This Guest Post "is worth the risk financing" was written by Benjy Feinberg, co-founder and CEO of Behalf.
financing can come at a high price, and the burden of repayment and potential liabilities could be too hard to take care of your business. But if you are too conservative with your business it will never reach its full potential. As you can decide whether your business is ready for the risks of financing?
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How to get a small business loan
Here are four questions to help you determine whether funding a high stakes or low-risk gambling is for your business.
1. How much additional income you can produce with the additional capital? Is it greater than the cost of capital?
While it is exciting, or scale creative with your products, you should not come at the expense of your bottom line. After all, your ultimate goal is to increase or at least maintain, your winnings. Ask yourself if the extra revenue, you higher than the cost of capital in bringing is a good way to keep you focused.
Consider you determine the financing in relation to the forecasts and a percentage of sales the right loan amount for the various aspects of your business. Write down how you spend the money and the revenue streams to bring, these purchases, and then select a loan accordingly. For example, you may be all your vehicles packaging something that you want to make your marketing image. While good for your brand, these costs translate probably your only in a small part of sales. So, for a company like this costs, choose a smaller size loans.
2. How does coincide the length of your loan with your sales cycle, inventory turns, or project timeline?
Some businesses, especially seasonal ones, a large percentage of their profits in the span of 2-3 months to make. Similarly, starting a new project can often much less profitable than the last months of the project. Before taking on the conditions, it is important to ensure that take your repayment at a high season, so you have a bit more room to breathe with your finances.
Even if you are not in a seasonal business, there are other costs cycles you need to consider before to arrange a loan. Keep the long-term payments in the eye and additional costs that you have to keep to with how staff salaries and rent, while inventory turnover. For stationary, overheads, you should consider more long-term financing, so that you keep your business up pace as usual.
3. What is the ideal balance between the cost of the interest charge for the amount of flexibility you want?
The extent to which you go with the flow, be able to change your costs and focus with the turns of the market? Flexibility may be particularly important if you use the loan to finance a new product. You do not want to be locked into debt if you do not give knowledgeable projections on the return you get.
On the other hand, if you finance a proven concept, might not be flexibility so important to you. In this case, you can look for the best prices. In particular, if your company has a defined period with higher sales forecasts, you should look for financing that gives you the lowest rate for that particular period. This ensures that your profits make their way back to your business and not your lender.
4. What are your chances repay able in time? What are the consequences of late repayments? Is there to restructure a flexibility?
Before taking on a loan, try to measure what might be of defaulting risk. Ask influenced your lender as defaulting your credit score. Analyze to determine your profit margin and expense ratio, whether it will be able to pay off in time. Even after agreed terms, so these lenders is open to restructuring when money is scarce to see? a lender the flexibility determining the future financing abilities will be decisive as loans are usually on your credit score and history for your business based offered.
Some lenders will offer secure loans, which means that they part of your assets (usually property) can collect if you do not meet repayment date. Before capturing a secure loan, ask your lender what the probability and time-frame of your assets is always in full. Find out details on the collections process will help to clarify a lot of uncertainties generally associated with the financing.
worth a risk?
your pain check points and the unique ways your business running. If you come to the table with an educated understanding of their own needs, moving from a potentially high stakes game in a relatively secure financing. Remember, you can never ask a lender to many questions, the more you know, the clearer the decision. Take advantage of the fact that the lenders want to work with you, a trusted entrepreneurs, just as bad as you want to work with them. When you start, as well as the pitch, to see it even easier, all options fully read and determine more precise risk estimates.
Need some money for your business? Click here to get our free guide .:
How to get a small business loan
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