Individual Development Accounts

An Introduction to IDA’s

By the end of this session you should be able to: • Define a business IDA and what it is used

for. • Determine if you are eligible for an IDA• Explain amount of time you have to save.• Explain what your IDA funds can and

cannot be used for. • Explain all of the requirements for

graduating from the microenterprise IDA program.

Welcome!

What is an IDA? The NEOEDD/CASA program is a 3:1

matched savings program, which means if you put in $1.00, the program will match that with $3.00

How much money is it??The maximum amount of savings that CASA will match is $2,500. That amount is matched with $7,500 – if you save for 25 months.The total amount of money when you graduate will be $10,000.

How can I use an IDA?

– Capital

• Start-up funds

• Expansion funds

– Plant

• Rent or lease of space

– Equipment

• A computer

– Working Capital

• Advertising expenses

– Inventory Expenses

The funds from a business IDA can be used for the following items:

How can I use an IDA?

• Money cannot be used to: – Pay yourself

• Funds are paid directly to venders– Pay past debt

• Purchases made with your credit card or other loan products

– Pay for trips– Pay for home improvements

Money is to be used for normal everyday type expenses like buying inventory, or purchasing a welder for business use.

Am I eligible?

There are several criteria you will need to meet to qualify for an IDA:

• Must be 18 or older, (12 for youth account)

• Must be able to open a savings account

• Must provide proof of pre-savings

• Complete a Financial Literacy Class

• Household net worth must be equal to or less than $20,000

• Must have income – can be social security

• Proof that Income is at or less than 80% of median family income

Am I eligible?

• Household net worth must be equal to or less than $20,000– Household includes everyone that you

live with and share meals with, related or not.

– Net worth is determined by subtracting the total of all of the household debts from total market value of the assets.

– You exclude the value of your first car and your primary house.

How to figure out the net worth of your household for the IDA program:

AssetsHome: $130,000Car 1: $ 5,000Car 2: $ 3,000Checking Account:

$ 250Savings: $ 600

Total: $138,850

LiabilitiesHome: $85,250Car 1: $ 1,234Car 2: $ 0Credit Card: $ 4,600Friends/Family: $ 500Medical Debt: $ 1,000

Total: $92,584Standard Net Worth: $46,266 = 138,850-92,584

Now subtract your home and first car from both totals:$130,000 + 5,000 = $135,000 $138,850 – 135,000 = $3,850 assets

$85,250 + $1,234 = $86,484$ 92,584 - $86,484 = $6,100 liabilities

Net Worth: $3,850 - $6,100 = $-2,250

Am I eligible?• The adjusted gross income of the household must

be less than or equal to 80% of area median

– Example: If you are a household of 2 adults and 2 children ( household of 4) your income would need to be at or below $40,000 gross annually in Baker or Wallowa.

• The most common proof of income is the first page of your 1040.

• If your situation has changed since you did your taxes, you will need to show proof of current income. This can be your unemployment statement and/or current check stubs.

Household Size

1 2 3 4

Baker County

28,000 32,000 36,000 40,000

Union County

29,500 33,700 37,900 42,150

Wallowa County

28,000 32,000 36,000 40,000

Median Household Income

Source: Federal Register, 2007

I am eligible, now what?

Congratulations! Opening an IDA is a exciting step for a business owner.

• The steps for an IDA account– 3 months pre-savings ($25/month)

– Application, proof of income and $60 fee

– 6-36 months savings in approved IDA account• Financial Literacy class

• 21 hours business class through NEOEDD

• A written business plan with a 12 month projected cash flow statement

– Withdrawal of funds and graduation!

I am eligible, now what?

• 3 months pre-savings– Can be any savings or checking account

– Minimum of $25 a month increase consecutively (June, July, August)

– Acceptable proof of the pre-savings must show the date, amount of each deposit, and beginning and ending months.

• Bank Statements

• On-line banking print-outs

• Member written certified statements

Things to remember…

• 3 months pre-savings– Has to be at least $25!

– Interest/dividend credits on the bank statements are not considered deposits and do not qualify as proof of pre-savings

– Your pre-savings account is NOT your IDA account.

– Has to be at least 3 months in a row. If you miss a month, you will have to start over.

I am eligible, now what?– Application, proof of income and $60 fee

• Fill out the application completely. If something doesn’t apply to you, draw a line through it or write N/A.

• If you haven’t already, present a copy of your previous year’s 1040 or W-2’s for everyone in your household

• If you don’t have either, or this doesn’t reflect your current income, you can bring in copies of two current consecutive pay stubs

• If you are self-employed, bring in your Schedule C or cash flow & income statements with supporting documents.

• Refer to the Income Worksheet for the specific documentation needed.

Things to remember…

• On your application, you will need to figure out how much you are going to save each month. Be sure to make it an amount that will not stress your budget.

• Your application will not be approved until you have completed the pre-savings, the application with proof of income and paid the $60 application fee.

How much can I save?

Savings Period Maximum Savings

6-12 Months $1,000

13-24 Months $2,000

25-36 months $2,500

How Much is that a Month?

Savings Goal Savings Period Monthly Savings

$500 6 $84

$1,000 12 $84

$2,000 13 $154

$2,000 18 $111

$2,500 25 $100

$2,500 36 $70

Are there Other Limitations?

• If you are saving for working capital, the maximum savings amount is $1,000

• If you are saving for fixed assets, the maximum savings amount is $2,500

• If you are saving for a combination of working capital and fixed assets, the maximum expenditure for working capital costs will be $1,000 of savings plus $3,000 of match

I am eligible, now what?

• 6-36 months savings in approved IDA account– After you turn in your application with $60

application fee and it is approved, you will receive a letter from CASA.

– This letter will explain how to open your official IDA account.

– You will take this letter to the financial institution you have chosen and begin your savings!

Approved IDA Financial Institutions

Community Bank

Sterling Bank

Possibly Others

Things to remember…• You have a limited amount of time to open

your official account.

• The account in which you did your pre-savings is NOT your IDA account.

• The minimum time you have to save is 6 months; the maximum is 36 months

• You are supposed to make a deposit every month during your savings period.

• You are NOT to put your entire savings goal in at once!– The only acceptable lump sum deposit is from

a tax refund unless otherwise indicated on your savings plan agreement.

How do I graduate?

During your 6-36 months of savings in your approved IDA account you will need to:

• Complete a Financial Literacy Course• Participate in 21 hours of business

training with NEOEDD• Write a business plan that includes a cash

flow statement

How do I graduate?

• Participate in 21 hours of business training with NEOEDD– You must…

• Take a business plan class

You will also be able to • Attend peer group meetings• Receive technical assistance

(counseling)

How do I graduate?

• Write a business plan that includes a 12 month projected cash flow statement– 10 to 20 pages that at least includes

• Executive Summary

• General Business Description

• Products and/or Services Description

• Marketing Plan

• Operational Plan

• Management and Organization

• Industry Description

• Sources and Uses Table*

• 12 month Project Cash Flow Statement*

What is that??

• A Sources and Uses Table– Shows what you plan on using the money

from your IDA for.

– If you are planning on purchasing items that will cost more than will be in your IDA account, list the addition sources of money that will be used.

– Does not need to be extremely detailed, just give an educated outline of the money needed and where it will be going.

– If you believe there will be any question about the purchase, include a summary explaining why the item is necessary and how it will be used with your business.

What is that??

• 12 month Projected Cash Flow Statement – An educated guess of the amount of money

that will be coming in and going out of your business for a 12 consecutive month period.

– Includes all

• Possible revenues, including IDA’s and owner’s contributions

• Possible expenses, including your own paycheck, if any.

Things to remember…

• NEOEDD has templates for both the Business Plan and Cash Flow Statement

• A business plan is a road map for your business

• Don’t wait until the last minute!– Plan to be finished with your business plan at

least two months before you finish your savings

– Ask for HELP!!

The Finish Line…

So, let’s say you have finished all of the requirements and are ready to purchase your asset.

There are a few more things to do: • Find and/or shop for your asset• Fill out your exit and update forms• Fill out your withdrawal request form

The Finish Line…

When shopping for your asset remember…• The checks are written directly to the

vendors, so you will need to have a purchase order, an invoice, or similar arrangement from the vendor. You will need this to turn in with your Withdrawal form.

• You will not be reimbursed for purchases made with a credit card or with a loan. IDA’s are not meant to pay for previously occurring debts.

The Finish Line…

• Fill out your exit and update forms– Includes a survey about your experience with

the IDA program

– Updates your file incase you have moved or your income has changed since you began your savings.

The Finish Line…

• Fill out your withdrawal request form– Tell CASA who to write the check to

• The Contact name• Contact Phone number• Purchase Description• Total Amount Requested

• You will need to include a purchase order or invoice from the vendor

• You can request more than one check at a time.

• Be aware that it can take up to 15 business days for the withdrawal to be processed and the match to be released.

Things to remember…

• You have up to six months after you have completed your savings to use your IDA funds

• Your request can be denied– If you aren’t sure your purchase qualifies,

ASK!

• For asset purchases that require financing other than CASA funds, you should apply for and receive approval for the loan needed before requesting a withdrawal.

Now you know how to…

• Define a business IDA and what it is used for.

• Determine if you are eligible for an IDA• Explain amount of time you have to save.• Explain what your IDA funds can and

cannot be used for. • Explain all of the requirements for

graduating from the microenterprise IDA program.

The End…

If you have any further questions, contact me and I will answer as quickly as possible.

lisadawson@neoedd.org

541-426-3598

Good Luck and Happy Saving!!