Best Way to Get the Capital Your Business Needs
Posted 06-02-2009 at 11:45 AM by phanio
Most small business owners usually only think about one thing when their business needs capital – and that is to get a single loan to cover all of their needs. The problem is that trying to find a single loan for all your business’s needs can be very expensive and inefficient. You would be better off matching your loan with your needs.
It is kind of like visiting your doctor. If your doctor is a general practitioner – he/she will refer you to a specialist for, say, you heart or for your allergies. The specialist has better knowledge about their specialty and can better serve your needs.
The same is true for your business capital needs. Thus, let’s say you need $100,000 for your business where half would go to buying new equipment and the remaining would be split between operating working capital (more inventory) and advertising (general business development).
If you go to your bank and ask for a single $100,000 loan – your chances of getting that money is slim – that is a lot of money for a bank to be lending out without tons of collateral (although the equipment could be partial collateral – taken in whole, the collateral does not cover the entire loan amount). If your bank does agree, it will access a high interest rate and huge fees due to the risk of such a large loan.
Another option is to match the loan to the need. If you need equipment – find an equipment loan specialist. Here you will get the equipment you need at a much better rate and terms than from your bank. Plus, these types of secure loans are easier to qualify for and normally do not put as much emphasis on personal credit histories as do traditional lenders. Then, for the working capital, use working capital assets like factoring your Accounts Receivables, Purchase Orders or Credit Card Receipts. Then, for the advertising capital – this is the time to approach your local bank for a smaller $25,000 loan that they should easily approve at much better rates and terms as there is less risk for them (bank pricing is usually based on cost of funds and risk).
This is a much better option than running from bank to bank only to be turned down.
Bottom line – you get the funding you need to grow your business at much better rates and terms than from a single, larger loan from your bank.
Just my thoughts
It is kind of like visiting your doctor. If your doctor is a general practitioner – he/she will refer you to a specialist for, say, you heart or for your allergies. The specialist has better knowledge about their specialty and can better serve your needs.
The same is true for your business capital needs. Thus, let’s say you need $100,000 for your business where half would go to buying new equipment and the remaining would be split between operating working capital (more inventory) and advertising (general business development).
If you go to your bank and ask for a single $100,000 loan – your chances of getting that money is slim – that is a lot of money for a bank to be lending out without tons of collateral (although the equipment could be partial collateral – taken in whole, the collateral does not cover the entire loan amount). If your bank does agree, it will access a high interest rate and huge fees due to the risk of such a large loan.
Another option is to match the loan to the need. If you need equipment – find an equipment loan specialist. Here you will get the equipment you need at a much better rate and terms than from your bank. Plus, these types of secure loans are easier to qualify for and normally do not put as much emphasis on personal credit histories as do traditional lenders. Then, for the working capital, use working capital assets like factoring your Accounts Receivables, Purchase Orders or Credit Card Receipts. Then, for the advertising capital – this is the time to approach your local bank for a smaller $25,000 loan that they should easily approve at much better rates and terms as there is less risk for them (bank pricing is usually based on cost of funds and risk).
This is a much better option than running from bank to bank only to be turned down.
Bottom line – you get the funding you need to grow your business at much better rates and terms than from a single, larger loan from your bank.
Just my thoughts
Total Comments 0
