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Outsourced CFO | business lending myths
As the author of Rich dad poor dad, Robert kiyosaki was quoted as saying îgood debt is a powerful tool, but bad debt can kill youî advises outsourced CFO. Business owners are under several misconceptions about business finances and debt. Since 50% of all businesses have run out of business in five years, and 29% of those businesses say that they failed because of running out of money, helping businesses understand finances as well as dispelling myths about it will help business owners succeed.
The first myth that business owners believe is that the processing time for business loans is the same as the processing time for personal loans. Outsourced CFO says business loans that go through and 30 days are highly unusual. In fact business loans usually take a minimum of 60 days. That number goes up significantly if the bankís back and request more information such as formal appraisals or environmental assessments. Since either one of those reports to take more than 30 days to prepare, a more typical timeline for a business loan can be 90 days. Once business owners are aware of the differences between business loans versus personal loans, they can start making their financial decisions for their business.
The second myth that business owners beliefs as outsourced CFO is that it is just as easy to finance operating Level as it is to finance hard assets. In fact it is significantly easier for banks to finance hard assets rather than operating capital. The reason for this is there is less risk associated with assets. Banks can always take the asset in order to pay back loans that are not paid. However banks cannot repossess operating capital if the money is gone. Since there is such a significant difference in financing hard assets and operating capital, business owners need to know that as early on in the process as possible in order to make the best decisions about what to finance, and how much financing they do need.
The third myth that business owners believe is they will be able to just as easily approved for a loan any time in the lifecycle of their business as they are in the first start up. The fact is says outsourced CFO, is that it is much easier to secure financing on the initial purchase of the business then afterwards. The reason for this is if the business has the potential to have a cash crunch, and most businesses fall into this category, banks are more likely to favour new entrepreneurs than businesses that have been in operation for a little bit longer. As businesses operate, they have a tendency to run out of cash. Therefore advice is to maximize the cash early on in the business because later on itís harder.
By knowing what what they can believe about debt and financing as early on the process as possible, business owners are better armed to make great purchasing decisions for their business, which will help them succeed financially in their business. The biggest thing that business owners should remember is that good debt is a powerful tool, knowing how to use that tool is a huge key to business success.
Outsourced CFO | business lending myths
Not properly understanding business financing is a common pit fall that businesses run into regularly says outsourced CFO. Unfortunately 29% of failed businesses have cited that running out of cash as concluding factor to their failure. By dispelling financial myths, entrepreneurs can be better armed when making financial decisions for their business.
One of the myths that business owners unfortunately believe is that they are unable to obtain 100% financing for some purchases, so they donít try. While it is less common confirms outsourced CFO, it is absolutely possible for businesses to obtain financing for hundred percent of their loan. Most of these loans will be for hard assets such as equipment to operate the business, vehicles and buildings. By knowing what financing options there are, and that they can get access to, allows business owners to be that much more knowledgeable when it comes to getting loans in their business.
The next myth that business owners should get educated on is thinking that interest rate is more important than amortization period. While itís important to consider both confirms outsourced CFO, itís often the amortization period that needs to be looked at over the interest rate. The reason for this is amortization period can more greatly affect cash flow. Even with a very low interest rate, and if the amortization period is very short, having to pay back that loan in a short period of time can be financially difficult for a business. Even if the interest rate is a little higher, a much longer amortization. Can increase the likelihood that a business will be able to pay that back over the longer period of time. By understanding that business owners canít just look at interest rates is an important distinction.
The next myth business owners believe is that leasing is a better option to financing. While experts agree that leasing can be a good secondary choice, business owners needs to be very prudent when considering leases. The reason for this says outsourced CFO, is lease rates may not be as advertised, or leasing companies can add financing charges to the lease rate which makes them much less attractive is they initially seem to. It is much more advantageous if business owners can obtain financing traditionally, and only considering leasing as an option if financing is no longer an option for an entrepreneur.
My understanding these three myths and the truth behind them, business owners can go into business, more fully aware of the different financing options available to them as well as make decisions on which options will be best for them. Whether itís amount of money to be financed, amortization periods, interest rates to name a few business owners can increase the odds of succeeding in business and not running out of cash.
