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5 Reasons Taking a Loan Can Be Risky for a New Business

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If you’re starting a new business, you have to take a lot of things into account. One of the biggest ones is how you’re going to raise money to start your new business.

While you might have some money stashed away, odds are you’ll have to borrow money. Most commonly, you’ll probably have to take out a business loan.

While taking out a business loan will give you the funds you need to start your business, it carries some risk. Here are five reasons why taking a loan can be risky for a new business.

Not reading loan agreement

When you take out a loan, you’ll most likely have to sign a loan agreement. This is a legally enforceable document that bounds two or more parties establishing the terms and conditions for the amount of money being borrowed and how it will be repaid. It’s easy to sign a loan agreement, but you can face serious financial troubles in the future if you don’t read the contents carefully.

One of the biggest things overlooked is the amount of interest you’re being charged. When you borrow money, you generally must pay an interest rate that adds more debt to the money you owe. Many people don’t realize this right away and can’t keep up with their payments. Failing to make consistent payments can result in added late fees, increasing your debt. 

Personal liability

When you’re taking out a loan as a new business, you generally do not have an established history of being able to pay back your debt. What generally happens next is you, not your company, have to take liability if your business cannot repay its loan. 

This is an issue because you run the risk of ruining your credit, which is important for many things, including housing, jobs, and loans for a different purpose in the future. 

Collateral

As a new business, you might have to offer some collateral to secure the amount of money you need. Some common types of assets used as collateral include land, real estate, or expensive equipment. 

If you can’t repay your loan, lenders have the right to seize the assets you used as collateral. This can be bad if you need these assets to run your business or if they were personal. 

Too much debt

If you quickly run out of money, can’t quite pay it back, and have to take out more loans, you accumulate too much debt. 

Too much debt is an issue for several reasons. For starters, it’s a sign to lenders you’re not good at managing your money. Second, it also shows lenders your new business is having trouble making a profit. Finally, more debt will only worsen your money issues. It doesn’t solve problems more than it creates them. 

Financial ruin

In a more worst-case scenario, if you take on a loan you can’t repay, your business fails, and you lose all your assets due to putting them up as collateral, you will probably be financially ruined. 

While you can file for bankruptcy, you will have lost a lot and practically have to start over. Of course, this is one of the risks of starting and running a business.  

Loans can be a tricky thing to navigate. They take careful planning and awareness on the business owner’s part. 

Taking out a loan is a necessity for many new businesses, though. You shouldn’t necessarily be afraid to take out a loan, but you should know the risks.

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Financial planners say their clients thank them most for 5 smart money tips

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Financial planners say their clients appreciate personalized advice.

  • Financial planners say their clients get the most value from a handful of money tips.
  • Those tips include how to save for the near future, and how to choose the right life insurance.
  • Other advice: Time in the market is better than timing the market, and use your HSA to invest.
  • Vanguard Personal Advisor Services

When it comes to managing your personal finances, there's a lot of advice that gets floated around. You might find yourself asking friends for tips, reading articles for hours, or even scrolling social media to see what your favorite financial influencers have to say.

I spend a lot of quality time learning about finances and trying to figure out how to optimize and enhance my own portfolio. When I talk to financial planners and advisors, I find myself inundated with so much good information that it can be overwhelming. That's why I decided to try to find the best tips that financial planners give to their clients by asking them which tidbits of information make their clients thank them again and again. Here's what they had to say.



Don't just save for the faraway future

Many people work hard now and save for their future retirement. But Jake Northrup, a financial planner and advisor, says that it's not enough to just save for later on in life, and his clients appreciate his strategies that focus on the near future as well.

"You need to save in the right ways to provide you with the flexibility to use money throughout your life, rather than just waiting until age 59.5 when most pre-tax account penalties disappear," says Northrup.

He encourages his clients to save in different "buckets," each with a corresponding investment strategy: zero to five years, five to 15 years, and 15+ years.

"Many people handcuff their ability to enjoy money throughout life because they only save in their 401(k). By also saving into a Roth IRA and brokerage account, you give yourself the flexibility to utilize money much earlier in life," says Northrup.

Get a financial education

If there's one thing I've learned in my own personal finance journey, it's that you have to seek out personalized advice along the way. Financial planner Cody Garrett says that personalized education during the financial planning process always garners tremendous appreciation later on.

Says Garrett, "Unlike financial 'advice' that tells others what to do, education provides the clarity and confidence for families to make their own well-informed decisions. Given the uncertainty and financial variables out of our control on the path to and through retirement, having clarity about one's financial situation and a measurable action plan to refine the plan has greater value than the numbers on the page."

What kind of life insurance is needed

A big part of working with a financial planner or advisor is getting help figuring out what types of insurance you need. Charles H Thomas III, a financial planner, says that it means a lot to clients when he can help them plan for big situations that could happen later on.

"I work with lots of families who know they need life insurance to protect their children, but are unsure where to start or how much they need," says Thomas. "When I work with a family to see what future obligations need to be covered, like college, income replacement, and more, it removes a lot of stress and uncertainty from the decision."

Treat your HSA as a long-term investment account

Perhaps some of the best advice involves strategies that aren't so obvious.

Financial planner Kevin Mahoney finds that one of his most helpful pieces of advice is to treat your health savings account like a powerful long-term investment account.

"Many of the millennials with whom I meet have not considered how an HSA may fit into their overall investment strategy," says Mahoney. "For my peers who do have these accounts, they often spend the contributions in the same tax year or don't take advantage of the HSA's investment option. But the HSA's triple tax benefits mean that contributions invested today in low-cost, diversified funds can grow to significant amounts by the time retirement (and our larger healthcare expenditures) arrives."

Time in the market is better than timing the market

When it comes to getting advice on investing in the market, there are varying schools of thought. Financial planner Keith Onto says clients appreciate it when he reminds them that time in the market is more important than timing the market.

"I can't tell you how many times clients have reached out and asked whether now is the time to sell and move to cash in anticipation of the next correction," says Onto. "No one can consistently time the market, and more often than not the market has gone the opposite direction of what the client may expect. More importantly, the client needs to be reminded of the time horizon for their individual goals."

Related Content Module: More Financial Planner Coverage

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Finance & Accounting

7 trends in online payments to watch for in ecommerce

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In our fast-paced business world, payment technologies are constantly evolving and changing. And it’s important for all businesses, large and small, to be aware of the current trends in online payments in order to better stay ahead of the curve.

These days, most businesses that sell products and services online rely on online payment processing.  At its best, online payments are fast, convenient, and efficient, enabling customers to pay for things in a streamlined, accessible way — and encourage them to come back to your brand in the future.

But if your company offers a lackluster or inefficient payment system, it could be a massive detriment.

That’s why it’s so important to watch for the latest trends in online payments — and to keep up with them.

 

Let’s explore the latest trends in online payments and how to ensure your business stays up to speed.

The latest trends in online payments

These are some of the most powerful trends in the world of online payments today:  

  • More payment options.
  • Temporary security code.
  • Contactless payment.
  • Biometric authentication.
  • Voice-based payments.
  • Convenient mobile POS.
  • Advanced security.

Let’s dive into these trends and see how you can put them to work for your business.

1. More payment options

Your company probably accepts payments from a few different credit card and debit card providers already.

But do you accept Bitcoin? What about other types of cryptocurrency? Or mobile payment wallets?

Bitcoins scattered on top of 100 dollar bills

Adding new forms of payment acceptance isn’t especially difficult or expensive, and it could open the door to an entirely new segment of customers.

People who strongly prefer to pay for their goods with a niche payment method will be grateful they have the option with you, potentially increasing customer loyalty and helping to differentiate your brand from your competitors.

2. Temporary security code

If someone gets their hands on your credit card number, they can use it to make fraudulent purchases, right? Actually, this is increasingly not the case.

These days, major credit card providers are utilizing new forms of security, including temporary security codes that serve as a secondary form of authentication.

Your online payment processing system should accommodate these security features to keep your consumers safe.

3. Contactless payment

There are currently more than 300 million contactless cards in the United States alone, and that number is only growing.

Waving a credit card over a mobile phone is much more convenient than entering a long string of numbers — and it doesn’t impose any additional security risk.

4. Biometric authentication

Similarly, we’re seeing an increase in the number of businesses using forms of biometric authentication. Biometric authentication relies on the physical characteristics of a person to verify their identity; for example, facial ID or fingerprint readers can confirm that you are who you say you are, and decrease the chances of someone hijacking your identity.

While biometrics have some weaknesses and flaws, they help boost consumer trust and security overall.

5. Voice-based payments

Did you know that 35% of consumers now use smart speakers on a regular basis to buy things like groceries and home care products? That’s why so many online brands are shifting their focus to cater to voice-based payments.

Streamlining the payment process for consumers with smart speakers has the potential to reward you in many different ways.

6. Convenient mobile POS

Online payments aren’t just for consumers buying things online; they can also be used to streamline in-person purchases. With a better mobile point of sale (mPOS) solution, you can make payments faster, easier, and more secure for your customers, no matter where you choose to serve them.

Fortunately, you’ll have a wide variety of provider options here; review your options carefully and find the best fit for your brand and your customers.

7. Advanced security

Security cameras on a light pole

Credit card fraud is a serious issue, and it’s only getting more pervasive. In the United States alone, consumers lose upwards of $10 billion in illegal transactions every year. Some of the security burden falls on your customers; it’s their responsibility to ensure their credit card isn’t stolen or misused.

However, it’s also your responsibility to minimize the opportunities for cybercriminals to get away with fraud.

 

More companies are investing in machine learning and artificial intelligence (AI) based security, giving them the power to catch unusual activity and thwart it while also providing better safety measures to customers using their preferred payment methods responsibly.

How to stay on top of new trends

We’ve covered some of the most important trends in online payments to help you understand and incorporate them into your business. But payment trends change constantly.

New technologies emerge, customer preferences change, and agile competitors find new ways to streamline the online payment process. So how can you keep up?

1. Subscribe to top publications

First, look for major publications in the online payment processing space. Major brands in the banking and finance industry, including JP Morgan and Visa, often publish new articles and reports for consumers to remain informed.

Add these publications to your regular newsfeeds and check back regularly for new information. It’s the best way to stay informed about upcoming technologies and significant trend shifts.

2. Follow influencers on social media

It’s also a good idea to follow influencers in the online payment space. Though this industry isn’t as fun as, say, travel, there’s still a niche community of experts who are open with their opinions and proactive in finding new technologies to share with the world.

3. Pay attention to digital payment providers

You’re already working with an online payment provider, so try to work closely with them in the future. Read their blog to stay on top of new and upcoming technologies.

Talk to your sales rep or customer service rep about your top concerns. Be willing to try new products or features that roll out, and don’t become too complacent with your current system.

Editor’s note: Check out everything GoDaddy Payments has to offer. You can take secure payments through your online store, or use Virtual Terminal and Pay Links — whatever works for you, all with no monthly fees.

4. Research your competition

Hand resting on a notepad with printed graphs underneath

Finally, pay attention to your top competitors. Go through their online checkout process and learn about new features they’re adding to their website.

If they add something new or change something, it’s a great opportunity to learn more and potentially close the gap.

Keeping up with the latest trends in online payments can be difficult, but it’s much more manageable if you keep your company adaptable and commit to paying attention to the latest changes.

Be aware of new trends and technologies as they emerge — and be prepared to update your company’s offerings if and when necessary.

The post 7 trends in online payments to watch for in ecommerce appeared first on GoDaddy Blog.



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Finance & Accounting

Section 321 Probably isn’t Going Away Anytime Soon

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With the change of administration in the U.S. in 2021, many American domestic businesses—and some from throughout the world—watched to see if the U.S. imposed trade tariffs would be lifted on China. 

However, the tariffs remain in place which means that Section 321, a regulation that pertains to imports, is here to stay. On the bright side, this statute presents a money-saving opportunity for eCommerce business owners and a continued need for fulfillment companies in Canada and Mexico. 

What is Section 321?

The statute, Section 321, categorizes certain goods that can be cleared through customs without extra taxes or duties. This allows business owners to avoid additional shipping expenses that would usually force them to increase prices and/or gain very little profit.

Likewise, by invoking Section 321 on imports while employing the services of a Mexican or Canadian fulfillment company, businesses can also save time by improving the efficiency of their logistics strategy. 

What Has Prompted Frequent Use of Section 321?

China and the U.S. make up two of the largest economic powers in the world. In fact, as of 2019, trade between both countries equaled almost $559 billion in American dollars. This, in part, resulted from China’s induction into the World Trade Organization in 2001. Flash forward a little over a decade and half later, tariffs were imposed on Chinese goods to hold the economic power accountable for a rash of intellectual theft, unfair trade practices, and to leverage the playing field between the two nations.

While during the election of 2020, President Biden had disagreed with President Trump’s political or economic tactics in relation to dealing with China, he has not made any moves to lift the tariffs that were imposed by the previous administration. Rather, he has chosen to keep these measures in place that cover roughly $350 billion worth in goods imported from China. This decision stems from the first in-person meeting between President Biden and President Xi Jinping which did little to thaw the relationship between the two countries.

Thus, going with the bipartisan support of holding China accountable for its political missteps and for its unfair trade practices on the economic world stage, the tariffs remain in place for the time being. 

Why is Section 321 Here to Stay?

So, what does this mean for companies that have traded with China? 66% of goods that are exported from China to the U.S. carry a tariff at an average rate of 19%. According to the Peterson Institute for International Economics, that’s about 19% higher than before the trade war started. 

Since American importers bear the cost of those duties, prices on items like televisions, baseball hats, luggage, bikes, and sneakers have gone up. This means that consumers might have noticed a difference on the price tag compared to years ago or a higher shipping cost once they reach “cart” on an eCommerce site. 

Consequently, business owners have invoked Section 321 with the help of Canadian or Mexican fulfillment companies to cut the cost that’s triggered by these tariffs. 

How to Qualify for Section 321

While Section 321 enables businesses to avoid tariffs on some imported goods, you would have to make sure shipments do not exceed $800 in value. Additionally, you would have to remember that not all products fall under the eligibility of Section 321 coverage. These include:

  • Cosmetics
  • Dinnerware
  • Bio samples for lab analysis
  • Raw oysters

Plus, you would have your shipments to Canada or Mexico, where fulfillment companies will divide your goods into parcels that value $800 or less. They are then shipped to the U.S. but not all at the same time so as not to exceed the $800 limit. 

How to Apply Section 321 to Your Business Strategy?

Depending on where you’re located, you would partner with a fulfillment company in Canada or Mexico to come up with a plan of how to divide the shipment and schedule delivery. Furthermore, the fulfillment company would check the proper paperwork to ensure all necessary and correct information is given. With the shipments arriving in either of these two countries, you wouldn’t have to be concerned about the tariffs because the destination from China would be Canada or Mexico. Neither of these countries have to pay a tariff (or as high of a tariff). Plus, technically, your supplies are “arriving from” Canada or Mexico who have a trade agreement in place with the U.S. that doesn’t involve tariffs. So, this practice presents a mutually beneficial situation for your organization and the fulfillment company. 

Because Section 321 doesn’t appear to be going away anytime soon, you can ensure a timely delivery of your goods by securing the services of a Canadian or Mexican fulfillment company, depending on your location. These companies take care of the logistics and paperwork for you which saves time and money. They double check on the scheduling of the arrival of your imports to guarantee that they will meet the Section 321 criteria. All in all, this means that you won’t have to worry about paying the high tariffs, and your customers can count on reasonable prices and receiving their products on time.

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