Outsourced CFO | Ready To Gain Traction In Your Business?
Outsourced CFO | all fine for loans
A sobering statistic says that 50% of all businesses are out of business within five years says outsourced CFO. And 29% of those failed businesses say they ran out of cash. Helping business owners understand good debt versus bad debt as well as how to smartly apply for and get financing when needed can help business owners beat the odds and be successful in business. Entrepreneurs can ask several questions when it comes to understanding business loans to help them decide if it is the right decision for them.
The first question is, is it easier to finance operating capital or hard assets? Outsourced CFO says itís infinitely easier to qualify loans for hard assets. The reason for this is there is less risk for the bank, they can always repossess the hard assets if a business owner cannot pay the loan. Operating capital is almost never financed because of the risk to the bank. When determining whether business needs financing, business owners should always attempt finance assets first to maximize their chance of success and obtaining loan.
Is it easier to finance hard assets on the initial purchase or after acquisition? Itís always much easier to finance on the initial purchase rather than afterwards the reason for this is because most businesses have the potential to experience a cash crunch. Meaning the longer their business is in operation the harder it is to pay back the loan. Business owners should definitely make the decision to finance assets with the initial purchase.
How does the processing time for business loans compared to personal loans? Business loans and personal loans are extremely different from each other. Where personal loans are often done in 30 days, the usual threshold for business loans is 60 days minimum. That number increases if the bank requires additional information.
How can formal appraisals and environmental assessments affect timelines? Some of the additional information that the bank may need in order to process the loan is formal appraisals and environmental assessments says outsourced CFO. Because those additional reports may take 30 or more days, formal appraisals and environmental assessments can greatly affect the already large timeline. Entrepreneurs need to take into consideration this timeline when considering loans.
Is it possible to get 100% financing for some purchases? Outsourced CFO says definitely there are opportunities to get 100% financing, reminding entrepreneurs that 100% financing exists almost exclusively for hard assets such as equipment, vehicles, or buildings. If an entrepreneur is able to secure hundred percent financing for any of their hard assets that is definitely in their best interest.
By remembering the answer to these important loan questions, business owners can understand banks and financing easier and use that knowledge to increase their chances of getting financing when they truly need it, which can make all the difference to their business success. As Robert Piasecki the author of Rich dad poor dad says good debt is a powerful tool, but bad debt can kill you.
Outsourced CFO | qualifying for loans
Entrepreneurs are more likely to run into financial difficulties if they are not able to understand how to effectively apply and get approved for business loans says outsourced CFO. And some business owners also donít understand the difference between good debt and bad debt, thinking any debt is bad debt. Which leads to them not understanding how to properly use debt for the benefit of their business. 29% of businesses that have failed, say that the reason why their business failed was because they ran out of money. There are several questions that once they know the answer to, business owners can be armed with knowledge and make the best financial decisions for their business, says outsourced CFO.
First question is why is the amortization period often more important than the interest rate? Business owners need to look at two things when it comes to business loans, the amortization period is the length of time in which the business loan needs to be paid back in, and the interest rate is how much interest there loan is accruing while they are paying it back says outsourced CFO. The reason why the amortization period is often more important is because if there is a much longer period of time to pay back the loan, even a slightly higher interest rate means that the business is less likely to be put in a cash crunch by trying to pay back the entire loan quickly. Business owners may think that a very low interest rate is very attractive and failed to see that the amortization period may be difficult or impossible for them to achieve. Which is why business owners who do secure loans often find they canít pay for it once they receive it. By being smart about choosing the right amortization period versus interest rate, entrepreneurs can make the best decision for them and their business.
Why are good bankers good problem solvers? Bankers must adhere to the rules of their bank when making lending decisions. Good bankers can help entrepreneurs figure out what aspects of their application needs to be changed in order to satisfy the banks requirements. If the banker can tell an entrepreneur but needs to be changed, they can make the difference between a business owner not getting the business loan, or the business owner getting approved for the loan.
What is a loan underwriter and how does this limit the authority of your banker? Outsourced CFO says a loan underwriter is also an agent of the bank, but they donít meet with you or your banker. They are an unbiased person looking at the facts of the loan only to see if it satisfies the banks risk tolerance. They often limit the authority of the banker because in addition to not talking directly to the banker, if the underwriter decides not to approve the loan, there is little a banker can do to change their mind. Itís important to know this process going into obtaining loans.