business, the basic premise remains your business’ ability to generate cash flow.

Two of the most commonly used business valuation models are the cash flow multiple method and the price earnings multiple method.

The Cash Flow Multiple Method works well for most small businesses and is nicknamed the Main Street approach. In the cash flow multiple method, a multiple is applied to the expected adjusted cash flow stream of a company. The multiple usually ranges between 3 and 6, and is usually determined by an evaluation of a company’s potential for risk and growth.

Historical cash flow data is usually the basis of calculating the business’ future cash flow stream. For example, if your business has had EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of about $1 million, and a multiple of 3 is applied, the business’ value would be $3 million.

The Price Earnings Multiple Method is better suited for larger businesses, such as publicly traded companies. In this method, the business valuation is determined by taking the net after tax profit of a business and applying a market driven factor as a multiplier. For example, a numerical value may be assigned to high growth rates, financial resources, strong market position, etc. As a result, most businesses using this method may have multiples of 10 or higher.

Once you have a good idea how much your business is worth, or is likely to be worth, you should purchase a life insurance policy for you and your partners eqivalent to each partners’ share of the value. For life insurance policies for valued employees, you and your financial advisor may want to use a policy based off the business’ value or another calculation regarding that employee’s contribution to the business.

The benefit of purchasing life insurance policies for partners is that it can head off the succession squabbles that often kill small businesses. By immediately having the wherewithal to buy out a partner’s share in the business, you can avoid costly court wrangles with heirs that can be harmful to your personal finances or to the ongoing operation of your business.

Even single proprietor businesses can benefit from a life insurance policy for the proprietor, as it can provide some financial cushion for your heirs as they learn how to run the business or allow heirs who are better suited to run the business to buy out the interest of other heirs.

Succession planning isn’t something you should put off, as the unexpected can happen at any time. To get a better idea of the options most appropriate for your company, contact a financial services professional and a life insurance agent or broker.

What is ?

Homeowner’s insurance covers private residences and insures a home against a number of risks, including fire, burglary, vandalism, etc. It can also provide a number of personal insurance protections as well, covering losses that may occur as a result of loss of its use, the contents of the home and liability insurance for accidents that may happen at the residence.

Homeowner’s insurance policies are typically offered as term contracts, that is the policy is in effect for a fixed period of time. Once the policy expires, it needs to be renewed or coverage will no longer be afforded to the insured. In exchange for coverage, insureds must pay premiums, which vary from customer to customer based on the perceived risk of loss they pose to the insurer.

Many owners of home-based businesses assume that their homeowner’s policy will cover accidents that occur as a result of the operation of their home-based business. While some homeowner’s policies will offer this type of coverage, in most cases it has to be purchased as a rider to the home owner’s policy. Without that rider, claims related to your home business may not be covered by your homeowner’s policy.

If you are running a home-based business and don’t tell your insurer, they may terminate your coverage if they get wind of it. They may also chose to refuse to cover claims as a result of your non-disclosure, even if they’re not related to the home business.

Even if your homeowner’s insurance policy does provide coverage for home-business related claims, the coverage may not cover the type of loss you need handled by your insurance company. Instead, your coverage may only cover property damage, and not offer liability coverage for personal injury, business interruption or other claims that may arise from the operation of your business.

For example, let’s say you run a computer repair shop from your home and your homeowner’s policy provides coverage for property damage arising from the operation of a home-based business. If one of your customers slips and falls while on your property, you may be held liable for damages in a court of law, damages that your insurer doesn’t cover because the policy only extends to property damage.

Also, let’s say your home is damaged in a fire and you lose all your files, including your billing records. A standard homeowner’s policy is not likely to cover losses resulting from your lost ability to collect on accounts receivable.

If you’re getting serious about a home-based business, you’ll likely want to check into purchasing additional coverage to cover claims that may arise from the operation of your business. A growing number of insurers are willing to provide coverage to home businesses, as home entrepreneurship is becoming an emerging insurance market.

The cost for upgrading your homeowner’s policy to cover your home business or purchasing a home business policy may be cheaper than you think. In most cases coverage will not amount to more than $1,000 per year, and may be far less than that. It’s also tax deductible.

Business insurance and taxes

Federal tax law allows businesses to deduct costs of doing business from their tax liability. Most forms of business insurance fall under this deduction. The IRS has worksheets included in its form 1040 and publication 535 to help business owners calculate their deduction. IRS publications 535 and 334 are very helpful to small business owners seeking to determine what expenses they can deduct, including insurance premiums.

Remember that if you’re trying to claim expenses such as home business insurance for IRS tax deduction purposes, you need to have an area of your home exclusively for business and refrain from using it for personal uses. Take pictures of the home business area to better document its use for business purposes in case the IRS should have questions.

Getting the right policy

If you’re considering getting insurance coverage for your home-based business, check out your current homeowner’s policy. See what it covers and what it doesn’t, and talk to your insurer or insurance agent about it just to make sure. Going from there, you can begin searching for a home business insurance policy or rider to your homeowner’s policy that is adequate to cover your insurance needs. Some risks you may want to insure against include:

- Professional liability

- Personal injury

- Property damage

- Advertising injury

- Business interruption

- Contents insurance

By making sure your bases are covered with appropriate insurance coverage, you can help protect your assets should a claim arise as a result of your business operations. One way you may be able to save on your business insurance coverage is to join a professional organization. Professional organizations, in addition to other benefits, can often offer members group rate insurance coverage. By taking advantage of this benefit, you may cut your home business insurance significantly.

When shopping for insurance, it pays to get quotes from a variety of insurers before making a decision on coverage. Different insurers all put differing weight on the various factors they use to determine premiums. For example, insurers may use your credit score as one of their measures of how much risk you pose as an insured, with each insurer assigning a different level of importance to this factor.

By shopping around, you can typically find significant discounts on your home business and other insurance. You can go online and get quotes or you may want to use an insurance agent. Insurance agents work with a variety of insurers and because of their knowledge and relationships with insurers may be able to get you a more competitive rate.

Don’t wait for an accident to happen to test the limits of your homeowner’s insurance policies. Be proactive and evaluate your insurance coverage today, and purchase the coverage you need to protect your business and your personal assets from litigation.

Errors and omissions coverage, also known as professional liability insurance, is essentially an insurance policy that provides coverage to insureds from negligence claims. This insurance product will help pay for a legal defense from claims arising from alleged errors and omissions by the policyholder which result in the policyholder failing to perform adequately, or financial losses caused by the policy holder. A commercial general liability policy may not address these claims, as they usually are intended to provide coverage for more direct causes of harm.

The main reason why E&O policies exist is because commerical general liability policies typically only provide coverage for claims arising from bodily injury, property damage or advertising injury. The kind of damages that can arise from professional services and products simply don’t fall under these categories. E&O policies will help shield your business from claims for negligence, bad faith, inaccurate advice or misrepresentation.

A good example of a claim covered under an E&O policy would be a suit involving the failure of accounting software to accurately keep user records. This could easily give rise to a claim of negligence and misrepresentation.

E&O policies usually operate on a claims-made basis. This means that the policy covers only claims that are made during the policy period. Claims made before or after the policy period aren’t covered, unless the policy has a rider providing coverage for claims that may arise during specific times before or after the policy period.

E&O policies do not typically provide coverage for criminal prosecution and exclude various other types of legal liability under civil law, except those that may be written into the policy.

Who should get E&O coverage?

Small businesses need to get E&O coverage if they:

- Provide educated guesses or advice to clients.

- Share their recommendations with other businesses performing work for the client.

- Represent the needs of their client.

- Provide specific services for individual clients customized to their needs.

Here’s a list of some common errors and ommissions policy insureds:

- Attorneys

- Doctors

- Consultants

- Accountants

- Architects

- Real estate agents

- Insurance brokers

- Information technology companies.

The good thing is that errors and omissions insurance premiums are deductible from your income taxes, as they qualify as a business expense.

Cost of E&O Suits

According to the Small Business Administration, litigation can have a major impact on small businesses. The SBA said that most lawsuits involving small businesses have litigation costs alone of between $3,000 and $150,000. About two-thirds of those lawsuits had litigation costs of more than $10,000.

Respondents to the SBA study said litigation creates a substantial hardship on both small business owners and their enterprises, causing severe emotional distress on the part of the business owner, and often resulting in financial burdens for the business as it seeks to recoup the cost of the suit. The survey indicated that even favorable resolved litigation can have a significant impact on businesses, often ending in making small business owners more wary of customers and employees.

Having an error and omissions policy can help insulate small business owners and their businesses from the stresses and pressures of litigation.