Instant Angels Partner Sites!
When you're running your own business, there are so many things that you have to think about. Keeping track of payroll, keeping your employees
happy, and taking care of your existing customers is already a handful in itself. Sometimes it can be hard for a
business owner to pay much attention to their financing needs. Small business finance is
just an area that doesn't get too much attention and gets put to the side in place of more important things. Business owners take
care of more pressing needs and don't step back to look at some of the solutions that are in the market
that can help their company grow to the next level. They often will opt for the path that is the quickest for them to pick and then move onto the next thing. This will give you a quick rundown of the main financing options that are available, think of it
like a cheatsheet for meeting with your banker.
Most people are familiar with home equity lines of credit,
and a business line of
credit is pretty much the same thing. It's used to pay for short term expenses that are incurred by your business. So
for example, if you have Accounts Receivable that you were waiting on from one of your customers any you needed to make
payroll that week. You would simply borrow on your line of credit to
pay payroll. It helps you maintain a good working
relationship with your customers because you aren't calling them on the days leading up to payroll and it also keeps your
workers happy tha they are getting a paycheck this week. When the check from your customer comes in a week or ten days later, then you simply
pay back the RLOC and then you pocket the profit. The idea is that you use the line to ease the pain of a short term cash crunch. Another typical use for the RLOC is when
a certain supplier gives big breaks on purchasing inventory in bulk. Or if you can purchase offseason for big discounts and
then store the inventory for yourself. This is the perfect situation where you would draw off the line of credit and take advantage of the steep
discounts. When the time comes when you sell off the inventory than you pay back the line. Its a great way for business
owners to be able to quickly act on great deals. The one thing you absolutely don't want to do is purchase a long term asset on the RLOC. A lot of small
business owners fall into this trap. Really, the line must
be used only for easing the pain of the short term cash crunch. Using a RLOC correctly is something that can really help grow your business. There are a lot of growing pains involved with growing a company and a LOC can certainly help easy those pains.
As your company grows one thing most small business owners want to invest in is their own building. A commercial building is a great way to do that. This can help you diversify
your business and put your money in an asset that will continue to pay well after after you've retired. When you're talking about the
cost of the building, typicaly just getting a little better deal can make a huge difference. Banks will try to offer you the standard terms of 5 year fixed rates and
20 year amortization on your commercial mortgage, but with
some negotiation you should be able to do better than that. As bank competition has increased and banks are buying market share, you should be able to get
more aggressive terms than you were able to even 5 years ago. It is not uncommon to see fixed rates up to 10 years and
amortization up to 25 years. There are also popular SBA loans that will allow you to limit the amount of money
you put down and fixed your loan for up to twenty years. This is a great option if this is going hold onto the building
for more than 10 years, because there are significant prepayment penalties. Generally, banks will priced these loans at a spread above the corresponding treasury. An example would be aon a ten-year note, you can
generally guess that your loan would be priced at 2-2.75% over the 10 year treasury. Banks or lending institutions will always try to make their money somewhere and its typically in points and
fees. It's not uncommon for them to propose for these things, but you can usually get out of paying
them if you are a good enough customer and plan to bring enough business to the bank.
One thing that there is definitely a need for the marketplace is small business loans, and unfortunately, banks are not
too eager to make startup loans. That's why I always
recommend going through alternative channels in order to get the funding that you need. This typically includes asking
friends and family for a loan or borrowing on a HELOC. Typically, since you have no track record and no collateral the
bank will request to use your home as collateral for the loan, so the easiest thing to do is to utilize the streamlined
process that banks have in place for HELOCs.
You'll save yourself a lot of trouble and time
going this route than trying to get the bank to buy into your business. It's quicker to get approved, there are less questions, and you can
generally get a much lower rate than you would if you went the commercial route. There is somewhat of a misconception
about business credit and building up business credit. Unlike the personal side, there is no such thing as building business credit. The only thing that a bank
will look at when you request your first loan is your company's financial statements. So, a HELOC is a great option to get you off the ground right away and ready to go. It should be noted that this doesn't mean that you still don't do the necessary business projections and businesss plan. Those are important things that every business should use when planning their business.
Dealing with the bank can be a frustrating issue that you don't want to deal with, but it does make sense to educate
yourself and the various products you have available to help grow your business. In addition to bank loans are also SBA loans that can be used if your
business doesn't quite fit the qualifications that the bank is looking for. Borrowing shouldn't be something
you are afraid of, it's the means to growing your business and taking it tto the next level.
|