How to get capital when you are your partner disagree on the risks.

C. Miranda, Urban Revitalizers, Boston

I am a partner in a small, certified minority business, and have been managing it for the past 10 years. My firm has just won a statewide contract to conduct assessments of real estate throughout the state. It is our first large contract, and it requires some start-up capital. I have applied for several business loans to carry us through until our first pay-down. The problem is that my business partner of 10 years is not willing to sign, saying that she wants to be able to continue to pay the bills if everything fails. I have used all of my credit cards to get us part of the way there, but still need more capital. My credit score is high. Can someone tell me how I can get over this hurdle?

By Emily Maltby, CNNMoney.com writer

You've got two things that many businesses are wishing they had right now: An ironclad government contract and loan options.

"In a way, that makes this a no-brainer," says small business coach Marian Banker of Prime Strategies. "I think you'd benefit from a discussion about your visions and goals for the company, because you and your partner may not be on the same page."

While business partners' personal goals for what they want to get out of the business can differ, your aims for the business itself should be the same. "If you can identify where the disconnects are in your mindsets about the business – which is probably where the problem lies – the rest of your issues will be solvable," Baker says.

When you sit down with your partner, talk about measurable goals. Your partner may think that the business can't afford certain risks , while you think that it can. Or you may have different ideas about what counts as a "calculated" risk, Banker says. Ask your partner what her growth plan is for the business, as an alternative to this contract. If she has a good idea, make sure you're open enough to entertain it.

But let's face it. Partnership issues aren't always that civil. You will each make put forward your best case, but sometimes disputes can't be resolved through negotiation.

There are some remaining options that might satisfy you both. The first is for you to ask your bank for a short-term loan without her signature.

"For the bank to consider that appeal, you would have to produce the signed contract, plus a separate business plan for just that project, which includes the projections of revenues and income after expenses that would be generated from the project," says Porus Sagar, an Orlando accountant and current SCORE counselor. "The underwriting standards of the bank will determine whether her signature is necessary, and you might be able to negotiate the extent of your liability with the bank."

There is a strong chance that the bank won't accept this option. If you both own exactly equal stakes in the company, the bank will usually want both of you to sign for the loan. One option is for your partner to give up a percentage of her ownership and give you the majority stake in the business. That will both compensate you for the additional risk you're assuming, and give the bank one managing partner to work with.

Sagar and Banker say that giving up ownership can be a sticky situation – emotions can hinder progress. Sagar has seen many partnerships dissolve in ownership disputes. He suggests asking an objective, independent attorney to help adjust the capital ratios.

"The lawyer will also help decide if the ownership arrangement is best as a permanent change or just for this project," says Sagar. "To create less friction, you could opt to take on additional liability for the moment; then when the job is complete, you could keep all the profits from it but rework the capital interest back to her. Take advantage of different levels of compromise that may be available."

Give us your advice: Check out recent “Ask & Answer” questions.

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Bernard, Cape Town, Conn.
I want to start an umbrella group of about 20 real estate agencies. This group will grow in numbers. The name of the umbrella entity will be used for Website and advertising purposes, with a goal of  becoming the fastest-growing real estate networking group. Can you please explain the best option for registering the umbrella group?

What do you recommend? Leave a comment below with your answer.

Give us your advice: Check out recent “Ask & Answer” questions.

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Unifying your businesses into one corporate entity

Business structures 101

What an LLC does – and doesn’t – protect

Kelly, Eugene, Ore.
I'd like to start a real-estate investment business. I don't want to fund it with my own credit/name. I'd like an LLC or S-corp. I started an LLC in 2003, but let it expire. I can renew it for $250 or start a new one for about $50. Would it be worth the extra money to renew? Would I have a better chance in getting funding from a lender since the start date was five years ago?

What do you recommend? Leave a comment with your answer.

Give us your advice: Check out recent “Ask & Answer” questions.

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Picking the least-taxing business structure

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Active advice on the tax implications of passive income.

Troy L. Whitaker, Los Angeles
I earn over $100,000 a year. Does that mean I can’t deduct my rental properties’ mortgage interest? As I understand it, I can only deduct it from the income I make off my renter. Is that correct?

By Shara Rutberg, Fortune Small Business contributor
Dear Troy: We’d need more information about your specific situation to provide a definitive answer; however, here are a few general points to consider.

The rental income from your properties is considered a “passive” activity.

“You can only take deductions related to a passive activity to the extent of income from that activity, but there are a couple of exceptions,” says Tom Ochsenschlager, vice president, taxation of the American Institute of Certified Public Accountants.

One exception comes in when you “actively participate” in the rental activity. If you do, you can take a deduction of as much as $25,000 in excess of the rental income, explains Ochsenschlager.

However: "The $25,000 is phased out by 50 cents for every dollar your adjusted gross income exceeds $100,000," he says. "So, it’s completely phased out when your adjusted gross income exceeds $150,000. Therefore, depending on you income, you may get some benefit.”

What does “actively participate” mean?

“It’s rather vague,” says Ochsenschlager. “You don’t have to snake out drains, but you should do such things as approve tenants, rental terms, repairs, etc. ‘Active management’ might be a better phrase.”

Assuming you are renting to make a profit and not living in any of these properties, your deductible rental expenses can be more than your gross rental income, says Vicki H. Meyer, counsel to Thomas Howell Ferguson PA in Tallahassee. Your rental losses, however, may be limited by the "at-risk" rules in addition to the passive-activity loss rules. The at-risk rules limit your losses from most activities to your amount at risk in the activity.

“You carry any excess loss forward to the following year or years until used, or the losses may be fully deducted in the year you dispose of your entire interest in the activity in a fully taxable transaction. Therefore, losses limited by the passive loss rules are delayed, not denied,” Meyer says. Getting your deduction many years later, when you dispose of the property, may lessen the value of the deduction, she adds.

Disclaimer: This column provides general information only and is not intended to replace the services or legal advice of an attorney or CPA. Always consult a lawyer or accountant regarding specific legal or financial issues.

Give us your advice: Check out recent “Ask & Answer” questions.

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Angela J. Thomas, ATM Investments, Baton Rouge, Louisiana
I am just starting out in the investment world and am still a bit green in understanding certain things. I purchased two investment properties in 2004 and am renting them out. This year, I created an investment LLC for them. My questions is, although I have the LLC with its “limited liability,” do I still have to put insurance on the company?

By Shara Rutberg, Fortune Small Business contributor
Dear Angela: You don’t have to, but it would definitely be wise.

Forming an LLC shields the owners, called “members,” from liability, but the firm itself is still liable, explains David Sokolow a senior lecturer at the University of Texas at Austin School of Law whose areas of expertise include corporations. In this respect, an LLC is similar to a corporation, in that shareholders aren’t liable but the firm itself is.

“You should purchase the same kind and amount of insurance you would if you were operating the business as a corporation. Although you may not be personally liable, third parties may not want to deal with your LLC if it doesn’t have insurance,” he says.

Peter Bennett, chairman of the American Bar Association section of tort trial and insurance practice, agrees.

“The selection of a form of a business is not a replacement for insurance,” says Bennett, who is also president of The Bennett Law Firm, PA in Portland, Maine. “You need coverage to protect against liability.”

Give us your advice: Check out recent “Ask & Answer”questions.

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Lose weight or else!

A reader looks to gain exposure for her online real estate business.

Yvette Brown, New Start Concepts Management, Bronx, N.Y.
I started a small business that raffles houses online. How can I get exposure for the Web site?

By Christina Crapanzano, Fortune Small Business contributor
Dear Yvette: Before you attempt to direct more traffic to your Web site, you need to make sure it’s not a dead end. When FSB tried to write back to you using the contact information you provided on your page, the e-mail boomeranged back to us.

Randye Spina, the chief solutions officer at Affordable Marketing Solutions in Bridgeport, Conn., says it’s paramount to give customers access to you online. “As it stands, the site seems unfriendly – there’s no business address, your name isn’t there, and neither is your e-mail,” she says. “To the average consumer, this seems suspicious – even if you get hits, you won’t get inquiries or bids.”

According to Spina, you also need to beef up the information you provide on the site – since the concept of auctioning houses is relatively new, you should be thorough in explaining the process and the benefits.

“Some of your competitors’ sites give more background on how the concept works,” she says. Make sure your page answers the obvious questions: Why should I raffle my house? Why should I do this instead of going to a realtor?"

Once you’ve cleaned up your page, you’ll be ready to invite guests (think of it as a housewarming party). Todd Brabender, president of Spread The News Public Relations in Lawrence, Kan., says you can pursue publicity by approaching local media outlets. But before you contact them, be sure to have your selling points – the unique qualities of your business – ready.

“I always tell my clients, ‘It’s nice to have diamonds, but if you keep the diamonds in your pocket, no one knows you have diamonds,'” he says.

Spina says you should also investigate how easy it is for potential customers to find you. First, look at your organic ranking – where your site shows up in search engines when you don’t pay for services to boost your rank. Once you know where you stand, there’s a number of ways in which you can improve your placement. Spina suggests taking a look at your Web statistics and finding the keywords that are used most often to bring up your site (your Web hosting company should be able to guide you through this process). After you’ve learned these keywords, she says, use them – put the phrases all over your Web site, especially on your home page.

Another way to optimize your search-engine placement is to expand your list of meta tags, or phrases and words pertaining to your Web site’s subject matter. You can locate them by clicking “view,” then “source” on the menu bar when your site pops up. Search engines currently use tags such as “mortgage-free home” or “winning a property” to find your site. Spina also suggests adding “real estate” and “real estate bids” to the list.

“Remember, putting up a website is like opening a storefront,” she says. “It takes two steps – you have to get the customers into your store, and then give them the information the want when they get there.”

Give us your advice: Check out recent “Ask & Answer” questions.

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Ask FSB's tips for reassuring customers in a jittery home-building market.

Gloria Jarvis, St. Louis
My husband and I own a small real-estate development and home-building business. We focus on high-end, green construction in a new subdivision in a high-demand area, and we have little competition. Our customers are not affected by the current credit crunch. Our build time is 16-18 months, which reassures our buyers that they have some time for the market to recover to sell their existing home. Yet our customers are scared to buy because they hear that every builder is going bankrupt! In our case, this just isn't true. We recently signed with a joint-venture concern that ensures our surviving the housing crisis. I am sure there are many small and medium-sized builders/remodelers that are experiencing market resistance now, but we are not in that category. How can I convince our prospective buyers that we are not going broke – short of showing my balance sheet? Suggestions?

By Lenora Chu, Fortune Small Business contributor
Dear Gloria: Fortunately, you’ve taken the important first step of recognizing what’s holding your customers back, the experts say.

Alleviate their fears by tackling them head-on, says Spencer Tyler, owner of the Los Angeles branch of the small-business growth services company OneCoach.

You could retool your sales and marketing approach to address your customers’ reservations. Tyler suggests as a new slogan such as: “When you build your home with us, your money is never at risk.”

Support that headline with customer testimonials, state the number of years you’ve been in the business, and reiterate the depth and breadth of your experience. Also include the name or logo of your joint-venture partner, Tyler recommends.

Another Tyler strategy is an 18-month buy-back guarantee – made to match your typical build-time.

“If there is a fear in the marketplace, eliminate the fear by taking all the risk out of the buyer’s decision,” Tyler says.

Other consultants suggest you insure your work – in the interests of alleviating your clients’ fears. For example, you could obtain performance bonds to help assure that the work will be completed – whether by you or another builder who steps in should you go bankrupt, says Jim McKeen of the Stow, Ohio-based construction consulting firm Strategic Marketing Associates.

Why not approach your joint venture partner about insuring the homeowner’s investment dollars? “If the risk of bankruptcy is truly minimal, it’s in the best interests of the joint venture partner” to assuage the concerns of the homeowner, McKeen says.

Yet another strategy? Placing the client’s money in escrow, to be disbursed by an independent third party upon completion of the work, says construction management consultant Mike Gartenberg of Creve Coeur, Miss. However, remember that while this assures buyers you won’t be paid until the work is completed, it does require them to advance the funds before the expenses are actually incurred, Gartenberg says.

You should also obtain a letter of credit from your bank so you can show customers that a financial institution supports your commitment to perform the work, Gartenberg says.

Give us your advice: Check out recent “Ask & Answer” questions.

Related links:

Tax ins and outs of real-estate investments

Caught by the housing crunch

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You can do it – but the financial costs may be steep.

Martin Woomer, Silverdale, Wash.
I am thinking of buying a rental property that I may live in for a while. How do I transfer the title from my person to my business (I'm a sole proprietor)? Or is it better for my business to buy it, then have me rent it? Any suggestions? Thanks.

By Shara Rutberg, Fortune Small Business Contributor
Dear Martin: Regardless of whether your business is a sole proprietorship or an incorporated business, the process of having the business buy real estate for rental and then renting it to the owner is not a simple one, according to financial strategist Sean Monohan of Certified Financial Strategies in Dallas.

How you buy depends on a variety of issues, including: What type of property is being purchased? Will the property produce taxable income or tax losses? How long will the property be owned? What is the expected appreciation value? What type of business does the owner have, and how profitable is it?

There are also tax considerations, adds Scott B. Osborne, an attorney with Kirkpatrick & Lockhart Preston Gates Ellis LLP in Seattle. In particular, the capital-gain tax exclusion for personal residences could make individual ownership of the home more advisable.

Owner-occupants benefit from other advantages. As an owner-occupant, you’re more likely to qualify for the lowest mortgage rate available, according to financial advisor Terry J. Siman, president of Vantage Pont Advisors Inc. in Blue Bell, Penn.

“If you begin by considering it an investment property and don’t use it as a residence, the rates to borrow, for commercial purposes, are likely to be higher,” he says. As an owner-occupant your bank costs will be lower – not only your mortgage rates, but also your insurance costs. "Insurance companies assume an occupant who is the owner will take better care of the place," Siman says.

While deciding how to make your acquisition may be complex, “actually transferring the title to another legal entity is not really an issue,” says Monohan. “It generally requires paperwork at the local county clerk’s office, and the receiving corporation makes the appropriate changes in the company records related to capital contributions and percentage of ownership for impacted shareholders of the corporation.”

Give us your advice: Check out recent “Ask & Answer” questions.

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