Tax Refunds Instead of Bank Loans?
As if the multibillion dollar bank bailout, the sharp and continuous decrease in bank lending to small businesses and considerable rises in small business bankruptcies in states like California weren’t indication enough of a fall of the traditional bank loan, now small business owners are turning to tax refunds to supply the funds that banks refuse to lend.
Catherine Clifford wrote about a certain tax maneuver called “loss carryback,” in an article for CNN Money. In the article, she quotes a small business owner who took advantage of this method, who said, “Without that money, I probably would have gone under…When you can’t get any loans from anybody, it kept me alive.”
This simple quote epitomizes the current state of the traditional bank loan.
The Good News – Through “loss carryback,” small business owners who were once profitable but were negatively affected by the recession have a chance to get cash to keep their businesses alive and begin to rebuild. “When a business books a profit, it pays income tax on its earnings. But if the business then turns a loss in later years, tax rules allow the business to ‘carry back’ its loss and deduct the money from earlier profits. By filing an amended tax return for the earlier, profitable year, the business can claim an immediate refund on the taxes it paid,” wrote Clifford.
The Bad News (for Banks) – It seems that the days of banks’ reign in the area of small business funding are officially over. For many small business owners, the bank is no longer the first option and for some, big banks are no longer an option at all.
More Good News – Small business owners’ eyes have been opened to new ways of raising money for their businesses, such as business cash advances. They have been forced into innovation; figuring out ways to raise funds, retain and attract customers and save money.
Small business owners can take everything that they’ve learned during this recession, not only to prepare them for the next recession, but to give them helpful business tools to use during economic upturns as well.
