A personal loan business can be a rather profitable enterprise. Instead of selling a product or service, you’d be providing something nearly everybody wants: access to money. However, getting a personal loan business off the ground requires some work. There are several steps you’ll need to take, such as forming a business entity, getting the necessary licenses and permits, and setting up an accounting system.

Key Takeaways

• Starting a personal loan business requires making a business plan, forming a legal entity, and securing licenses, an accounting system, and business insurance—among other steps.
• You can fund a personal loan business yourself or with the help of investors, or you can set up a peer-to-peer (P2P) lending platform.
• While a personal loan business can have expensive upfront costs and risks, it also enjoys a large market and high potential returns.

7 Steps to Starting a Personal Loan Business

1. Research the Market 

Before setting up shop, research the lending market for your target area or demographic. Understanding the current supply and demand can help you make better business decisions.

From there, analyze competitors and their interest rates, loan terms, and customer bases. The more you know what you’re up against, the easier it’ll be to strategize.

2. Put Together a Business Plan

Next, create a business plan that outlines how you’ll structure, fund, and market your personal loan business. Here are some sections you may want to include.

• Executive summary: This is a high-level summary of what your business will do and how it will operate and grow. It may also include a mission statement with your company’s values and goals.
• Products and services: Describe what types of personal loans your business will offer, such as secured or unsecured loans, installment loans, lines of credit, etc. Then outline what the customer journey will look like from initial contact to loan payoff. 
• Market analysis: Explain the current state of the industry and how you plan to capture market share from competitors. This is a good opportunity to summarize your findings from your market research.
• Marketing strategy: Lay out your plan to attract and retain customers, including the marketing and advertising channels you intend to use.
• Financial projections: Estimate your personal loan company’s finances in its first few years. This includes your expectations for revenue, operating costs, cash flow, and profit.

3. Decide Your Business’ Structure

Unless you opt to remain a sole proprietorship, you’ll need to create a legal entity to house your new business. This could be a limited liability company (LLC), partnership, or corporation, each of which changes how your business is taxed and your level of personal liability. Consult a legal or tax professional for guidance on which structure best suits your needs.

4. Register With the IRS

Depending on the type of business entity you form, you may need to get an employer identification number (EIN). This is a unique identifier assigned to your business by the Internal Revenue Service (IRS) for tax purposes.

5. Secure Necessary Licenses and Permits

Depending on where your business is located, there may be specific licenses or permits you’ll have to get. Visit the Nationwide Multistate Licensing System & Registry (NMLS) website to determine what you’ll need and start the relevant licensing and permitting processes. 

6. Purchase Accounting Software

As a personal lender, you’ll have to keep track of loans, payments, interest, expenses, wages, and other cash flows. Invest in robust accounting software to do this for you, and consider hiring a dedicated accountant to ensure your business stays compliant.

7. Purchase Business Insurance

Your personal loan business could get sued, suffer a cyber attack, or be liable for a worker’s injury. To protect against these and other risks, get business insurance.

The federal government already requires businesses with employees to have worker’s compensation, unemployment, and disability insurance. However, you may also want to invest in additional coverage, such as general liability, product liability, or professional liability.

How to Fund a Personal Loan Business

Now that you know the necessary steps for starting a personal loan business, let’s discuss one of the biggest hurdles: funding. After all, you need to have money before you can lend it to borrowers. 

Below are some common funding options:

• Your money: If you can bootstrap your personal loan business with your own money, you can keep full control over your profits, lending terms, and other business decisions (within regulatory limits). 
• Money from investors: A strong business plan may attract investors who will contribute capital in exchange for ownership stakes in the company. You’ll need to share the profits (and possibly decision-making authority) with them. However, you’ll have lower upfront costs and less risk.
• Peer-to-peer (P2P) lending: Instead of lending your or investors’ money, create a peer-to-peer (P2P) lending platform that connects borrowers with private lenders. Meanwhile, you get a share of the profits in exchange for your service.

Important

The biggest risk with a personal loan business is that some borrowers may not repay their debts. That’s why it’s crucial to set standards like a minimum credit score and then thoroughly vet borrowers by checking their credit, income, and existing debts.

Pros and Cons of a Personal Loan Business

Pros

• High profit potential

• Flexible business model

• Widespread demand

Cons

• Complex regulations

• High upfront costs

• Danger of borrowers failing to repay

Pros Explained

• High profit potential: You could, if you so choose, charge high interest and origination fees for an immediate and ongoing cash flow.
• Flexible business model: Thanks to digital transactions, you can run a personal loan business from virtually anywhere.
• Widespread demand: Plenty of people want the funding that personal loans can provide, resulting in a sizable market for your lending business.

Cons Explained

• Complex regulations: Financial and consumer protection laws can be strict and difficult to navigate.
• High upfront costs: Unless you raise substantial investor capital or opt for a P2P lending model, you’ll likely need a lot of money to start a personal loan business. 
• Danger of borrowers failing to repay: With every loan, you risk losing some or all of the money if the borrower misses payments or defaults.

Other Tips for Starting a Personal Loan Business

Before you launch your personal loan business, here are some final tips for success:

• Be prepared to work: Starting a personal loan business takes serious effort. Get ready for long hours and challenging business problems.
• Ensure you have sufficient capital: When you’re in the lending business, you need a lot of money—not just to lend out but also to keep in reserves.
• Protect sensitive data: As a lender, you’ll handle borrowers’ bank account numbers, Social Security numbers (SSNs), and other private information. Invest in data security professionals and software to ensure these are kept safe and secure.
• Set up a way to collect payments: That might be through a proprietary online portal, a third-party service, mail-in payments, or some other arrangement.
• Establish how you’ll collect on delinquent loans: Some borrowers will likely fall behind on payments. Put a process in place for collecting these delinquent loans.
• Understand local regulations: Lending is a highly regulated industry due to the large amounts of money and risk involved. Ensure you stay compliant to avoid legal issues.

The Bottom Line

A personal loan business can be a great way to make a high return on your money. However, you must ensure the business is set up correctly—with the right structure, licenses, funding, and borrower criteria.

Reviewed by Somer Anderson

There are many everyday habits that the average person can implement to protect themselves from the sting of a recession or even make it so that its effects aren’t felt at all. As the recession hits, these tools can help you get through it in one piece financially.

Key Takeaways

• Individuals can develop habits that will protect them ahead of time, even if an economic slowdown or recession takes hold.
• In terms of income, having an emergency fund, strong credit, multiple sources of income, and living within your means are all important.
• In terms of investments, individuals need to think long-term and diversify holdings, as well as be realistic about how much risk they can handle.

1. Have an Emergency Fund

If you have plenty of cash lying around in a high-interest, Federal Deposit Insurance Corp. (FDIC)-insured account, not only will your money retain its full value in times of market turmoil, but it will also be extremely liquid, giving you easy access to funds if you lose your job or are forced to take a pay cut.

Also, if you have your own cash, you will be less dependent on borrowing to cover unexpected costs or the loss of a job. Credit availability tends to dry up quickly when a recession hits. Once these things happen, use your emergency fund to cover necessary expenses, but keep your budget tight on discretionary spending in favor of making that emergency fund last and restoring it ASAP. 

2. Live Within Your Means

If you make it a habit to live within your means each and every day during the good times, you are less likely to go into debt when gas or food prices go up and more likely to adjust your spending in other areas to compensate.

Debt begets more debt when you can’t pay it off right away—if you think gas prices are high, wait until you’re paying a 29.99% annual percentage rate (APR) on them by fueling up on a credit card.

To take this principle to the next level, if you have a spouse and are a two-income family, see how close you can get to living off of only one spouse’s income. In good times, this tactic will allow you to save incredible amounts of money—how quickly could you pay off your mortgage, or how much earlier could you retire, if you had an extra $40,000 a year to save?

In bad times, if one spouse gets laid off, you’ll be OK because you’ll already be used to living on one income. Adding to your savings will stop temporarily, but your day-to-day frugal spending lifestyle can continue as normal.

Note

You’re only charged interest on credit cards if you don’t pay off your entire balance every month. So if you’re paying only the minimum amount required, your credit card debt will grow.

3. Have Additional Income

Even if you have a great full-time job, it’s not a bad idea to have a source of extra income on the side, whether it’s some consulting work or selling collectibles on eBay. More jobs mean more job security. Diversifying your streams of income is at least as important as diversifying your investments.

Once a recession hits, if you lose one stream of income, at least you still have the other one. You may not be making as much money as you were before, but every little bit helps. You may even come out the other end of the recession with a growing new business as the economy turns up.

4. Invest for the Long Term

So what if a drop in the market brings your investments down 15%? If you don’t sell, you won’t lose anything. The market is cyclical, and in the long run, you’ll have plenty of opportunities to sell high. In fact, if you buy when the market’s down, you might thank yourself later.

That being said, as you near retirement age, you should make sure that you have enough money in liquid, low-risk investments to retire on time and give the stock portion of your portfolio time to recover. Remember, you don’t need all of your retirement money when you retire—just a portion of it. It might be a bear market when you’re 66, but it could be a bull market by the time you’re 70.

5. Be Real About Risk Tolerance

Yes, investing gurus say that people in certain age brackets should have their portfolios allocated a certain way, but if you can’t sleep at night when your investments are down 15% for the year and the year isn’t even over, then you may need to change your asset allocation. Investments are supposed to provide you with a sense of financial security, not a sense of panic.

But wait—don’t sell anything while the market is down, or you’ll set those paper losses in stone. When market conditions improve, it is time to trade in some of your stocks for bonds or trade in some of your risky small-cap stocks for less volatile blue-chip stocks.

If you have extra cash available and want to adjust your asset allocation while the market is down, you may even be able to profit from infusing money into temporarily low-priced stocks with long-term value. Buy low so that you can sell stocks high later or hold on to them for the long run.

Be careful not to overestimate your risk tolerance, as that will cause you to make poor investment decisions. Even if you’re at an age where you’re “supposed to” have 80% in stocks and 20% in bonds, you’ll never see the returns that investment advisors intend if you sell when the market is down. These asset allocation suggestions are meant for people who can hang on for the ride.

6. Diversify Your Investments

If you don’t have all of your money in one place, your paper losses should be mitigated, making it less difficult emotionally to ride out the dips in the market. If you own a home and have a savings account, you already have a start: You have some money in real estate and some money in cash.

In particular, try to build a portfolio of investment pairs that aren’t strongly correlated, meaning that when one is up, the other is down, and vice versa (like stocks and bonds). This also means that you should consider asset classes and stocks in businesses that are unrelated to your primary occupation or income stream.

7. Keep Your Credit Score High

When credit markets tighten, if anyone is going to get approved for a mortgage, a credit card, or another type of loan, it will be those with excellent credit. Things like paying your bills on time, keeping your oldest credit cards open, and keeping your ratio of debt to available credit low will help keep your credit score high.

Important

Having a very good to exceptional credit ranges from 740 to 850. Try and stay within this range.

When times are tough, maintain communications with your creditors to keep them happy by making arrangements to keep your accounts in good standing. Many lenders and businesses would rather see you continue to be a customer than have to write off your account as bad debt.

What Is a Recession?

A recession means a significant decline in general economic activity. The macroeconomic term has traditionally been recognized as two consecutive quarters of decline, as reflected by gross domestic product (GDP) and other indicators such as unemployment. However, the National Bureau of Economic Research (NBER) defines a recession as a significant decline in economic activity lasting more than a few months—normally visible in real GDP, real income, employment, industrial production, and wholesale retail sales.

How Can I Prepare Financially for a Recession?

There are many everyday habits that you can implement to protect yourself ahead of time from the sting of a potential economic downturn or recession. Having an emergency fund, strong credit, multiple sources of income, and living within your means are all important tools that can help you get through a rough patch in the economy in one piece financially.

How Can I Make My Investment Portfolio More Resistant to a Recession?

In terms of investments, being prepared for a recession involves taking a long-term approach to your investment goals, diversifying your holdings, and remaining realistic about your risk tolerance.

The Bottom Line

The key to riding out a recession starts with planning for the worst-case scenario. Build up your emergency fund, pay off your high-interest debt, do what you can to live within your means, diversify your investments, invest for the long term, be honest with yourself about your risk tolerance, and keep an eye on your credit score. Once a recession does hit, it’s smart to look for a side gig to keep money coming in.

Deals worth over $100 billion each

Reviewed by David Kindness
Fact checked by Suzanne Kvilhaug

Vodaphone’s buyout of Mannesmann remains the largest corporate acquisition in history. The British telecom giant’s acquisition of the German company, which was completed in 2000, came with a multi-billion dollar price tag. To date, no other acquisition has topped it. We highlight some of the details of this major deal below, along with four of the other high-value acquisitions in global corporate history.

Key Takeaways

• The acquisition or takeover of one company by another is a key strategy for businesses that want to grow and increase their profitability.
• The biggest acquisitions have been valued at over $100 billion.
• The most highly-valued acquisition occurred in 2000 when Vodafone Group acquired Mannesmann AG.

Understanding Acquisitions

Acquisitions are financial transactions that occur when one company buys another. They are common in the corporate world—especially if the target is a promising business. Such acquisitions, also called takeovers, are usually executed as part of a company’s growth strategy and are made for any number of reasons.

The acquiring company may want to diversify into a new sector or product line, or it may want to increase its market share and geographical outreach, reduce competition, or profit from patents and licensing that may belong to the acquired target company. Such acquisitions occur at domestic as well as global levels.

The acquisition process can be a friendly one and generally involves purchasing a majority of the target company’s shares. In some cases, though, it may not be welcomed by the target. That’s when the acquiring company may take a more hostile approach to force the acquisition.

1. Vodafone’s Acquisition of Mannesmann AG

British multinational telecom company Vodafone Group (VOD) decided to buy German telecom giant Mannesmann AG in 1999. The long-running effort by Vodafone’s AirTouch PLC finally paid off in February 2000 when Mannesmann accepted its offer for a $180.95 billion acquisition, making the takeover the largest merger and acquisition (M&A) deal in history.

As the mobile market gained momentum across the globe and growth was at its peak, the large-value merger was expected to reshape the global telecommunications landscape. However, the deal was a failure and Vodafone was forced to write off billions of dollars in the following years.

2. America Online’s Acquisition of Time Warner

The $165 billion merger between America Online (AOL) and Time Warner comes in at number two in our list of biggest acquisitions in history.

The merger occurred at the height of the dotcom era in 2000 when successful internet provider, AOL, made a bid to acquire Time Warner. At the time, AOL had a massive market share and was looking to expand even further by tapping into Time Warner’s dominance in publishing, entertainment, and news.

But, the expected synergies of the merger never fully materialized. The two companies clashed in management style and culture. This was only exacerbated by the bursting of the dotcom bubble and the ensuing recession. The value of AOL stock plummeted. The two companies eventually parted ways, spinning off to operate as independent companies.

Note

An acquiring company effectively gains control over its target if it buys more than 50% of the company’s shares.

3. Verizon Communications’ Acquisition of Verizon Wireless

This next acquisition was worth $130 billion and took place in 2013 when Verizon Communications (VZ) took over Verizon Wireless. Verizon Wireless, which was a dominant player in the U.S. wireless services market at the time. came into existence in 1999 through a merger of Vodafone’s Airtouch and Bell Atlantic’s mobile division.

As a part of the acquisition, Verizon Communications took full control of Verizon Wireless from Vodafone, leading to the end of its 14-year stint in the U.S. telecom market. The deal resulted in windfall gains for Vodafone investors as they pocketed £54.3 billion.

4. Dow Chemical’s Acquisition of DuPont

In December 2015, the two chemical conglomerates—Dow Chemical and DuPont—announced their intention to merge in a deal valued at $130 billion. Completed in September 2017, the combined companies took on the name DowDuPont and included three divisions: agriculture, materials science, and specialty products.

However, the new conglomerate’s intention was never to remain as a single unit, but instead to restructure the entity by spinning itself off into separate companies. In 2019, DowDuPont broke up into three distinct companies:

• Dow (DOW), a commodity chemical company
• DuPont (DD), a specialty chemical maker
• Corteva (CTVA), an agricultural company that produces seeds and agricultural chemicals

5. Anheuser-Busch InBev’s Acquisition of SABMiller

The world’s largest brewer acquired its rival in a merger valued at approximately $104 billion in 2016. Anheuser-Busch InBev (BUD), which makes Corona, Budweiser, and Stella Artois, took over London-based SABMiller, the maker of brands including Fosters, Castle Lager, and Redd’s. 

One focus of the merger was to create a company that could effectively compete in emerging markets with strong growth potential. According to company management, Latin America and Africa offered the brewing conglomerate opportunities to expand into rapidly growing regions with increased revenue and market share. Emerging markets continue to remain a focus, where beer represents 1.6% of gross domestic product (GDP).

What’s the Difference Between an Acquisition and a Merger?

Acquisitions occur when one company purchases the assets and/or shares of another company. The acquiring company is usually bigger than the promising target. The acquirer normally makes an offer to the target, which can be accepted or rejected.

Mergers, on the other hand, involve two companies that agree to combine their operations into one. Once the merger is complete, both companies cease independent operations and, instead, operate as a new single unit.

Why Would a Company Want to Be Acquired?

Target companies may choose to be acquired for different reasons. Some of the primary reasons include gaining market share, acquiring new talent and resources, access to new markets, increased profitability, financial and tax benefits, and a shared culture with the acquirer.

How Is a Hostile Takeover Executed?

A hostile takeover happens when a target company rejects the offer to be acquired by another company. The acquirer may continue to pursue its target in one of several ways. This includes issuing a tender offer or an offer to the target’s shareholders, which the majority must accept, or purchasing a majority of the target’s stock on the open market.

The Bottom Line

Acquisitions are common in the corporate world. Most are executed during a bull run or in a particular sector with an expectation of success. But not all of them are successful. Some of the biggest disasters in M&A are attributable to multiple factors, including failures to culturally integrate both entities, overall economic conditions, and geopolitical issues. 

Reviewed by David Kindness
Fact checked by Suzanne Kvilhaug

Accounting vs. Economics: An Overview

Accounting is a profession that records, analyzes, and reports income and expenses for individuals and businesses. Economics is a branch of social sciences concerned with production, consumption, and market forces. An economist uses data to help shape policies for interest rates, tax laws, and employment.

Key Takeaways

• Accountants track the flow of money for businesses and individuals.
• Economists monitor trends that drive production and consumption.
• Accounting and economic data influence the fiscal policies of both businesses and governments.

Accounting

Most individuals deal with accountants when filing tax returns. In business, accountants track money into and out of an organization. They use various methods to record and analyze budgets, expenses, and revenue and produce financial records based on their data.

An accountant’s book is a historical record of an individual or organization’s financial life for a specific period. In the U.S., accounting standards, known as Generally Accepted Accounting Principles (GAAP), ensure a company’s financial statements are complete.

Publicly traded companies rely on accountants to file quarterly and annual financial reports required by the Securities and Exchange Commission (SEC).

Important

The 10-Q quarterly report and the 10-K annual report filed with the SEC provide transparent financial data to shareholders of publicly traded companies.

Economics

Economics focuses on how resources are allocated. Macroeconomics studies the distribution of resources within an ecosystem, such as a nation. It analyzes factors like the inflation or productivity rate that affect how efficiently the economy works. Microeconomics studies the behavior and decision-making of individuals and businesses within an economic ecosystem.

Economists compile data and analyze how goods and services are produced and distributed. Economists help develop economic policies for governments and project the impact of policy and regulatory changes. They may hold positions in government, academia, or the financial services industry, where they interpret and forecast market trends.

Note

Economists use statistics like Gross Domestic Product (GDP), the total value of goods and services produced within a country’s borders in a specific period, to measure an economy’s output.

Careers and Salaries

Both accountants and economists help businesses, industries, and governments to strategize and plan, make sound financial decisions, and set fiscal policies. Professionals in both fields base their analyses and projections on real-life markets, conditions, and events.

In 2024, over 1.5 million accountants and auditors were employed in the U.S. According to ZipRecruiter, salaries range between $53,500 to $78,500 with top earners making $95,000 annually.

An economist can work in multiple fields and positions, including banking, business consulting, financial services, government, public policy, or urban planning. In 2024, an individual with a master’s degree in economics earned an average of $156,100 as a financial manager, while a budget analyst earned an average of $84,940 annually.

What Are the Most Important Economic Indicators in the U.S.?

The U.S. Bureau of Economic Analysis compiles monthly, quarterly, and annual data to analyze the health of the U.S. economy. The principal indicators include Gross Domestic Product (GDP), personal income data, and international trade and its value for goods and services.

How Does Economic Data Affect Government Policy?

Data compiled by the BEA is used by entities such as the Council of Economic Advisers for briefing White House officials on U.S. economic conditions, the Federal Reserve Board to achieve maximum employment and price stability, and the Congressional Budget Office to project budgetary needs. 

What Is the Difference Between an Accountant and a CPA?

All Certified Public Accountants (CPAs) are accountants, but not all accountants are CPAs. Both may perform audits, provide financial advice, and complete tax returns. However, CPAs are licensed by a state board of accountancy, have passed the CPA exam, and have completed a specific amount of general accounting experience. To work in public accounting, professionals must earn their CPA license.

The Bottom Line

Accountants help individuals and businesses track and forecast their financial records. They may work in taxation, public accounting, or auditing. Economists compile and analyze data that influence fiscal policies. Those in government employment may work with an organization such as the Bureau of Economic Analysis to research employment or production data.

Even with no employer match, a 401(k) might be worth it

Fact checked by Ryan Eichler
Reviewed by David Kindness

One key advantage of a 401(k) plan is that employers often provide a matching contribution. Employer matches represent a guaranteed return on your retirement investment, and it almost always makes sense to maximize them.

If your employer doesn’t offer any match, you may be wondering if you should still participate. The short answer, in most cases, is that it does still make sense to contribute to a 401(k) because it can offer significant tax advantages. In this article, we’ll look at why participating in a 401(k) plan can make financial sense when there’s no employer match—and when it may not.

Key Takeaways

• Many 401(k) plans offer employer matching contributions, but some don’t. 
• Even without an employer match, you might want to participate in a 401(k) because of its tax advantages.
• Traditional 401(k) plans provide an up-front tax deduction plus tax deferral on your account’s earnings until you take the money out.
• Roth 401(k)s offer no immediate tax deduction, but your withdrawals can be tax-free if you meet the requirements.
• However, if your employer’s 401(k) plan has high fees or limited investment choices, you may want to invest your money elsewhere, such as in an individual retirement account (IRA).

When 401(k) Plans Without a Match Are Worthwhile

The employer matching contribution that is part of many 401(k) plans is an attractive benefit. In some cases, it is equivalent to your employer guaranteeing a 100% return on your investment. However, it’s not the only advantage that 401(k) plans have to offer.

With a traditional 401(k), your contributions to the plan are tax-deductible and the account’s earnings over the years will be tax-deferred. You won’t owe taxes on any of that money until you withdraw it, usually in retirement. If you contribute to a Roth 401(k), you won’t receive any up-front tax deduction, but all of your withdrawals will be tax-free if you meet certain rules.

These tax benefits are the same for every standard 401(k) plan, whether your employer makes a matching contribution or not. If you are going to be in a lower income tax bracket in retirement than you are now, as is often the case, then putting your money in a 401(k) could save you a significant amount of money in taxes.

Of course, there are other ways of saving for retirement besides a 401(k). A traditional individual retirement account (IRA) works much like a traditional 401(k) when it comes to taxation, and it might offer you a broader range of options for investing your money. And a Roth IRA works much like a Roth 401(k). However, IRAs have much lower annual contribution limits. Consider your options regarding the following contribution limits:

2023 and 2024 Common Retirement Account Contribution Limits
Retirement Account	2025 Contribution Limit	2024 Contribution Limit
IRA	$7,000	$7,000
IRA Catch-Up Contribution	$1,000	$1,000
401(k)	$23,500	$23,000
401(k) Catch-Up Contribution	$7,500	$7,500

When 401(k) Plans Without a Match Don’t Make Sense

While it generally makes sense to save for retirement through your 401(k) even if your employer won’t match your contributions, there are a couple of exceptions.

The first exception is if the 401(k) that your company offers is not ideal for you. Some 401(k) plans come with high fees. Others have extremely limited investment options. Others may also be incompetently run. However, even these less ideal plans might be worth participating in if they have a really good employer match. Still, if you value flexibility, lower fees, and more funds to choose from, 401(k) plans may not make sense in this situation.

The second exception is if you are not earning enough income. Saving for retirement takes money away from building an emergency fund, paying bills, and living life today. Saving for retirement is a luxury that many people simply can’t afford.

Last, you may choose to not contribute to a 401(k) if you don’t plan on staying with the company long-term. In this situation, especially if you don’t plan on contributing more than the IRA limit, you may be better off putting retirement funds into an IRA instead. You would receive similar tax benefits while avoiding the hassle of transferring the funds out of an old 401(k) when you leave the company.

Important

Even if your employer matches your 401(k) contributions, that money doesn’t belong to you until it has vested according to the rules of your plan. Many vesting schedules last several years.

What Is a Good Employer Match?

In a 2024 survey by Vanguard, the average value of employer-matching contributions was 4.6% of pay. The median—meaning half of plans were higher, and half were lower—was 4.0%. Most employers offered 3% to 6.99%. Seven percent of plans offered a 2% match, and 8% of plans offered a match that was 7% of pay or higher.

Can an Employer Stop Its 401(k) Match?

With a traditional 401(k) plan—the type typically offered at larger companies—the employer is free to change or even eliminate its match from year to year. However, SIMPLE (Savings Incentive Match Plan for Employees) 401(k) plans and safe harbor 401(k) plans—found most often in small businesses—must provide either an employer match or nonelective contributions. (Nonelective means the employer makes a contribution whether or not the employee contributes to the plan.)

How Does Vesting Work in a 401(k) Plan?

The money that you contribute to a 401(k) plan is immediately vested—meaning that it belongs to you from day one. However, depending on the terms of your plan, any contributions that your employer makes might not vest until a particular date (cliff vesting) or might vest little by little over time until you’re fully vested (graduated vesting).

When you check your 401(k) account, you will likely see your employer’s contributions even if they’re not fully vested. Should you leave the company before your vesting period has finished, you will forfeit all or a portion of the match.

For example, a company with a 5-year graduated vesting schedule releases 20% of its contributions to its employees each year. Should an employee leave after three years, they will only receive 60% of their employer’s contributions to their account.

The Bottom Line

Many, but not all, 401(k) plans offer employer matching contributions. Even if your employer doesn’t provide a match, you may want to participate in the plan because of its tax advantages. An exception might be if your 401(k) plan has unusually high fees or poor investment choices, or if you believe it to be badly run.

3 tips from a financial advisor

Over the past two years, several of my clients have been laid off. Industries like the tech sector have been tough for various reasons, including AI advancements and staff reductions from the post-pandemic hiring surge. 

During an uncertain job market, it’s important to ensure you have a financial cushion and plan in place in case you lose a job. Bonuses—or a windfall like a tax refund—are a great opportunity to boost these efforts.

Key Takeaways

• Bonuses provide a unique chance to prepare for potential job loss or prolonged job search, especially in industries facing uncertainty like tech.
• One of the best uses for a bonus is to reduce or eliminate high-interest debt, like credit card balances or personal loans. This can ease financial strain if income becomes limited.
• Bonuses can be a helpful tool for covering recurring or large future expenses, such as insurance premiums or planned vacations.

What I’m Telling My Clients

According to a recent Wall Street Journal report, the number of people in the U.S. who have been job hunting for at least six months is up more than 50% since late 2022. Workers earning six figures struggle to find new jobs after being laid off, and the job search is taking longer. 

For clients who do have their job and receive a bonus, this extra income is a great opportunity to safeguard finances against a potential job loss. Here are some steps clients can take to use their bonuses towards this preparation:

1. Boost Your Emergency Fund

If a client works for a company offering a standard severance package, I recommend they have at least twelve months of living expenses between their emergency fund and the anticipated severance. Saving at least half a bonus towards this fund can help clients achieve this goal faster.

2. Manage Debt

A bonus allows one to reduce or eliminate debt obligations. If a client has high-interest debt, like credit cards or personal loans, I prioritize paying those off and encourage them to avoid new debt commitments. These actions help clients manage their fixed expenses, which are harder to adjust during challenging times when income is limited.

Warning

The average credit card balance for U.S. consumers was $6,730 in Q3 2024, a 3.5% increase from the previous year.

3. Plan for Future Expenses

Consider what new expenses or purchases may come up over the next year. Clients often have recurring annual costs (such as property taxes or insurance payments) or a large planned expense (like an anniversary trip). These can be funded with monthly savings or in a lump sum with bonus proceeds.

That way, if something like a job loss were to happen, clients would already have a roadmap in place, so they don’t have to worry down the line.

The Bottom Line

A bonus is undoubtedly an exciting achievement and income boost. While it may be tempting to splurge on something fun, it’s important to be ready for the unexpected. By using a bonus to prepare for uncertain times, such as boosting your emergency fund, managing your debt, and planning for future expenses, clients can rest easy knowing they have a financial cushion in place amidst an unpredictable job market.

Fact checked by Giselle Cancio

Failing to file your tax returns can lead to serious consequences. Worst case scenario, you can face jail time for intentionally evading taxes. In other cases, the Internal Revenue Service (IRS) can file a lien on your property in order to get money that is owed, which can include freezing your bank account and garnishing your wages.

While jail time is typically reserved for criminal offenses of tax evasion and fraud, there can be other severe financial consequences for nonfilers.

Key Takeaways

• If you don’t file your taxes or pay your tax returns, it will not result in jail time—unless the IRS considers it was done through criminal tax evasion or fraud, in other words, the willful intent to avoid tax payments illegally.
•  The IRS can file a lien on your property if you don’t pay your taxes, including garnishing wages, freezing your bank account, and taking from your 401(k).
• Failing to file by April 15th will result in a “Failure to File” penalty, which adds significant costs to your tax bill.

Penalties for Nonfilers

The IRS is a very powerful creditor in America. In fiscal year 2024, it collected $5.1 trillion in payments and processed over 160 million individual tax returns. Overall, these payments funded 96% of the federal government’s operations.

Among the worst outcomes for not filing a tax return or paying taxes are listed as follows:

Prison Time

Taxpayers found guilty of tax evasion or tax fraud may face jail time for up to five years. Tax evasion includes willfully attempting to evade taxes while tax fraud includes hiding income from different sources or destroying bank account information if requested by an IRS auditor. In some cases, if you delay filing a tax return, the IRS may impose criminal penalties if it considers this a willful attempt in evading taxes.

Federal Tax Lien

Often, the IRS will file a federal tax lien on your property if you owe $10,000 or more in taxes and have not set up an arrangement to pay it back in six years. If more than $50,000 is owed in taxes, the IRS will almost certainly file a lien on your property even if a payment arrangement has been made. This grants the federal government a legal claim to your property, such as freezing your bank account, garnishing wages, or taking from your 401(k) or IRA. If you sell your home or other assets, proceeds will go toward paying off tax debt first.

Penalties and Fees

Nonfilers face stiff penalties, the two most common being failure to file a return and failure to pay taxes due.

For example, if you owed $1,000 in taxes for 2024 and didn’t file on time, you would face a $435 failure to file penalty and a $60 failure to pay penalty. Interest begins to accrue immediately on April 15th at an annual rate of 8%, compounded daily.

Warning

The Failure to File penalty is 5% of unpaid taxes for each month, or portion of a month, that it is late up to a maximum of 25% of taxes that are owed.

What Solutions Are Available?

If you can’t file your taxes on time, or make the payment in full, there are a number of options available at IRS.gov.

• File for an extension: It is possible to get a three-month filing extension if you file the IRS Form 4868 by April 15th. This will help you avoid the costly failure to file penalty if you file your return by July 15th. Keep in mind, interest on taxes that you owe starts accruing on April 15th even if you don’t know the taxes that you owe. If you don’t file an extension by April 15th, or pay the balance in full, be sure to file as soon as possible.
• Payment plans: The IRS also has payment agreements available for people who owe under $100,000 in taxes that are fairly straightforward. Payment is owed within 180 days under short-term plans at no cost to set up online.
• Installment agreements: There are installment agreements that have longer payment schedules available to taxpayers that owe under $50,000. These typically cost $22 to set up for direct monthly withdrawals, with the fee waived for low income individuals.

The Bottom Line

There are several penalties if you don’t file your taxes—from expensive fees and federal tax liens to jail time in the most extreme cases. The good news is the IRS provides taxpayers a number of options, such as tax filing extensions and payment plans to help pay back taxes that are owed. If you file your taxes past the due date or owe Uncle Sam, it may be worth seeking out a tax relief company to help you navigate the complexities of the tax system with more confidence.

Home décor, window coverings, power equipment, online directory, distribution

Reviewed by Charles Potters
Fact checked by Vikki Velasquez

Throughout its history, Home Depot (HD) has focused on catering to professional contractors and do-it-yourself consumers with customized service. That service includes a knowledgeable staff who can guide customers on how to do everything from operating a power tool, to changing a valve, to laying tile. Home Depot’s acquisitions reflect that approach. The company has focused on deals that strengthen its core business: by adding both more product offerings and highly trained experts in specific home improvement niches. While Home Depot’s core business is brick-and-mortar stores, it also has expanded by purchasing online companies with a track record of strong customer focus.

Below, we look at six of Home Depot’s key acquisitions.

Key Takeaways

• The Home Depot Inc. (HD), a leading home improvement retailer, was founded in 1978 by Bernie Marcus and Arthur Blank, two avid do-it-yourselfers.
• The company went public in 1981 and has since grown into the world’s leading home improvement retailer, with nearly 2,300 stores throughout the United States, Canada, and Mexico. It also offers more than 1 million products online.
• Home Depot has expanded beyond its brick-and-mortar stores by acquiring other companies, including online retailers, equipment rental services, and other home improvement businesses.

Compact Power Equipment Inc.

• Type of business: Equipment rental and maintenance services
• Acquisition price: $265 million
• Acquisition date: July 6, 2017 (announced date)

Compact Power Equipment, founded by entrepreneur Roger Braswell, provides equipment rental services, including rentals of cranes, excavators, tractors, and trenchers. Compact Power Equipment first formed a long-term commercial partnership with Home Depot in 2009 that began rentals at 115 Home Depots in six states.

In 2017, Home Depot acquired the company, which then was providing equipment rentals at more than 1,000 Home Depot stores throughout the United States and Canada. The acquisition strengthens Home Depot’s offerings and services to professional business customers.

The Company Store

• Type of business: Online retailer of textiles and home décor products
• Acquisition price: Terms of the deal undisclosed
• Acquisition date: Dec. 19, 2017

The Company Store, founded in 1911, sells sheets, quilts, bath towels, select clothing, and other home décor products online. Home Depot acquired The Company Store, excluding its five retail locations, in 2017 from Hanover Direct.

In addition to immediately bolstering Home Depot’s online footprint, the deal also enabled the company to expand into broader areas of the online décor business by providing strong product development and sourcing capabilities.

Interline Brands Inc.

• Type of business: Distributor and direct marketer of building products
• Acquisition price: $1.6 billion
• Acquisition date: Aug. 24, 2015

Interline Brands was founded in 1978 under the name Wilmar Industries Inc. The company provides maintenance, repair, and operations products to professional contractors, facilities maintenance professionals, hardware stores, and other customers throughout the United States and Canada.

Home Depot acquired Interline Brands in 2015 for just over $1.6 billion. The acquisition expanded Home Depot’s sales and services primarily to professional contractors and maintenance repair businesses by adding an experienced account sales force, fulfillment capabilities, and an extensive distribution network.

Blinds.com

• Type of business: Online window coverings retailer
• Acquisition price: Terms of the deal undisclosed
• Acquisition date: Jan. 23, 2014

Blinds.com traces its roots to a website named NoBrainerBlinds.com, which first began selling blinds and shades in June 1996. The company specializes in selling window coverings online, which includes live chat and face2face video consultation services.

Home Depot acquired Blinds.com in 2014, when the online window coverings market was growing rapidly. The acquisition has bolstered Home Depot’s online presence.

Redbeacon

• Type of business: Online home improvement services
• Acquisition price: Terms of the deal undisclosed
• Acquisition date: Jan. 20, 2012 (announced date)

Redbeacon, which won the 2009 TechCrunch 50 award, was founded in 2008 by former Google employees Aaron Lee, Ethan Anderson, and Yaron Binur. The company provides an online search directory of local business listings with ratings and reviews of screened and approved home contractors. Customers using the site can get multiple price quotes and schedule appointments with local business professionals.

In 2012, Home Depot acquired Redbeacon, which the parent now calls Pro Referral. The acquisition is another example of how Home Depot has expanded and strengthened its suite of online services.

HD Supply

• Type of business: Wholesale distributor of maintenance, repair and operations (MRO) products
• Acquisition price: Approximately $8 billion
• Acquisition date: Dec. 24, 2020

HD Supply Holdings Inc. was founded in 1974 as Maintenance Warehouse. The Home Depot originally acquired Maintenance Warehouse in 1997 and later renamed it Home Depot Supply, and then HD Supply. In 2007, Home Depot sold HD Supply to a group of private equity firms.

By the time Home Depot reacquired HD Supply in late 2020, the company had grown to encompass 44 distribution centers across the United States and Canada and had become a top distributor of maintenance, repair and operations (MRO) products. The acquisition bolsters Home Depot’s MRO presence in the hospitality and multifamily end markets. The deal also will help Home Depot to increase business with larger contractors and other professional customers, who tend to get business from specialty suppliers.

Home Depot Diversity & Inclusiveness Transparency

As part of our effort to improve the awareness of the importance of diversity in companies, we have highlighted the transparency of Home Depot’s commitment to diversity, inclusiveness, and social responsibility. The chart below illustrates how Home Depot reports the diversity of its management and workforce. This shows if Home Depot discloses data about the diversity of its board of directors, C-Suite, general management, and employees overall across a variety of markers. We have indicated that transparency with a ✔.

Home Depot & Inclusiveness Reporting
	Race	Gender	Ability	Veteran Status	Sexual Orientation
Board of Directors	✔ (U.S. Only)	✔ (U.S. Only)
C-Suite	✔ (U.S. Only)	✔ (U.S. Only)
General Management	✔ (U.S. Only)	✔ (U.S. Only)
Employees	✔ (U.S. Only)	✔ (U.S. Only)	✔ (U.S. Only)	✔ (U.S. Only)	✔ (U.S. Only)

How Many Stores Does Home Depot Have?

As of 2024, Home Depot has more than 2,347 stores across the United States, Mexico, and Canada, through which it employs over 470,000 associates.

How Are Home Depot’s Financials?

Home Depot reported $159.5 billion in revenue in 2024. As of March 2025, it has a market capitalization of $347.25 billion.

Who is Home Depot’s Main Competitor?

Lowe’s is Home Depot’s primary competitor. As the second-largest home improvement retailer worldwide, Lowe’s is a direct competitor that challenges Home Depot for market share and customers.

The Bottom Line

The Home Depot is the world’s largest home improvement retailer and one of the biggest employers in the United States. Since its founding in 1978, it has expanded beyond brick-and-mortar stores into online retail and purchased several other companies and well-known home improvement brands. It has several wholly owned subsidiaries, including Blinds.com, Interline Brands, Compact Power Equipment Inc., The Company Store, Redbeacon, and HD Supply, as well as exclusive brands like Chem-Dry, Behr, Ryobi, and American Woodmark cabinetry.

Reviewed by Eric Estevez

Microfinance is a growing sector. According to the 2023 Microfinance Social Performance Report by BNP Paribas, 156.1 million borrowers worldwide benefited from these services in 2022. Learn how microfinance helps people access financial services and potentially climb out of poverty and how you can get involved as an individual, investor, or finance professional.

Key Takeaways

• Microfinance is a range of banking products and services (microloans, microsavings accounts, micro-insurance) provided to low-income individuals or groups who don’t otherwise have access to financial services. 
• Like regular lenders, microfinance lenders set specific repayment plans and charge interest on their loans.
• Microfinance lenders comply with ethical lending practices, allowing borrowers to take on small business loans in a safe manner.
• Microfinance practices try to demonstrate that low-income people can pull themselves out of poverty.
• Investors and finance professionals can benefit from the rapid growth of the microfinance market.

What Is Microfinance?

The term microfinance describes the range of financial products (such as microloans, microsavings, and micro-insurance products) that microfinance institutions (MFIs) offer to their clients.

Microfinance began in the 1970s when social entrepreneurs began lending money on a large scale to people with low incomes and no access to credit. One individual who gained worldwide recognition for his work in microfinance is Professor Muhammad Yunus who, with Grameen Bank, won the 2006 Nobel Peace Prize.

Yunas demonstrated that people with low incomes have the ability to pull themselves out of poverty. He also demonstrated that loans made to this demographic, if properly structured, had very high repayment rates. His work caught the attention of both social engineers and profit-seeking investors.

Note

The global microfinance market is expected to triple in value by 2033.

Microfinance Products and Services

The following products and services are currently being offered by microfinance institutions :

Microloans

Microloans (also known as microcredit) are loans that have a small value. These loans are generally issued to finance entrepreneurs who run micro-enterprises in developing countries. Examples of micro-enterprises include basket-making, sewing, street vending, and raising poultry.

Interest rates are typically high, due in part to higher default risks and the higher costs associated with processing the labor-intensive micro-loan transactions, and can vary considerably, depending on the borrower and country as well as the size and length of the loan. Interest rates, worldwide, are said to average about 36.6%.

In some cases, interest rates have been reported to even be as high as 100%, although many countries have caps in place to prevent such extortionate borrowing costs. Microloans funded by the U.S. Small Business Administration are available in amounts up to $50,000, with repayment terms up to seven years and interest rates that range from 8% to 13%.

Microsavings

Microsavings accounts allow individuals to store small amounts of money for future use without minimum balance requirements. Like traditional savings accounts in developed nations, micro-savings accounts are tapped by the saver for life needs such as weddings, funerals and old-age supplementary income.

Micro-Insurance

Individuals living in developing nations face more risks and uncertainties in their lives. For example, there is more direct exposure to natural disasters, such as mudslides, and more health-related risks, such as communicable diseases.

Micro-insurance, like its non-micro counterpart, pools risks and helps provide risk management. But unlike its traditional counterpart, micro-insurance allows for insurance policies that have very small premiums and policy amounts. Examples of micro-insurance policies include crop insurance and policies that cover outstanding balances of micro-loans in the event a borrower dies.

Due to the high administrative expense ratios, micro-insurance is most efficient for MFIs when premiums are collected together with microloan repayments.

Important

Microfinance has been credited with helping to eradicate poverty and making it worse through expensive borrowing costs and generally unfavorable terms.

Investing in Microfinance

It’s possible to get involved in microfinancing and potentially make money from it.

Ways include:

• Investing directly in a MFI
• Investing in a fund that invests in microenterprises and MFIs
• Microfinance bonds
• Peer-to-peer lending services

Microfinance has been pitched as a way to make decent money while doing good. Default rates are said to be lower than maybe expected and as borrowing costs can be high this can result in attractive returns.

However, it’s important to remember that microfinance investments have different risk profiles. Some may be less volatile and offer low prospective returns and vice versa.

It’s also possible to lend micro-entrepreneurs money without demanding a return through non-profit online services such as Kiva.

Institutions generally make high returns on their microfinance investments.

Microfinance Career Opportunities

Microfinance requires highly specialized financial knowledge as well as a unique combination of skills, such as knowledge of social science, local languages, and customs. Finance professionals with these skills shouldn’t have trouble finding work.

Moreover, traditional career roles are blurring as microfinance brings together professionals with varied backgrounds to work in collaborative teams. For example, development professionals (such as people who have worked for the Asian Development Bank or other development agencies) can now be found working side by side with venture capitalists.

A wide range of microfinance career opportunities can be found online, including at FinDev Gateway.

In What Countries Is Microfinance Most Popular?

The majority of microfinance services take place in developing countries like Bangladesh, Cambodia, India, Afghanistan, the Democratic Republic of Congo, Indonesia, and Ecuador.

What Is the Main Criticism of Microfinance?

The greatest criticism of microfinance is the idea that the financial world is making money instead of providing a service and essentially offering unfavorable financial terms to people in financial difficulty. In other words, microfinance lenders can become a profitable business at the cost of borrowers. Contributing factors that shed a negative light on microfinance are the alleged lack of policies to protect borrowers’ rights, the high interest rates on microfinance loans, and the high pressure to repay loans.

Who Provides Microfinance Services?

Microfinance products and services are provided by a variety of institutions such as non-profit organizations, some traditional banks, credit and savings cooperatives, and other non-bank financial institutions.

The Bottom Line

Capital and expertise are increasingly flowing into microfinance, a type of banking service provided to low-income individuals or groups who otherwise wouldn’t have access to financial services. Microfinance is potentially helping to eradicate poverty and provide equal opportunities. It’s also emerging as a new type of asset class for investors.

Reviewed by Charlene Rhinehart
Fact checked by Ryan Eichler

Market Capitalization vs. Equity: An Overview

Two of the most common ways of assessing a company’s value are market capitalization and equity (also known as shareholder equity). Each term describes a different way of looking at a company’s value. It is helpful to consider both to get the most accurate picture of a company’s worth.

Market Capitalization

Market capitalization is the total dollar value of all outstanding shares of a company. It is calculated by multiplying the current share price by the number of outstanding shares.

Market analysts commonly use this figure to designate a company’s size, as many stock market indexes are weighted by market capitalization. Because market capitalization is dependent on share price, it can fluctuate greatly from month to month, or even from day-to-day.

Key Takeaways

• Market capitalization is the total dollar value of all outstanding shares of a company.
• Equity is a simple statement of a company’s assets minus its liabilities.
• It is helpful to consider both equity and market capitalization to get the most accurate picture of a company’s worth.

Market capitalization does not measure the equity value of a company. Only a thorough analysis of a company’s fundamentals can do that. Shares are often overvalued or undervalued by the market, meaning the market price determines only how much the market is willing to pay for its shares. 

Although it measures the cost of buying all of a company’s shares, the market cap does not determine the amount the company would cost to acquire in a merger transaction. A better method of calculating the price of acquiring a business outright is the enterprise value. 

Equity

Shareholder equity is considered a more accurate estimate of a company’s actual net worth. Equity is a simple statement of a company’s assets minus its liabilities; it could also be seen as the net profit that would remain if the company was sold or liquidated at fair value. Unlike market capitalization, equity does not fluctuate day to day based on the stock price.

Equity represents the true value of one’s stake in an investment. Investors who hold stock in a company, for example, are usually interested in their personal equity in the company, represented by their shares. Yet, this kind of personal equity is directly tied to the company’s total equity, thus a stockholder will also have a concern for the company’s earnings.

Owning stock in a company over time ideally yields capital gains for the shareholder and potentially dividends. A shareholder may also get the right to vote in the board of directors’ elections. These benefits further promote a shareholder’s ongoing interest in the company.

Key Differences

Market capitalization value is nearly always greater than equity value since investors figure in factors such as a company’s expected future earnings from growth and expansion. It can be helpful to make a historical comparison between market capitalization value and equity value to see if there is a trend one way or the other.

Important

If market capitalization has grown steadily higher and further above equity value, this indicates increased confidence on the part of investors.

Both market capitalization and equity can be found by looking at a company’s annual report. The report shows the number of outstanding shares at the time of the report, which can then be multiplied by the current share price to obtain the market capitalization figure. Equity appears on the company’s balance sheet.