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Outsourced CFO | how to get business loans
Many business owners donít understand the difference between good debt and bad debt says outsourced CFO. Robert Piasecki author of Rich dad poor dad reminds us that good debt is a powerful tool, but bad debt can kill you. By understanding the differences of business loans, business owners can make better financial decisions, and decide whether the debt they are about to incur is good debt that can help them, or bad debt that can harm them. Since 50% of all businesses fail within five years, increasing the odds of success often includes increasing financial literacy of business owners. By understanding what they need to know in order to qualify for a loan, can help business owners make these decisions.
Many business owners often think that loans are bad, therefore they opt for leases and their business instead. Outsourced CFO says understand the difference between leases and loans to help business owners decide what is a better risk. Some leases may be a good secondary choice to loans, however loans should be the primary choice whenever possible. Itís also often possible to get 100% financing for some purchases. If the business owner is considering a lease, it is usually for hard assets, and a business owner would be in a better position to get 100% financing for hard assets rather than leasing. If the business owner decides to pursue leasing over financing, the CFO just recommends that business owners become aware of the lease rates. Sometimes the lease rates for leasing are greater than the advertised rate, or leasing companies and in a financing charge which drives the lease rates up.
Financing hard assets is also a lot easier than financing operating capital. A business owner may want to optimize the amount of money they have, by getting as much financing for assets as they possibly can, especially as early in their business as possible. The reason for this is because itís easier to qualify for loans for hard assets therefore so business owner may in a better position to get financing sooner for more things, and then use the cash that they have as their operating capital. Business owners will also want to take into consideration that it is easier to qualify for loans early on in their business, since most businesses are at risk of cash crunch the longer they are in operation, it is lower risk to banks to finance assets early on says outsourced CFO.
Business owners will also want to familiarize themselves with amortization periods. Often this is more important than even the interest rate. The reason for this is amortization periods can affect cash flow. As shorter amortization will cause the business to need to pay back the loan sooner. If a business owner has a loan with a 20 year amortization period, having to pay that loan back in such a long amount of time will enable them to free up cash flow in their business a lot easier says outsourced CFO. This is why length of the loan can be more important than the interest rate. A business owner needs to take both variables into consideration when making their decision.
Outsourced CFO | how to get business loans
Increasing the odds for success in business includes educating business owners and financial literacy says outsourced CFO. Part of this financial literacy is understanding how to qualify and obtain business loans. Many business owners are not able to qualify for a loan and if they are able to get a loan they canít qualify for fast enough, or pay it back.
Qualifying for a loan can sometimes mean the difference between two different banks. Good banks to get loans through will the great problem solvers. Every bank has its own internal policy on the types of businesses they will lend to, and different risk tolerances. Bankers therefore have rules they must satisfy in order for the bank to approve the loan days outsourced CFO. A good banker will let business owners know if there loan does not satisfy the banks rules, and will tell business owners what they can change and their application in order to better satisfy the banks. Finding a good bank will let the applicant know the information that needs to be changed make a world of difference been a banker who merely tells the entrepreneur that the loan is denied. Whenever possible entrepreneurs should work with banks who have proactive thinkers like that.
Something else business owners should take into consideration when they apply for a loan, is the length of time it requires to get approved. A business loan is significantly different than a personal loan, often taking 60 days to close. In addition, banks may come back part way through the process and request additional information such as formal appraisals or environmental assessments says outsourced CFO. Because these reports themselves take time to complete, sometimes as long as 30 days, business owners need to be prepared and have applied for the loan 60 to 90 days before they need the money. By hoping theyíll be able to get the money and less time is setting their business up for disaster.
New entrepreneurs will also want to take into consideration that it will be easier for them to qualify for loans earlier on in their business, rather than later. Most businesses have the potential for cash crunch, which means the longer a business and is in operation, the more risk they are to a bank. It is infinitely easier to qualify for loans early on in the process. Knowing this, business owners also should take into consideration that itís easier to finance hard assets as well. If the business owner is able to secure as much financing upfront for assets as possible, they can use other money for their operating capital.
By utilizing this knowledge, business owners can be sure that they are making the best financial decision for their business, and using their debt as a powerful tool. Outsourced CFO reminds business owners that being armed with knowledge is the key to success.