Business Lines of credit and the availability of money itself can be instrumental in those crunch times when a business is cash strapped and has to pay vendors, and employees. This may be a result of overtrading, or a few hard quarters when a business is under pressure from economic cycles. Many businesses may also have low cash cover because of their recent entry into the industry and need money to expand. This is relatively true for new small businesses, who have just registered their businesses.
A business line of credit can be in two forms, secured and unsecured.
It is preferred that the unsecured line of credit is sought when a small business thinks their working capital requirements will fall short to repay short term debts and expense. Because unsecured lines of credit are not bound to be used for a specific task, they can be used for a multitude of purposes. Still, a business should have at least three months of cash cover needed to run operations if the line of credit was not provided. Banks and credit unions increasingly look for financial metrics that use current ratio as a basis for lending short term cash. Additionally, after an unsecured line of credit is provided, after a grace period of 30 days, monthly payments will become due and if a business is not able to earn back the investment, they might become insolvent or bankrupt. When Not to Seek Line of Credit It is recommended that a small business refrains from lines of credit if they have enough cash to finance their needs. Seeking unsecured lines of credit as a means to increase cash cover without a sustained need may put unnecessary strain on the short term borrowings. A business will be required to use the finances and pay interest payment irrespective of them not using it. Small business owners who have a vendor to pay in the future, or want to spend on revenue or capital expenditures, should time their credit lines in accordance with the payment structure needed to finance these expenses. Seeking unnecessary funds without purpose may degrade interest cover in the long run. There is no denial that seeking an unsecured business line of credit and balancing the financial structure of a business is an art. A delicate business needs to be established to provide businesses with ample cash to operate effectively and translate them into tangible revenues.
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When you start up a business, you may want to think about getting a loan. There are many entities that are willing to provide you with a loan for your business too. Once you get a loan, you will need to allocate the funds for specific purposes. One of these purposes includes marketing. Part of your business plan should include a budget of what you are willing to spend on each aspect of your business, especially for marketing. The amount of money from the loan you’ll want to dedicate to marketing depends on which marketing strategies you feel would best help your company.
How You Need to Hit the Ground Running with MarketingOnce you start up a business, you will need to begin marketing it immediately. Online purchasing is a rising trend so the first thing you should do is hire a team to design your website to use search engine optimization (SEO) strategies. This is important for getting your business known. As well as using SEO, it will be important to use pay per click advertising, social media sites which can complement your business website, doing direct mail ads, television advertising, email marketing and attending trade shows. All of these methods are different marketing strategies that you can choose to use for your business. Once you have decided what strategies you want, researching prices for these services will give you a better idea of how much you’ll need to budget specifically for marketing. What Percentage of a Loan Should go to MarketingThe percentage of your loan that should go to marketing will often vary depending on the funds you have available and what you need them for. It is a good idea to allocate at least 20% of your loan to marketing costs. This will help you save money as well as have funds available for other things such as inventory, employees, and office overhead. Depending on how effective the marketing methods are, you will want to adjust the percentage you spend on the results you desire. However, in most cases, you will benefit most by allocating between 10% and 30% of your loan for marketing costs. Whenever you are looking to get a loan to finance your business, you will want to know how much of it will be necessary for marketing. To use the loan for marketing, you will need to consider the many ways in which you can market your business. Using methods such as direct mail advertising, internet marketing, trade shows, and email marketing will give you the best chance of getting your money’s worth. In most cases, it will be beneficial to devote at least 10% of your loan on marketing costs. References: A business cannot run without a solid financial plan. Certain financial stresses can happen in any business, and if your company cannot handle these, it could cause significant issues. Knowing the five problems that you must anticipate can help to improve the chances of success for your business.
Insufficient Working Capital Your working capital is what you have on hand to keep your business running each day. To determine how much you should have, deduct current liabilities from your current assets. If your working capital is too low, you might not be able to pay your expenses, interest from debt can accumulate, and you might have to delay essential improvements or purchases. Keeping sufficient operating cash can help you weather these storms. Additionally--a small business loan can infuse your business with the money you need to survive. Taking Care of Assets and Employees Taking care of what you have may not seem like a big deal at first, but your business operates because of a couple critical aspects. The buildings you own and work in are able to be worked in, the materials you use are up to date and functional, and the people you hire are taken care of. There are some fields where accidents happen more frequently and others where accidents are more serious than others. As you grow as a company, taking care of those things gets harder, and business owners need to delegate more and more. As more and more delegation comes more ability for things to be overlooked. As such, in the event of an accident, it can be difficult to prove fault in a personal injury case, however, the bigger your business becomes, the bigger target you become. Lack of Business Savings Emergencies and unexpected expenses happen. Without savings, if the financial burden is big enough, this has the potential to completely devastate a business, especially a small one. Having a savings account for your business is vital for the following:
Inconsistent Cash Flow It is crucial that your invoices are paid promptly, so that your projected cash flow remains consistent. If inconsistency occurs, this can impair your ability to remain financially stable. Implement strategies to stay on top of late payers. You might also consider renegotiating your current payment terms. Unorganized Bookkeeping Bookkeeping can tell you critical information about the financial health of your business. It can also keep you out of tax trouble. If you are a very small company, there is software you can use to make this process simpler. However, if you can afford a professional, this can be highly beneficial for keeping track of your company’s finances. These are five common issues that can occur without the right planning. However, getting your financial affairs in order is not difficult with a little diligence and commitment. If you find yourself struggling with your funding and are in search of solutions, let us help! We want to help small businesses grow, expand, and keep them open as much as we can. We will do everything in our power to help you stay afloat during hard times! Whether you are just starting your business or looking to expand to the next phase of your roadmap, capital is always good to have in order to run a successful business. Even if you already have your own capital, chances are you would need a small business loan from time to time. Depending on how big your business is and the industry, working capital loans can transform the way your business runs if invested smartly.
Here are some ways that you can use small business loans or a business line of credit to grow your business in the most efficient and sustainable way. Invest in professionals Creating a business requires a lot of effort and you are by no means a fountain of all knowledge. In order to reach your full potential, a key area of investing in small business loans is in recruiting experts that can help you grow. Invest in a business coach with proven industry experience who can help provide insights and advice, sales coach to assist you with a marketing strategy to increase sales conversion and profits and a finance director to help you control costs and discover ways to leverage your business. A good team of lawyers is also important to grow your business. Experts help you be better and have a life outside your business. Update your website Your website is your 24/7 business concierge service and you must give your customers the best possible experience on your website. A good website can serve as both a global storefront and a means of growing your brand and community. An old, clunky website will set you back a lot of customers. You could use part of your business loan to hire a website designer to upgrade your website and especially optimize it for mobile phones and tablets for today’s generation. Operating cost You can use your working capital loan to take care of your business operating costs like machinery, invoicing, electricity bills and other operating expenses. You can also invest your small business loan in purchasing a van for deliveries and logistics if your business needs one. Expanding business outlets Another smart use of capital for businesses is opening a new location or moving your business to a larger, better location in readiness for expansion. Moving to a new location could involve renting or buying office space, warehouse space, a mobile truck or pop-up shop materials. A larger store means a larger assortment of offerings and the potential to increase your customer base. You are able to reach more customers when you move to a busier location which will lead to business growth. Refinancing other debts Running a business sometimes leads to debt and consolidating your debt by means of a business line of credit is a smart way to use a small business loan to grow your business. You can increase your inventory, deduce interest payments on some debts and pay down urgent debts that could prevent your business from reaching its potential. Capital for Business offers you easy access to small business loans with a lower cost of borrowing as well as a convenient process to make life easier for business owners. Call us or send an email today for a free consultation on how to grow your business. Top 4 Sources of Financing for Your Business
Starting a new business is always an exciting journey. Financing a new business is usually risky as you don’t have revenue, a track record or a customer base to chase after. Finding capital for business as an entrepreneur can be tough sometimes as the level of risk is high. Luckily, there are many sources of financing that small business owners call on when they are looking to start up their business.
One of the benefits of this source of financing is that the terms are typically flexible and easy since friends and family are usually not cutthroat or experienced investors. Regardless, the business owner should also avoid things getting tricky in the future by getting a lawyer to draw up either an equity structure or a legal agreement which contains a risk acknowledgment clause.
We at Capital for Business understand that financing a new business could prove challenging. That’s why we offer a wide range of financial solutions for working capital loans that are attractive and more beneficial than traditional bank loans. Speak to us today for a free consultation in securing a working capital loan. |
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Since 2009, we at Capital for Business have helped countless businesses succeed thru our unique easy loan application process. In a economy where obtaining regular bank loans can be quite difficult, we make obtaining business loans not only easier but quicker as well with approval in as little as 24 hours. Archives
March 2019
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