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Small Biz Credit Underwriters Must Know how New Living Wage Laws Impact Cash Flow

May 27, 2015

By Bob Coleman
Editor, C- Suite Small Biz Lending Challenges Report

Last week, Los Angeles became the largest and fourth city to adopt the $15 living wage — after San Francisco and Seattle. Emeryville, located in Northern California’s Bay Area went a little farther to $16 an hour.

Back to LA, the first increase, to $10.50 an hour, will come July 1, 2016.

The city minimum wage would then go up to $12 an hour by July 2017, $13.25 per hour by July 2018, $14.25 per hour by July 2019 and ultimately to $15 by July 2020.

Two years later, increases will be pegged to the Consumer Price Index.

For non-profit organizations with 25 or fewer employees, the scheduled raises won’t begin until 2017.

And this is the beginning. Whether you support or oppose, the $15 minimum wage movement is definitely taking hold throughout the country. A slew of municipalities are close to adopting their own measures as politicians believe their vote to raise the minimum wage does not raise taxes or increase government spending.

So, time to add another layer of analysis by your small business loan underwriters. Projections are more critical than ever. Your borrower must convey to you their strategy of coping with increased labor costs.

A good place to start is the case study of Ivar’s, the upscale restaurant in Seattle. In April, ownership chose to immediately implement the $15 minimum wage for all of its employees. Prices were increased by 21%, but the restaurant eliminated tipping.

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