Immigrant business owners are a powerful force in the American economy. If you’re coming to the United States to start your business, there has never been a better time to begin your journey.
In 2017, the New American Economy (NAE) reported that over 3.2 million immigrants ran their own businesses. That means over 20% of American entrepreneurs are immigrants, and those businesses generated $1.3 trillion in total sales in 2017.
This isn’t a fluke. Studies show that immigrant homeowners are growing annually, as they did from 2016 to 2017 by 4.6 percent. In fact, the NAE found that over 40 percent of Fortune 500 firms “had at least one founder who either immigrated to the United States or was the child of immigrants.”
It’s clear immigrants are highly successful business owners in the United States. But how difficult is it to get started?
Here are the Top 3 Considerations For Immigrants Starting a Business in the U.S.:
1) Choosing Your Company Structure
For immigrant business owners, you have two primary choices for company structure: LLCs and C Corporations. Here are the biggest benefits to each:
Legal benefits make C Corporations attractive to business owners. The top advantages include:
- Limited Liability: As a shareholder, you are only responsible for company debts up to the value of your shares. That means you cannot be sued or held liable for your company’s debts or obligations.
- Perpetual Existence: Your business will continue existing if you declare bankruptcy or even if you pass away.
- Separate Legal Identity: In the eyes of the government, your corporation retains its own rights and duties separate from your own. This means your personal assets are protected from creditors.
The sole disadvantage of a C Corporation is its double taxation. In short, a C corporation will first pay corporate income tax on its annual revenue. That after-tax income is then paid out to shareholders (including yourself), who must pay personal income taxes on those dividends.
Fortunately, there are ways to significantly reduce these taxes. Seek the advice of an experienced tax advisor before building your C corporation business.
Limited Liability Company (LLC)
A hybrid company structure, LLCs blend elements of corporations and limited partnerships. As with a C Corporation, members of an LLC are protected from the company’s debts and liabilities.
With an LLC, however, you also gain the benefits of:
- Flow-Through Entity: To avoid double taxation, LLCs are regarded as “Flow-through entities” where income passes directly to the owners/investors. This ensures you’re only taxed once.
- Enhanced Flexibility: Because LLCs are a partnership, you and your co-owners will have more freedom in deciding how profits are split.
- Less Red Tape: LLCs don’t require you create a board of directors or host shareholder meetings. That means less paperwork and red tape for you and your co-owners.
2) Choosing a State to Register
The United States offers no shortage of options for business owners. 50, in fact!
The best states will provide reasonable annual fees and filing costs, low corporate income taxes, and affordable formation fees. Here are a few key considerations to keep in mind as you shop around:
- State Taxes: From sales tax to income tax, corporate income tax on goods and services sold, personal property tax and more, there are countless ways to assess the tax “friendliness” of each state.
The Tax Foundation took a holistic approach in their recent study and ranked Wyoming, South Dakota, Alaska, Florida and Montana as the most tax-friendly states for business owners. Conversely, states like New York and New Jersey were ranked towards the bottom for their prohibitively high property and income tax rates. Do some research to see which states offer the best blend of business protection and lifestyle options that fit your needs.
- Low Franchise & LLC Tax: Not all states require an annual LLC tax based on your earned income. Some states (like Delaware, for example) provide a low-cost, flat-rate fee.
Once you settle on the right state, you can begin the process of registering your business.
3) Securing Funding for Your Business
This can often be the most overwhelming part of starting a business. Fortunately, there are many great resources for immigrants seeking to get their business off the ground.
Here are three of the best small business loans on the market:
- SBA Loans: The Small Business Administration (SBA) is the government agency that supports small businesses. Their mission is to connect entrepreneurs with lenders and help launch their business. Naturalized citizens, lawful permanent residents, and lawful non-permanent citizens can all qualify for funding. Click here to check your eligibility and start applying for funding!
- MicroLoans: The SBA also provides a MicroLoan program that offers new companies a small sum to launch their business. Average loans are about $13,000 and reach a maximum of $50,000. Click here to learn more!
- Short Term Loans: Short-term loans are a great option for immigrants. Here’s how they work: short term business loans are lump sums of cash given by a lender. Upon receiving the loan, business owners agree to pay the money back over a specific (and condensed) timeframe. While readily available for immigrants, companies with less cash flow should take note: short term loans do require more frequent payments and higher interest rates.
Beyond small business loans, you can also take advantage of many grants offered by the government and various nonprofit organizations. Some of the most popular business grants include:
- Microenterprise Development Program for Refugees: Provided by the US Department of Health and Human Services, this program specifically helps immigrants start new businesses. The MDP provides grants and micro loans as high as $15,000. Click here to learn more.
- Wilson/Fish Alternative Program for Refugees: Also provided by the US Department of Health and Human Services, this program delivers cash, medical help, English language training, job development, and more. Click here to check for eligibility details.
Owning a business is a hallmark of the American dream. With careful research, you’ll be able to select the ideal company structure, pick the perfect state, and find plenty of funding to open your business.
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