Edmonton Business Coach | Business Plan Financing Required
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But the banks don’t like financing the used assets as much as not that they won’t do it. It’s just more difficult. Yeah, I can see little home. Why with these two I can be [inaudible] cause it’s not. Hi, thanks for joining us for another episode of ask Sperl CPA today as the EBITDA business coach, we’re talking about business plan financing required. So getting financing with your business plan. I Have Laura here with me again. Laura, any big plans for the summer? Uh, just enjoy the sunshine when it, when it comes when it comes, if it stops raining, we had a little reprieve and then it’s back to some the summary and yeah, I’m a, I’m hoping we get to enjoy some sunshine too. So the, the quote that we have here today, Robert Kiyosaki, Co author of Rich Dad poured at any says good debt is a powerful tool but bad debt can kill you. Now Industry Canada tells us that 51% of small businesses will seek external financing. And of course we know that 29% have failed businesses lists. Running out of cash is one of the primary reasons for failure making running out of cash. The second most common reason for business failure and the circumstance, the story that we run into are most business owners, they’re not specific enough about the financing they require in the business plan. Thus they end up getting rejected altogether because the bank doesn’t quite understand what they want or they end up with a loan that they’re not going to be able to make the payments on. So Laura, what are the questions that these business owners should be asking so they get it right in the business plan when they’re asking me for financing, do you recommend putting the financing required in the executive summary? Yeah. First thing, a lot of times people want financing and you look through the whole business plan and maybe it’s not even there or it’s buried. Put it right at the top. This is like one of the most important things about the plan. You want to put it right in the executive summary, exactly what financing that you want. Put a rate at the beginning, you know, don’t leave it to chance that they see it or not because these guys care to get the top Edmonton Business Coach today!
What’s the difference between a term loan and a mortgage? So a, a term loan and a mortgage. Generally they have specific principal and interest payments. They both have specific set principle and interest payments. It might vary based on a a floating rate around primer. It might be a fixed rate, but nine times out of 10 a mortgage relates to real property. So it breaks a real estate. So one’s on it. Think of a, it’s a building or a house or land. The mortgage is on real estate and the term loan is generally on, you know, equipment or a build out. Sometimes it can be an unsecured term loan. Uh, just, you know, more of like a, a debt consolidation thing and it’s a specific termed out loan. So when you think about if it’s mortgage or term, you know, functionally they’re the same. They have, you know, a interest and principle component to the ready, set a repayment schedule. But mortgages are based on real estate.
Should you be specific about the purchase price of assets you’re trying to find out? Yeah. So sometimes the mistake is you ask for a set amount of financing and say that you want to buy that new welding truck in that new welding truck is $100,000 all decked out and you’re asking the bank for $50,000 and the bank might consider that, okay, you want 100% of that new asset and they’re going to reject you because you just asked for $50,000. But if you told them you only want 50 of the a hundred thousand dollar asset and you’re putting another 50 of your own money into the deal, now all of a sudden the discussion changes. Now they think that this is a much more secure risks. So you shouldn’t just ask for the amount. You should be specific about the cost and the use of that money. Um, you know where it’s gonna go. Cause that’ll change the bank’s answer sometimes then please give us a call now to get the best Edmonton Business Coach today!
Is it more difficult to get financing for US sets previously purchased? Yeah, here can be, you know, the, the problem is you have just enough cash to go out and do the deal yourself. You know, you can build out the office, you can buy a bunch of major equipment and you got enough cash in the bank or maybe a room on the credit line in the end they go out and they spend rate to that limit and then they think, oh, if it goes close, I’ll try to refinance it at after. But the banks don’t like financing the used assets as much as not that they won’t do it, it’s just more difficult. You know, often you could have gotten approved if you hadn’t done it a year before when that, you know, our equipment was new, the bank is more aggressive and lending to new equipment or even use the equipment when it’s initially purchased. But you know, once you go to the bank with your hand out and you say, can you lend based on this thing that I bought last year, now the toll toll or the conversation changes. So you gotta be very careful that when you, when you’re buying that equipment, you say, is this the time to get financing in place because we might not get another crack at it down the road if we’re short on cash. how is the amortization period different than that? Maturity? So people think sometimes maturity date, but you’re going to think amortization period. So maturity date is when the loan is going to come up for renew. The terms of the loan might change, the interest rate might change. Um, the bank could call the loan. That could happen, not the usual course of action if you’re maintaining their covenants, but could happen. But the amortization period is how long you’re going to get to pay back the loan altogether. So the loan might be up for renewal in five years, but you might have 20 years. You know, the principal repayment amounts might be based on paying this thing back in 20 years. So it’s extremely important to know when’s that, you know, maturity date. So when is the low up for renewal or renewal date or maturity date for hello? Uh, versus when is the repayment period or amortization period of how long, you know, the bank is considering that it’s going to take you to pay back this loan. So where do you get Edmonton Business Coach?
Should you ask for a specific interest rate on an amortization for you? Yeah, so I mean you should ask for a specific interest rate, but you should also ask for a specific amortization period. So don’t leave that to chance. You know, a lot of people are just like, I want a loan. What if that loan is that 25%, you know, I want $100,000. But what if the bank only gives you five years to pay it back and you don’t have enough time to pay it back. So be really specific on that, you know, executive summary, the financing required, you know, put exactly how much you want, what, what you’re going to use it for, how much it’s gonna cost and you want to put on there, um, you know, what interest rate you’re expecting and what amortization period or repayment period you’re expecting is the interest rate of amortization period. Generally more important. Please call us ow at 780-665-4949 or please check out spurrell.ca now!
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generally, a lot of people think loans and they think interest rate. They think the best interest rate. If I get prime, that’s better than prime plus a half, but what if you’re prime plus a half gives you 20 years to pay it back and your prime gives you five years to pay it back. You know, scenario one has lower interest rate, but you could run out of cash in the entire business just because you’re trying to save a couple of bucks and interest. I would suggest that more often than not, the amortization period is more important, especially if the interest rates are relatively close. You don’t want to talk. Talking one is 5% and the other one is 25% we’re talking, you know one is 5% the other one is 6% a lot of times the amortization period is more significant, you know, in terms of the decision making process. Then the interest rate, how do lines of credit differ from term loans and mortgages? So the majority of the time, the lines of credit that you get, you’re not required to pay back any of the principal at a set intervals. You’re just required to pay the interest as it’s charged. And sometimes even the interest can be charged to the line of credit. So it provides that all ultimate flexibility on when you’re going to pay back. Why are lines of credit normally better for cashflow as a Edmonton Business Coach?
So they, you know, we think about, you’ve got that term low and the terminal locks you into it. You got to pay $3,000 a month whether you have the cash or not principal and interest. But what if the interest on that is only 500 bucks and you’re short on cash and you start to get short on cash tight. You can just pay that interest and that $2,500 you can still use it for operations. So normally lines of credit are better for cashflow or lines of credit. Harder to get. They are harder to get. So the bank use them as there’s a little less certainty in what’s going on there cause they’re giving, you know, leaving it to your discretion and when you’re going to pay back that amount. Um, so the, the, you know, the threshold to get that line of credit, although that might be preferable, um, solution might not be available. They are harder to get should amounts requested for each type of credit. Facili DV specific. Yeah. Be really specific. I want this much for my term alone. It’s going to be used for this equipment.
They cost this much and I want this interest rate, um, over this amortization period and I want this much for the mortgage and again, really specific you use for purchase of property that costs this amount. And I want this interest rate and this um, uh, amortization period and the same thing. I want this amount as a line of credit. Be Very specific on which category that you want. Um, because the bank can’t normally guess what you want and, and they’ll normally revert to just giving like a term loan, paid back, uh, under the least favorable terms. You know, the shortest payment period possible. Um, so you’ve gotta be really specific about what type of credit facility want, what interest rate you want, what it’s going to be used for, how much does that cost and what repayment, you know, um, uh, were repayment terms or amortization terms that you’re hoping for a Edmonton Business Coach.
Uh, when applying for credit card, should you be specific about who gets what limits?Yeah, so just avoid the back and forth discussion. Cause as soon as you asked for a credit card, you know, don’t just ask for a credit card, you get to say I want a credit card with a $20,000 limit and $10,000 limit is going to be used for me as a business owner. Another 5,000 going to use for one of my managers and another 5,000 is going to be used for this administrator. I don’t even put their names on the application and televisits aren’t you? Put your name on it. This is the limit that you want on your card. And this is the limit you want for your manager whose name, whose name is this and your administrator. His name is, you’re going to save yourself a whole bunch of back and forth communication and they’re going to ask you those questions, you know, before they even determine if you’re going to qualify for that. How will credit cards affect other financing questions? So, uh, you know, often people think that the credit cards are separate from the other financing, but a lot of times the bank is not willing to give you a credit card facility unless they have what they call first charge on your corporation. So in other words, the person who made the big alone are the ones who want first charge on it. So if you give, you know, the person who gives the big loan, the first charge on your corporation, but you don’t have the credit cards worked out, now all of a sudden you’re trying to use personal credit cards cause you can’t, you know, qualified through that bank. So you want to ask for them. At the same time, you want to be really clear about what credit card facilities you have. So sometimes it’s a matter of in that financing required section, a lot of times all lists, both the loans that we want and the loans that we already have in place, including credit card facilities that we already have in place as a Edmonton Business Coach.
Um, because you know, you want them all approved at once. You want the person, you know, the, the bank who’s approving this thing to approve not just the term loans and the mortgages and the operating lines of credit, but all, so to have, you know, a, an amount set aside to give you as a credit card facility. So it all fits together and you didn’t have all of the various mechanisms of credit to use at your disposal. So I think that’s what we here today. As always, please hit that like and subscribe button so we can continue to deliver your tips on how to beat the odds of business. And as always, you know, please leave some comments below so we can respond back and use your input for future videos. Just head over to spurrell.ca or call us now at 780-665-4949 Thanks very much.