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Outsourced CFO | obtaining financing
29% of all failed businesses cite that they ran out of cash says outsourced CFO. Helping business owners financing can help them avoid that common pit fall in business, which will increase their chances of success. Many business owners donít understand how to use business financing as a way to help their cash flow, often business owners see that as a negative. As Robert Kiyosaki the author of Rich dad poor dad said, good debt is a powerful tool, but bad debt can kill you. Here are some important ways that business owners can use debt as a tool to increase cash flow in their business, increasing their chance of success.
Business owners should understand when the best time to apply for financing is. It is much easier to be approved for financing early on in the life of the business, as opposed to years later. If at all possible, business owners should aim to get financing with the initial purchase of their business rather than waiting. The reason for this is almost all businesses have the potential for a cash crunch says outsourced CFO, and this cash crunch means there is a risk to the bank. To minimize the risk to the bank, business owners are encouraged to apply early on in their business as possible.
Something else the business owner should take into consideration when they are considering financing, is that it is much easier for them to get financing approval on hard assets versus operating capital. Since it is much easier to get approved financing on hard assets, business owners should leverage this when considering business financing. They can get as many hard assets financed as possible, they can free up their cash to use as operating capital. In addition to business owners getting is a hard assets financed as possible, they should also know that it is definitely possible to get 100% financing for some of those hard assets. This includes equipment for the business, vehicles and buildings. The business owner is able to get 100% financing for any of their assets, will continue to free up their cash to use in the business is operating capital.
When considering financing, business owners should also understand the difference between amortization period and interest rates. While it is attractive to go with the lowest interest rate possible, business owners should also consider the amortization period says outsourced CFO. A longer amortization, means that the loan will take a longer time to pay back, which can help the business owner not fall into cash problems by trying to pay loans back quickly. A short amortization often leads the business owner to trying to pay back too much too quickly, and can be contributing factor to them running out of cash. Therefore a much longer amortization even at a slightly higher interest rate may be in the best interest of the business owner. By using that information, business owners can leverage amortization and interest rates to their benefit.
Outsourced CFO | obtaining financing
Business owners who donít understand business financing either canít qualify for a loan, they canít get the loan fast enough, or they canít pay the loan once they get it says outsourced CFO. By helping business owners understand how to get business financing, as well as when they should get it will help them avoid these pitfalls and be successful in using business financing to help their business.
Business owners need to understand the difference between personal loans and business loans. While personal loans can take a couple weeks to a month to close, business loans are much more complicated and take more time. A bank needs to completely understand the business as well as the business financials in order to make a decision whether they will approve the loan or not. Completely understanding the business and taking into consideration all of the variables, can take a lot more time, with 60 days being the minimum threshold says outsourced CFO. This often means that business owners are required to submit additional information with their loan application such as environmental assessments, or formal appraisals. These additional reports can help a bank fully understands the business in order to approve funding. Business owners should understand that this will increase the amount of time it takes to receive the funding. These reports can take up to a month to complete. Knowing this time line will help business owners be prepared to apply for their loans in enough time. One of the mistakes that business owners make is applying for a loan only when they need it, and this is often too late to make a difference to the business.
Because this timeline is so long, entrepreneurs should submit more than one application to more than one lender at the same time. If at any time in the process, one of the banks declines the application, business owner can continue to carry on with the other application. If only submitted one application of time, and the business is not approved for the loan they have to start over at the beginning. If the application was denied near the end, that could be to three months of time wasted, and having to start over the beginning may be very detrimental to the business with a Outsourced CFO.
Itís always important to know that business owners should work carefully with their banker on the loan application whenever possible, because bankers can be great problem solvers. Bankers usually have rules they need to follow when accepting loan applications, and different banks have different risk tolerances when it comes to approving loans. A great banker will let you know what you can change on your application to help satisfy the banks requirements. Working with the banker can mean the difference between successfully getting approved for a loan, or not getting approved at all.
By helping business owners understand how to qualify for a loan, will enable them to successfully obtain financing when itís most advantageous for them to.
