Business Financing

Written by Patricia Skinner
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Taking out a loan is sometimes inevitable in the business world. Most businesses run into a situation where they need financing to help them weather a storm, or overcome a temporary shortage of cash so that they can continue to operate. Often a loan is needed to get a business started in the first place. While some tend to view taking out a business loan as poor financial management, a loan can sometimes be integral to a sound financial plan.

Examine Your Options

That's not to say that taking out a loan is the first thing you should consider. Often, there are other alternatives that you can turn to before you borrow. A business basically always has two types of capital, or resources; there is equity and debt. Equity capital is the money put into a business by the owners. Debt capital is anything that is borrowed, for any reason, to supplement equity capital.

One type of debt capital is investment loans by the business owners, or by other partners brought into the business for that purpose. Examine your options and see if taking on an investor-or-two wouldn't be a good prospect. You could also consider putting back more of the profits into your business, for example, if that's feasible.

Try Negotiation First

If you're taking out a loan because you owe money, first try and talk to your creditors and see if they'll be willing to wait a bit longer. A business bridge loan is often taken out when debtors are slow on paying up, and creditors are waiting for payments on the other side. Closing the gap between accepting and making payments may mean you don't need a bridge loan after all.

Business financing is not without its risks. It's important at the outset to examine your situation and make certain you're not taking on a loan that you won't be able to handle over the coming months or years. In addition to your regular outgoings, you'll need to take into account the repayments on your loan too. When you're calculating how your finances will work, use the lowest estimate of your monthly income. This way you'll be working on the safe side.

Start up Loans

For a loan to finance a business start up, you should prepare the most detailed business plan you can come up with. This is not just to impress the bank, or your lending institution, but also to give you an idea of how you're going to proceed. Knowing what's coming will leave you in a much better position to meet the future, and can raise your chances of success.

You also need to pinpoint any risks associated with your business. What are your plans if the worst should come to the worst? Do you need to insure your loan just in case?

Getting Some Answers

Your financially oriented business plan should answer such questions as how much will your business cost to run? How many sales will you need to make, and at what price, to break even? How much will you need to maintain your present lifestyle? What is the minimum business loan you can manage with?

Examining your best options for taking out a business loan will involve examining interest rates and repayment periods. It is critically important to find the lowest rates you can and the best repayment terms. Find out what happens if you should miss a payment or two. Some organizations have crippling penalties for anyone who misses a couple of payments. Read the small print to make sure you understand all the implications of the loan you're about to take out.

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