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Be Ready to Fight in a Tight Economy: Tax Compliance and Legal Compliance Issues

September 27, 2012

This is the second of a two-part post that explores the necessity of small businesses staying on top of tax and compliance issues.

commercial lenders are looking for fighters, just as football players do
No one is lax in playing football. So dont drop the ball in legal compliance, either.

Imagine that it is third down and your team is at the ten yard line. You’ve discussed the play; everyone knows where they’ve got to get to. Adrenaline rushes as you keep your sights on the end zone.

But then, you fumble the snap and you’ve lost possession!

Switch gears to the business world, and tell me if you would want that kind of player–one who is distracted, who lets you down–on your team. Of course, you wouldn’t! You want professionals who know the plays and come prepared to fight.

From a lender’s perspective, the “prepared to fight” translates into a very specific way of managing legal and tax compliance. We talked with Larry Shapiro, Chief Legal Counsel at Plus Funding Group, to learn what makes for a solid, effective partnership between small or medium-sized businesses and their commercial lenders.

Q: Larry, from the perspective of a commercial lender, why should legal and tax compliance be included in a commercial lender’s cost-benefit analysis of whether to extend financing?

Larry Shapiro: Solid compliance practices are a good indication for us at the start of a relationship with financing clients. A company that makes the effort to comply with all regulations shows itself to be aware of (and addressing) the issues that affect their business. By addressing these issues directly, the firm comes to the table ready to deal.

Q: How important is it that a company’s taxes are in order, and their paperwork in shipshape?

Larry Shapiro: It’s very important. As I mentioned, businesses that are of top of their tax compliance matters make great partners, and it is far easier (and less costly) to do business with such partners.

Q: Why is that?

Larry Shapiro: It may be more difficult for businesses to secure a loan to businesses when they have tax liens affecting their assets (perhaps as a result of delinquent tax payments owed on real estate or personal property, or a failure to pay income or other taxes).  Keep in mind that there are specialists in the market that are fully capable of providing such financing, but the process can be more complicated and/or more expensive.  Borrowers that are “in good tax graces” with Uncle Sam can have a much easier and less costly time securing loans.

Q: What would you suggest for firms that are running into cash flow crunch?

Larry Shapiro: Investigate alternative forms of financing. Short-term cash flow relief is available to companies not only through bank financing, but also through non-bank financial firms such as Plus Funding Group “PFG”.

PFG uses our extensive knowledge of commercial finance and our ties to a range of players in the industry, to enable more creative options for securing funding for our customers. However, it’s a turbulent market out there for small enterprises. To the extent that the principals of a firm or the firm itself possess tax liens, it will be a seller’s market, not a buyer’s.

Photo courtesy of Creative Commons 2.0, Ed Yourdon.

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