New entrepreneurs are often unaware of the many legalities surrounding a new business. Most specifically, the legal structure of your business. This refers to the type of entity your business is and can play a huge role in deciding what taxes you pay as well as all the legal paperwork you need to fill in.
Each legal structure has its pros and cons, but which one is best for your business? Take a look at each structure below, read all the information, and decide which one is best suited for your business model:
A sole proprietorship is the most common and simple legal structure for your business. This is where you are the sole owner of your business and are responsible for everything – including your assets and liabilities. This means it is your personal responsibility for all of your business finances, you are in charge of the money you make and must also be in charge of any money you owe. Recent research suggests that over half of businesses follow this legal structure.
The main pro of this structure is that you are in charge of the business, so all the money you make goes to you and you alone. However, the downside is that you’re liable for everything too. So, if someone has an issue with your business, they can sue you personally for it. Also, you get taxed as if your profits are personal income. What does this mean? It means you only pay individual tax and not company tax as well.
The second legal structure is a partnership, where your business is owned by more than one person. Within this structure, there are two different types of a partnership; general and limited. With a general partnership, this is where everything is divided equally between the parties involved. You each take on the same responsibilities and liabilities. A limited one is where one person is in charge, and the others make a significant contribution but not as much as the main person.
If your business is structured as a general partnership, then it can fall under the sole proprietorship status too. This means all partners are in control of everything, which is a positive as it means you have more brains to bounce around ideas and more resources too. It also means you might have enough money to avoid applying for startup loans, which also means you avoid debt. If you’re a limited partnership, then you’ll fall under Limited Liability Partnership (LLP) status. This means that those with limited control aren’t as liable as the main controller. This can have its pros as it makes it harder to be personally liable during lawsuits if you have limited control. However, the downside is you don’t get an equal share of the profits.
In general, partnerships are good because of the collaboration involved, but bad because of the fact you have to share your profits between other people, meaning your personal take-home is less than if you owned it alone. Plus, another positive is that it follows the same tax structure as a sole proprietorship; you only pay personal income tax.
Limited Liability Company (LLC)
LLC’s are fast becoming a popular legal structure for businesses. Why? Because they allow you to enjoy the main benefits of a partnership (the collaboration, paying individual tax) without some of the negatives.
Mainly, an LLC consists of partners or shareholders – people that have a stake in your business. They’ve used their money to help fund things, and are partially in control of how things are run along with yourself. The key point is, with an LLC, all partners and shareholders aren’t personally liable for any legal issues your business gets into. This means if you fall into debt or get sued, you aren’t liable unless there’s concrete evidence that you’re responsible for the issue at hand.
An LLC is good as it offers you liability protection while also granting the tax benefits you get with partnerships and sole proprietorships. The only negatives are similar to partnerships, any profits you make need to be shared, and you don’t have full control of your business.
Once your business establishes itself and starts to grow, you might want to consider switching its legal structure to that of a corporation. A corporation is a business that’s completely separate from you, the owner. While you have your legal rights, so does your business. You can own stock through your business, buy property through it, even sue people through it. It’s a legal entity created with the sole purpose of conducting business. As such, it also has to pay a separate tax. There are many types of corporations, with C corporations being the most common. These are businesses where the owners pay personal income tax, and the business itself pays a separate business tax.
The major benefit of a corporation is that you are completely protected from personal liability. If anything bad happens to the company, such as a lawsuit or heavy debt, you’re not liable, much like with an LLC. The major downside is that you pay two loads of tax; corporation tax and individual tax.
Finally, you have an S corporation which is similar in structure to a C corporation but with one clear difference. Your business is still a separate legal entity, but the tax situation is different. Instead of paying two types of tax, you only have to pay individual tax on any profits you make.
The catch is that you have to fulfill certain eligibility requirements to be classed as an S corporation. For example, you can’t have over a hundred shareholder, and you must be a domestic company. You also can’t have shareholders who are partners, it must only be individuals.
Each of these legal structures comes with positive and negative features. The main things to consider are how much control you have over your business, what tax laws you must abide by, and how liable you will be if things go wrong.
Making Money With Short Term Rentals
Investors love investing in real estate as it usually outperforms other investment types like shares and managed funds. There are many ways to make a profit for your business with real estate too including ‘flipping’. This term refers to purchasing a revenue-generating asset and then shortly thereafter selling it again for a profit. In the US, the two asset classes mostly used for flipping are initial public offerings and real estate.
The longer-term real estate investing strategy that’s prevalent is buying homes to rent out on long term tenancies. It’s not just businesses that invest in rental properties, as a retirement strategy workers also look to have one or two investment properties in their portfolio for the weekly income and the long term capital gain on resale.
What’s also caught the attention of businesses and workers alike is the option to make money from short term rentals. Generating more income with short term rentals and by listing these properties on Airbnb is disrupting the accommodation sector and anyone with a home can do it. AirBnB is a disrupter and it has changed the way we travel. Staying in a spare room for a night or two, rather than a hotel is now accepted as the norm among all types of holidaymakers.
If you want to know how you can earn money with short term rentals, here is a quick guide.
What Is Airbnb?
Airbnb is an online marketplace for lodging around the world. It is popular among travelers who want to save money on accommodation. Because hotel rates are getting expensive, solo and group travelers are looking for more affordable options. Property rental listings on Airbnb can be a whole apartment, one room, or villas. Users can input the location and dates of arrival and departure to look for available properties.
The company started in 2008, and since then, it has reached worldwide popularity. Not only travelers are using this app, but also business-minded individuals take advantage of Airbnb’s technology to generate more money.
In the United States, there was a 45 percent increase in year-to-year bookings. Airbnb attracts millions of users worldwide, which comprises of frequent travelers and individuals who travel for work. About 700,000 companies are now using Airbnb for work-related purposes.
Earning Money with Short Term Rentals
You do not need to buy a property to list it on Airbnb. You can go for short term rentals to gain a more significant profit from daily or weekly rentals. Some people are already doing this strategy for years now, and you can also do the same if you find a property in a prime location.
Because this venture requires capital in the form of deposits, you need to be ready. Some property owners require bigger deposits, especially if the unit or apartment has appliances and furniture. Ensure that you have enough money to cover for deposits to get the business rolling. Once the apartment is ready for occupancy, you need to create an Airbnb account and list the property.
Other considerations you need to know:
- Property Maintenance
- Property Rating
Studying the market and how the business works can help you optimize the trade. Create a checklist to go through the essentials every time before a guest checks in. Besides, you can also connect with other people who do this business in different areas.
Technology opened up more profit opportunities for people. In hospitality, even you, who do not have much experience in property rentals, can earn money. Listing your extra room in the apartment can be a good start, but you can always experiment with making more profit. By short term rental, you can get access to excellent properties that can be listed on Airbnb.
Continue exploring the real estate market and make sure to learn new knowledge from experienced individuals. Who knows, you might gain financial freedom by being successful with this Airbnb venture. Check how other hosts present the properties, so you can have an idea of how to operate yours.
Home Appraisal Tips for a Successful Refinancing
The appraisal value for your home significantly impacts a refinancing application. New paint, upgraded flooring, renewed fixtures, and proper sanitation also contribute towards a satisfactory appraisal. Refinancing a home requires several necessary measures. However, the appraisal of the estate is perhaps the most significant.
If a real estate appraiser provides an assessment on the equity in your home, it can make – or break – the chance to refinance mortgage. You need the value to suit your refinancing targets, and what better way to achieve that than to improve your home?
What is a Home Appraisal?
An appraisal is a qualified and accredited professional assessment on the value of a property given by a third party. The appraiser will get paid by appraising your home with no incurred risk on whether you can refinance a mortgage or not because of the value they provide.
In a refinancing deal, an appraisal safeguards the lender by guaranteeing that it does not loan the applicant more than the value of the property. If the estate is subsequently foreclosed for any cause, the borrower will want to resell it and get their money back.
Tips to get a high-end appraisal:
The cost that the appraiser assigns your property mainly relies on the latest selling values of similar houses. However, you can definitely make sure that your property is appraised to its maximum value.
Having your house appraised is like meeting a potential partner. Although you do not know what the person likes and how they will judge you, dressing well improves your chances. Your estate must be clean and organized, tidy, and comfortable to examine. Pets should be kept in place, and the scent blocked. You will not want to rush the appraiser before inspecting everything.
Appraisers are especially particular about:
- External and internal condition
- Overall room number
- Features, including layout design and functionality
- Kitchen and bathroom upgrades, walls, roofing, and home systems (air conditioning, plumbing, and electrical) throughout the past 15 years that have made the house updated, usable and livable for current standards
- State and condition of the house’s structures
- External facilities, including garages, stairs, and balconies location
It’s also wise to emphasize characteristics that might not be readily noticeable, which might contribute to the value of the property. If there are any upgrades that are not seen, it would be good to let the appraiser know.
After securing a reasonable appraisal, you have achieved a significant step toward refinancing your loan. You can now proceed to the next steps with your mortgage lender. If you have received a good value, use a resource such as the Consumer Financial Protection Bureau’s Mortgage Calculator to check interest rates on refinanced loans with the same pricing for your house. Coming equipped with these statistics will provide you more negotiating power once you face your lender. It will also help you feel confident in asking for the rate that you deserve.
Knowing how appraisals work will provide you with the strongest shot of getting an appraiser to award the maximum value for your estate. Appraisals may not always arrive with the ideals that applicants aim for, and they are a subjective method with room for human error. You can appeal if you have a low rating, but you will only survive with reliable information to back you up.
Commercial Loans: Options and Benefits for Start-ups
Running a business requires working capital to hire staff, buy equipment, and cover for utility bills.
For start-up firms, having a huge capital is not always guaranteed, and commercial loans provide funding to get the business rolling. The problem is, not a lot of business owners are confident and educated enough to borrow money from lenders.
In case you are wondering how the commercial loan works, here is a guide to help you understand how the process, options, and why your business needs it.
What are Commercial Loans?
A commercial loan is a type of financial assistance that helps businesses address everyday costs and begin the next stage in their business journey. Most of these loans have fixed rates and monthly payments but require collateral that should be equal or greater than the loan amount.
The most common types of financing options are:
Small Business Administration Loans
SBA loans are similar to traditional loans but with longer terms and lower interest rates. The only downside is, borrowers need to wait for long to get the funding. Loan terms can be a minimum of 5 to a maximum of 15 or 30 years.
Business Line of Credit
This type of commercial loan gives a borrower more flexibility in borrowing money. The lender will provide a pool of funding that you can draw from whenever you need it. You will only pay the interest of the money you take out.
Traditional Term Loans
Traditional term loans are the most basic of all, wherein a business owner borrows a specific amount and payback with interest. Lenders charge rates depending on the creditworthiness of a business.
Benefits of Commercial Loans
Easy access to funds can help you focus on improving your services and gaining more clients. Loans provide a breathing space for you to focus on your business and not think about money. As you work on expanding your reach, hiring talented people, and boosting marketing, you can expect growth.
Commercial loans provide credits up to $25 million and help you increase working capital and create more jobs. Also, long-term loans are easier to pay back while you are still building your business.
If you are planning to apply for a large-scale loan in the future, starting with short-term loans can help you build a business credit card. Start-ups usually don’t qualify for larger loans because of the risks involved and lack of credit history. Try going low first to build up your report and increase the loan amount eventually.
Go After a Business Opportunity
Got a new idea to grow your business but lacks funding? Consult a financial advisor to know your options and get a low-interest commercial loan. Weigh your options carefully and go directly to a reliable lender for secure loans.
Taking risks is part of running a business. If you believe in what you are selling or providing to customers, then consider commercial loans to take your business to a new level. Contact North Avenue Capital to learn your options for business and industry loan programs.
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