Before you go around asking for business loans there are some things you ought to know. For example, you should probably know the answers to questions like; what are you going to use the money for specifically? Who are you going to ask? Why do you need the loan? And can you back up what you say with analytics and research?
Do Your Homework Before Going for Business Loans
Doing your homework before asking for a business loan is a much more involved process than just preparing your reasoning. You need to figure out who you are going to ask and do the research to back your claims so that you actually get the loan.
So what do lenders say about business owners who are trying to get business loans? They say that the business owners need to know exactly how they are going to use the money and they must be prepared to explain why.
Lenders have also said that it is very important for business owners to come prepared with a business plan. The business plan should spell out how the loan will be repaid along with two and three-year projections on how the business is expected to go financially.
When applying for a business loan, being prepared is crucial and it can oftentimes mean the difference between success and failure. Those who are more prepared will be more likely to get their claim looked over, processed and approved in a shorter amount of time.
Business loans are needed for many different reasons, from upgrading equipment to development, to getting small businesses off the ground. Whatever the reason, if you are applying for a business loan then you need to be prepared and treat it like a test.
If you treat applying for a business loan like a test then you will be prepared for anything they throw at you that could stand in your way.
First-Time Business Loans Borrowers
If you are a first-time borrower, then be prepared because loan officers like to require the most information from first-timers. You may get an unsecured loan which is based on assets, your ability to repay, and your credit history.
Or you could get the more common secured loan. A secured loan is when you guarantee the ability to repay the loan with an asset like stocks, real estate, or securities.
So before you go and ask for a business loan, make sure you know what kind of loan you want, prepare like you are preparing for a test, and do the work. In the end, you may end up getting your loan just because of all the hard work you put into your business plan.
Business Finance Basics Every Professional Should Know
Business finance differs from accounting and bookkeeping in the sense that it deals with the acquisition of funds for operations, the balance of risk versus profit, the management of cash flow, and the proper distribution of gains.
The discipline of business finance involves several aspects related to economics, investment management, valuation, banking, debt, market theory, and other advanced topics of relative complexity.
Mastering the basics of business finance is fundamental for entrepreneurs, managers or anyone interested in the operation of commercial enterprises.
Some advanced aspects can be acquired through on-the-job experience, but when it comes to gaining expert knowledge on the basics of business finance, there is nothing like going back to school to obtain a greater understanding.
Principles and information are at the heart of business finance. All principles are centered on the aim of creating value for shareholders. This can be accomplished by seeking investments, financing, building equity, managing debt, looking at profitable opportunities, and more.
Financial decisions are based on the application of principles and theories, but only after information has been collected and analyzed.
The collection and study of information are vital to the discipline of business finance. Internal or external data can be gathered about companies or economic conditions and analyzed with mathematical formulas and scenarios like forecasts. A great part of business finance is centered on the creation of forecasts for shareholders to make base their decisions on.
According to data compiled by the United States Small Business Administration, the failure rate of startup companies within 10 years of operation was higher than 60 percent in the late 1990s.
While many of these entrepreneurs may have fallen victim to the competitive nature of their respective industries or to the general economic downturn, the fact is that many failed to apply the basics of business finance to their enterprises.
The success of a startup company is highly contingent upon its business plan, and a great portion thereof relies on the basics of business finance. Calculating payback periods, asset depreciation, return on investment, cash flow, break-even analysis, sales forecasts, and other financial factors are more important than the business idea.
Not having a good grasp on business finance basics will make it very difficult to apply these important factors and could lead to the early demise of a company.
Beyond Analytical Skills
Qualitative analysis is another important aspect of basic business finance. In the day-to-day operations of an enterprise, owners and managers are bound to run into calculations that may signal trouble for the company or lack of viability.
This does not mean that an enterprise should immediately fold, although it may call for analysis that is based on past experience or known external facts. Qualitative analysis can help business owners and shareholders make investment or management decisions.
Managing accounts receivable and the proper utilization of supplier’s credit and delaying cash payments are business finance concepts that can be used as strategic moves to give companies an edge and promote cash flow. Managing fixed assets and write-offs also require a good amount of qualitative analysis.
The concepts reviewed above are essential to the successful management of business finance, and they are better suited for academic exploration. For this reason, entrepreneurs and even investors often decide that going back to school is the best decision they can make with regard to learning the basics of business finance.
How To Stay On Top Of Your Business Finances
When it comes to business finance, accounting is the biggest headache for owners. It is one of those tasks that never crosses your mind but may very well eat up hours each day. However, it cannot be denied that competent management of finances is equivalent to inching your business closer to success.
It is no secret that businesses that have secured phenomenal success are the ones that never lose focus of their finances. Good news is that accounting is not as difficult as it may seem and tips to tackle it in a proactive fashion are listed below.
Don’t Mix Personal and Professional Expenditures
Your kid loved a backpack and since you did not have enough cash at hand, you paid for it with your business credit card. Some may feel that there’s no harm in using company finances for personal expenditures. What these individuals fail to acknowledge is that they are complicating matters. They will have to record a transaction.
There’s no point in making things more complicated than they already are. Avoid the headache by keeping separate bank accounts and credit cards for personal and business use. You will save hours of efforts. Therefore, it’s strongly recommended that you handle finances independently.
Call In the Experts
Save yourself from all the inconvenience and hire an accountant. These seasoned professionals have extensive knowledge of the profession. They are also well-versed with tax laws allowing them to help you save money. It can be tempting to save a few bucks and do the math yourself, but the amount of time and effort you save will be worth every single penny you pay.
An accountant can also help you keep your records clean. He will also notify you about payments or taxes that are due. Hire a trusted professional and let him handle it all for you.
Take Time to Organize
Even if you have hired an accountant, it is still your responsibility to take out at least 15 minutes each week to find out where your finances are going. Don’t let anything deter you from the task. You will gain better insight into the business. You will make well-informed decisions and you will also be able to organize everything conveniently.
Don’t Forget Your People
When looking for business insights, find out where the major portion of your spending is directed. If it is labor, it is crucial to determine wages, overtime, benefits or any other associated costs. You may find out that you can incentivize employees better or that you are overspending your budget. In any case, do the math now to avoid problems in the future.
Don’t Forget To Receive Payments
A problem common to a lot of business owners is that they don’t keep track of customer payments or invoices. If you do not have records to tell you about customers who haven’t made payments yet, it will be months before you will realize you have several outstanding invoices.
To make sure that doesn’t happen, keep track of when a payment is due and record how promptly a customer pays back.
Use the tips listed above and steer clear of all accounting problems in the future.
You Want a Loan for…What?!
Most of us are familiar with the situation. We realize we desperately need cash to fund a new purchase, project, holiday or scheme and we just don’t have enough in the bank. The situation affects us all at different times. The question remains, however, what do we do in such situations?
Chances are, we scratch our heads, we look around desperately, we ask friends and family (without luck) and then turn to online loans or credit cards to fund our latest venture!
Bank staff are well used to hearing a weird and wide variety of reasons why people want to apply for online loans. Occasionally these are masked behind a standard response such as a ‘new car’ or ‘home improvements’, but trained staff are adept at digging into the real reason we want to borrow from them.
Strange reasons include customers wanting loans for boats when they live many hundreds of miles from the sea, or wanting loans for expensive cars when they haven’t even passed their driving test!
Other people ask for loans for buying exotic pets; there are reports of customers applying for online loans to buy elephants and camels at up to £15k and more! Loans are also earmarked for expensive horses, such as stallions, for similar sums of money.
Other reasons for loans include the pursuit of an obscure or expensive hobby, or simply an obsession. Nevertheless, our perceptions about what is or isn’t usual for a loan can change over time. For example, many people take out loans nowadays for plastic surgery, once considered very strange, now perhaps less so.
The danger, of course, with any loan, whether an online loan, personal loan or credit card, is that it ties people into long term commitments that they may not have adequately considered.
Particularly with online loans, it can be all to simple to apply for finance quickly and have an instant decision. Before you know it, that loan money will be in your bank and you’ll be purchasing your ‘must have’ item in a shopping frenzy.
In such a mood, many customers forget to look at the reality and responsibility of paying off a loan fully and keeping to the agreements of the financing arrangement.
For example, buying an item that will rapidly be used or depreciate, means that the debt will far outlast the enjoyment of the item or experience bought. This may be acceptable to some people, but must be considered carefully, particularly in such a challenging economic climate.
Also, what would you do if you lost your job and could no longer meet your loan repayments? Had you even bought a valuable item, it might not be possible to sell it for a sum sufficient to cover your loan obligations, particularly once interest is factored into the equation.
For these reasons, a careful loan application should consider payment protection insurance in the instances where it is applicable.
It is also important to do a search for the best-priced loan products before you enter into a credit agreement. Be very sure what your budget is and aim to pay back the loan in the shortest possible timeframe.
Use online price comparison sites to find the loans with the best interest rates – look at additional fees and read the terms and conditions of the loan very carefully.
Finally, look at longer-term solutions to needing such sums of money to finance projects, purchases, holidays and hobbies. A longer-term savings account is a far better vehicle for financing cost effectively and not building up a larger debt profile.