Business Loan Basics
Business Loan Basics
The ability to get business loans is often a make or break issue with some companies. It does not matter if you are starting a business or expanding one already in existence, business loans are an essential part of the financial picture for just about every company in operation.
It is a good idea to ask some questions before seeking out business loans.
Do you really need the business loan or can you better manage the cash you have to avoid taking out the loan?
Is this business loan urgent?
Look at your company and assess the risks that you carry for a business loan. All companies carry some risk, do you know what yours are? Can you reduce them before asking for the business loan?
What is the business loan going to be used for? Lenders will want to know how you plan to use the cash.
You should also be aware of the overall state of your industry as a sector. Depressed, stable, or growth conditions require different approaches to money needs and sources. Businesses that prosper while others are in decline will often receive better terms on business loans.
It is also important to know and plan if your business is seasonal in nature. Seasonal needs for business loans are usually short term.
Lenders will also want to know about your management team before they sign off on a loan. This will, of course, depend on the size of your company. If you are a sole proprietor and run your own small business then you are the management team. Larger companies who may be looking for larger business loans may need to assure the lender that professional team members are in place.
The above are just some of the questions that you should be prepared to answer when seeking a business loan. It is also important to understand what kind of loan you need as well.
When it comes to business loans there are two types: equity and debt financing. When seeking a business loan, you should consider the company's debt-to-equity ratio. This is the relation between dollars you have borrowed and dollars you have invested in the business. The more cash that owners have invested in their business, the easier it is to attract financing from lenders.
If the company has a high ratio of equity to debt, you should probably seek debt financing. However, if your company has a high proportion of debt to equity, experts advise that you should increase your ownership capital (equity investment)
Business Credit Cards
Business Credit Cards
If you own a small business you already know how important a business credit card can be for your business. Using business credit cards properly can help your enterprise run more smoothly, and they can also help improve your overall credit rating.
One of the major benefits to using business credit cards is that they allow owners a form of short term credit. This can often be a huge advantage when items are needed in order to run the company, but cash is short. This may not be as much a problem for larger corporations, but for the small to mid-sized company, cash flow is often an issue and having a source of quick credit, which is what a business credit card really is, can be a life saver.
In addition to helping to make purchases, business credit cards are also a great way to keep track of purchases for bookkeeping purposes. Generally speaking, most business expenses are tax deductible as long as they fall within the law. Over the course of a year these business related deductions can add up and save the business owner a lot of money come tax time.
When business owners use business credit cards to make purchases, they can easily keep those expenditures separate from personal expenditures. Many small business owners still use their personal credit cards for business purposes, but this is often a mistake. Being able to quickly find receipts for business related items for tax purposes is
Business credit cards also allow the owners of the company to establish a credit history that is based on the company rather than on the owner. It is true that most small business owners will need to use their own personal credit history to get started, but as time goes on the company will begin to reflect its own state of affairs. This can easily be done by using business cards judiciously. This can also allow for easier credit in the future. By showing lenders that you are reliable in paying the business credit card debt off you will help assure them that your company is a good credit risk.
Yet another benefit to using business credit cards is that some offer rewards programs that can be very useful depending on the type of reward. For example, if a company uses a lot of paper products, there are cards that offer rewards and perks that are aimed at lower cost paper products. Air miles, hotels, and gas savings are also available with some cards. Again, depending on how often the card is used, these savings can add up. You can do a good deal of research online to find the business credit cards that best fit your needs. It is always a good idea to try to get the card with the lowest interest rate but do keep in mind that some cards that offer rewards also come with a higher rates. This is not always the case, but it is worth looking out for as you shop for business credit cards.
