Category: Finance & Capital

No matter how small the operation, your business needs capital. Securing a good loan means finding both an affordable rate, and a policy that fits your business needs. The interest rate you negotiate can be the difference that either makes or breaks your profit margins. Unfortunately, the process is not as simple as merely finding a cheap interest rate. Before getting started, read these five tips to give you the best chance of finding a good loan:

Look for the APR – When it comes to small business loans, look for the annual percentage rate first. It can be tempting to just find the cheapest interest rate possible, but that doesn’t always show the true price of the loan like the APR does. APR includes all fees tied to a loan, and this includes your contract fees and maintenance costs. Avoid feeling uncertain and misguided by always asking for APR first.

Know what to expect –It pays to appear knowledgeable when meeting with your lender. By understanding what the standard asking rate for a business loan is, you can prepare yourself for negotiation. The Small Business Administration sets the maximum that a bank can charge on a loan at 8.25%. However, in some cases the maximum is set at 5.57%. What it comes down to is how much money you are asking for, and your history as a borrower. Tip; use a business loan calculator to figure out the repayment schedule to see if your business can handle the payments.

Fixed rate loans – Always choose a fixed rate loan over variable. When running a business, it is beneficial to know well in advance how much you will be paying for credit. Choosing a variable interest rate plan can leave you vulnerable to the tides of the market. By securing a fixed loan with an interest rate at say 6% or less, you can help ensure months or even years of smooth business. Not to mention, fixed loans will help you secure a low interest rate the next time you need one by making it easier to pay of your debt now in a predictable and timely manner.

Negotiate –The rates listed thus far are a maximum, not a minimum. Depending on your credit history, banks can still choose from one of a few different market level interest rates. These include the prime rate, the one month LIBOR rate, and the SBA PEG rate. These rates are 3.50%, 3.0% and 2.38% percent respectively. Currently, these rates are at an all-time low thanks to the low interest rates set by the Federal Reserve. Never underestimate the power of negotiation. If you believe you are trustworthy, and can prove it, show your provider.

Consider some plastic – Given the higher rates of interest, using a credit card can seem irresponsible. While we do not recommend funding all of your operations with a credit card, ‘Access’ credits cards with small business benefits can end up saving you more than an affordable rate loan rate can. Not to mention, credit cards make it easier to keep your total debt expenditures to a minimum. Some small business owners have discovered credit card companies that offer 5% rewards on business related transactions.

In a perfect world, you would have made the decision to create your startup last year. You’d have taken on a side gig, in addition to your full-time job, to help build up a sizable savings account to help fund your first year or two of entrepreneurship. You’d have spent what little free time you had putting together a business plan and researching VCs. And in a perfect world, everything comes together and you create a successful startup with zero debt. In a perfect world.

In the real world, the choice to go it alone might have been spontaneous or a choice you made because your job hunt was going nowhere. You might not have had the option to save up a year’s worth of income to float you through while you got your company off the ground. What’s more, in the real world, you have student loans, utility bills, etc. If you’re really serious about starting up your own company, dealing with debt is inevitable. It is also a good thing.

Wait, what? Yes. We just told you that building up some debt in the name of your business is a good thing.

The Right Kind of Debt

First, let’s be clear: we aren’t talking about taking out a five-figure small business loan that buries you in debt for years. We’re talking about smaller amounts of debt that you can pay off pretty quickly once you start making sales. For this type of debt, you’ll need to use credit cards.

Finding the Right Card

Finding the right credit cards for your business might take some time. You’ll want to read the reviews of what’s available. Not every creditor is willing to offer credit to a brand new venture. You’ll also want to consider the benefits associated with each card. If you’re going to be a consultant, you might want a card that lets you rack up frequent flier miles. If you need to finance inventory, you’ll probably be better off with one of the cash back credit cards that are available.

How Many Cards?

Start with one. All you need is one creditor to agree to set up a line of credit. You don’t even need the credit line to be very big. In fact, if you can’t find someone to offer your company some unsecured credit, you might want to consider opening up a secured card. Opening this first line of credit is essential for establishing your business’s credit (which should always be kept separate from your own). If you use this card responsibly for the first six months of starting up your company, you will likely be swimming in credit offers to help you finance your larger expenses.

How to Use Credit Cards to Finance Your Business

This is going to depend quite a bit on the type of business you’re trying to build. For the most part, however, concentrate on the most important purchases that you know you’ll be able to pay off within a few months: a new business-dedicated laptop. Software. A desk. Pay each purchase off in full before moving on to the next. You can worry about stocking up on inventory after you’ve built buzz for your company and researched vendors thoroughly. By then you should have access to all of the credit you’ll need.

Why This Plan Works

As we’ve previously stated, using credit cards to finance the initial stages of your startup is the best way to build your company’s credit history and score. The better your company’s credit, the less likely you’ll have to dip into your own money to get things moving–which is something you really want to avoid. Using credit keeps your personal and professional expenses separate. This makes your taxes and accounting much simpler and gives you legal protections if something goes wrong.

Remember: go slowly. Don’t max out your credit lines as soon as you acquire them. You need to use these credit cards responsibly so that later, when you need that big business loan to help your company grow, you’ll be guaranteed approval.

Source of this essay: https://www.essaylib.com – academic writing service.

Article Contributed by Jayne Blake

Entrepreneurs needing the help of investors commonly feel compelled to take whatever money comes along, no matter who is offering it.

While funding is understandably critical to the successful operation of a startup, there are times when accepting money is the wrong decision for a company. If you think of investors as relationships, then the reality of entering into a bad relationship that you won’t be able to walk away from for possibly several years should be sobering.

Here are a few tips that will help you make the right decision when it comes to choosing the right investor for your business.

The questions you should ask of any would-be investor

You want to evaluate each investor as though you were looking to enter into a long-term relationship. In other words, it’s important to know if they are going to be the right fit for your company. For that reason, don’t be shy about asking the questions that will get you the information you need.

• What companies have you invested in in the past? And, where are you currently investing?
• Would you mind if I reached out to those CEOs?
• Other than money, what type of support do you provide the businesses you back?
• What type of experience do you have with a company like mine?
• What is it about my business that interests you?
• Have you invested in similar companies in the past? How did it go?

Look beyond the money to see what else the investor has to offer

The best types of investors will take an interest in your business and be concerned about finding areas where they can help out. Investors should be introducing you to as many other investors, partners, and potential customers as they can.

In short, you want them to act as though they have your company’s best interests at heart. If they aren’t interested in finding out what areas or issues you might be struggling with and offering to see how they can help, that should be a concern.

What information about yourself should you share with investors?

In order for an investor to be excited about investing in your business, you need to give them something to get excited about. That means you need to share your story: how you got your BIG IDEA, how your team met, what makes your team ‘special’, how well you work together, and why you are the right team to make your big idea work.

It is important to make your business story as personal and passionate as you can. At the end of the day, investors are investing in your team and your vision as much as anything. Don’t make it all about dry numbers and figures if you hope to inspire.

What portion of your business should you expect to have to give up to an investor?

This can be a tricky area. The answer varies according to the level of investment you are seeking, and how much progress you’ve already achieved toward your goals.

David Cohen, co-founder of the startup accelerator TechStars mentions that entrepreneurs should expect to give up anywhere between 5% and 40%, with 20% to 30% being the reasonable rule of thumb for every round of investment given.

Cohen warns, however, that businesses should be wary of any investor who comes along and expects to take half or more of your company. In the end, you need to be assured that you are receiving more value from the investor than you are surrendering.

Jayne Blake works as a Communications Manager at Prospa, Australia’s largest online

“It’s almost Christmas!” — and that’s one simple phrase that can make people feel anything from elation to dread. Maybe you’re part of the Christmas cult, a grumbling Grinch, or an indifferent elf — but whatever your personal opinion of the yuletide festivities, for SMEs it usually means one of two things.

For some, it’s an extra-busy and stressful time. For others, Saint Nick’s main gift is a shutdown period, and December and January are slow months. Regardless of which camp you’re in, seasonal finances are something worth carefully considering.

We come bearing gifts

Even the most anti-Christmas boss is still likely to think about throwing a Christmas party for employees, as a reward for a year of hard work. But for many companies the costs can stack up, and you’re likely looking at £50-100 a head for even a simple event. Multiply that by a dozen or more employees and you’ve got a hefty bill on your hands — not an ideal thing to take into the New Year.

On the other hand, one expense many businesses choose to take on is sending out cards or gifts to clients. It could be a lavish hamper for your top customers, or just a simple card wishing them well over the holidays. Either way, it can be a good way to remind clients you exist, strengthen relationships, and if you’re lucky, encourage future business — but it’s another cost that needs to be planned.

One more seasonal expense is paying employee bonuses and incentives. UK businesses paid out over £40bn in bonuses last year according to the Office for National Statistics, and although the majority is likely down to large multinationals like banks and insurers, SMEs still represent a healthy chunk of that figure. As with the above, it could add up to a significant amount of cash, and you’ll need to be prepared before you fill your employees’ stockings with bonuses.

Christmas cashflow

Any business owner knows that keeping an eye on cashflow is essential practice. Maybe you have cashflow completely under control — in which case, keep it up! But it’s important to appreciate that Christmas is likely to be an anomaly on your balance sheet, with various expenses and incomes that are rather different to your average month.

For example, perhaps like many firms you’ll have an early payday, to help employees manage their own cashflow over the Christmas period. In that case, will you have enough money coming in early in December to do it? It’s worth keeping this in mind.

There are also a few bank holidays over Christmas and the New Year — combined with the shutdown period that many companies have, the result is a lot less working time (and fewer working days) in December and early January. Besides, it’s not called ‘party season’ for nothing, and it’s probably a reasonable assumption that even when people are at work, they might not be running at 100% productivity…

If your business trades on credit, it might take longer than usual to get invoices paid, which could have unexpected consequences. There are a few things you can do about this, but the obvious first steps are to send out reminders, keep in touch with your debtors, and act fast once an invoice is overdue. This is also a time of year where a flexible invoice finance facility might come in handy — to insulate your firm against any Christmas cashflow catastrophes.

Santa’s little helpers

So far I’ve mentioned a lot of the consequences that can occur when things slow down for Christmas. But there are many sectors that see an upswing in trade over the holidays — like logistics, retail, and hospitality to name just three. Christmas can be a time when seasonal businesses make enough to cover their costs well into the new year, and for many it would be disastrous not to take advantage of this winter boom.

Maybe you’ll need extra elves (seasonal staff), a new sleigh (equipment), or more carrots for your trusty reindeer (working capital to pay suppliers) — perhaps all of them. Whatever your ramp-up requires, this is a good time to think about short term finance like overdraft alternatives, equipment leases, or a cashflow loan, to help you maximise your takings and see in the New Year with a sack of Christmas income.

Mistletoe and fine

Hopefully I’ve given you a few things to think about, and you’re ready to confront Christmas whether it brings extra customers or a well-earned rest. There’s lots of finance products in the market that could help you make it to January, even if you only need them for a few weeks — or maybe it’s just a case of taking extra care with the balance sheet over the festive period, to be sure you can afford all those presents under the tree.

Whatever your plans, with the right finance plans in place, your biggest worries will be an expanding waistline, an overworked liver, or regrettable activities under the office party mistletoe — there’s no need to add a financial hangover to a real one. Merry Christmas!