For most small
business owners, there are already way too many things on their plate. There is payroll, employee issues, sales,
marketing, and taking care of your existing customers. Often, it's very easy to just look past any kind of
financing options that might be available to you. 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. Most of the
time, business owners are concerned with just taking care of existing customers and employees that they don't take the time
to learn about all the options that are out there to make their business run smoother. They trust their bank to tell them what is best for them
instead of learning about the options available. We've outlined some very quick tips on different financing options that every
owner should know about, this will give you just enough to be dangerous.
A small business line of
credit is something that you use for short-term funding needs. 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. This keeps both your customer
happy because you are not hounding them for payment and your employees happy. 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 great thing about RLOC's is that they are really a savior for any small business owner. They are meant to ease the crunch of cash flow needs that typically result from waiting on receivables. 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. Warning. It's easy to want to use available funds to purchase pieces of equipment or vehicles since its availble but you definitely want to only use the LOC for short term needs. Really, the line must
be used only for easing the pain of the short term cash crunch. By using a small business line of credit, You can greatly
improve the cash flow situation in your business.
As companies grow,
most owners realize that its silly to throw their money away in rent and it might be a good idea to invest their profits into
a signifant asset. Purchasing your own building is a great way to invest in a long-term asset that will continue to pay
dividends long after you've sold your business. In
most cases this will be the biggest purchase of somebody so getting a good deal is important. 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 perfect for the long term investor because
they are locking in a very competitive rate for a long time that's sure to save them money. The only caution is that for this loan program you need to be in it for the long haul because the longer the fixed rate, the longer
the prepayment penalty. 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 ask 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. The most painless thing that you can do when you want to fund your startup is to either find some investors (like friends or family) or to gain access to funds by way of a Home Equity Line of Credit. The reason I say this is that banks have the process for HELOC loans down pat and
it's generally pretty easy to get approved as long as you have equity. For startup loans, if you can show the bank some kind
of track record or collateral then they will ask for your home as collateral anyways so you might as well go with the HELOC.
This will be far easier and you'll end up paying a lot less in the long run. 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. Banks look at companies financial
statements when making loans and that's it. If you can repay the loan based off your companies history than that's all they
want to see. 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.
Do yourself a favor and just learn the basics. They'll take you a long way in your business and it's worth it to learn a little bit in order to put you and your company in a better position to take advantage of loan products that will help take your business to the next level. 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.