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Outsourced CFO | understanding business loans
Entrepreneurs are often very knowledgeable about the business that they are operating, however some of them are not as knowledgeable about finances as they could be says outsourced CFO. By helping businesses understand the finances and their business, entrepreneurs can vastly increase their chances of success. Since 50% of all businesses went out of business within five years, and 29% of those businesses say they failed because they ran out of cash, helping business owners understand finances can be a huge help to them.
Understanding the difference between good debt and bad debt is key to success, many business owners who are successful in getting a loans have a hard time paying it once they get it. By knowing what types of loans they should be getting, and making good decisions about interest rates and amortization periods, as is owners can make great informed decisions to help them succeed says outsourced CFO.
Often business owners are afraid of debt, thinking the only debt is bad debt and opt to lease hard assets instead of finance them. Business owners need to know if leasing or financing is the best option for them. Outsourced CFO says that while leasing hard assets can be an okay secondary choice, a better option for business owners is often financing through loans. Business owners should look for loan opportunities early on in their business, look to finance hard assets, and try to get approved for 100% financing.
Understanding amortization periods of loans is important to making a decision on which loan terms are best for them. Outsourced CFO recommends a longer amortization period. Even if the interest rate is slightly higher. The reason for this is because even a longer amortization. A slightly higher interest can free up cash flow in the early part of entrepreneurs business life. A longer amortization will allow the business owner a longer time to pay the loan back, resulting in increased chance of success. Short amortization is less desirable because that will require the loan being paid back sooner than may be viable for the business owner. So by helping a business owner understand the differences between amortization and interest rate can help them make a better decision. Without this knowledge an entrepreneur may have decided to go with a very short amortization. Because interstate was very, very low, which would result in a cash crunch for the business owner when itís time to pay the loan back.
Entrepreneurs will also want to do their best to get financing for hard assets rather than operating capital. The reason for this is that it is easier for banks to approve hard assets over operating capital. The business owner is more likely to be approved for a loan if their application is for hard assets such as equipment, buildings or vehicles. By knowing what a bank is more likely to approve for loan, will increase the entrepreneurs chances of getting that loan. By getting financing for their assets, allows business owners to keep their money for operating expenses.
Outsourced CFO | understanding business loans
One of the biggest mistakes businesses make when going to apply for business loans is not fully understanding how much time it takes to prove them says outsourced CFO. One of the reasons entrepreneurs say that loans were unsuccessful in helping them was they were not able to get the loan as fast enough as they needed for their business. This is simply a case of business owners understanding the process and is very easily remedied. Most business owners who are new in business have never experienced obtaining a business loan before, but have lots of experience with personal loans. They assume experience will be the same, and it is not. There are some important things to remember when applying for business loans.
In addition to understanding the processing time difference for business loans compared to personal loans, business owners should be strategic when applying for loans and applying to more than one lender simultaneously. The length of time it takes for banks to process loan applications, it may be devastating to a business owner to have gone to the entire process, only to find out that their loan is not approved and they have to start the process all over again. If even more than just one bank does not approve the loan, it can be devastating to business owner. Outsourced CFO recommends business owners pursue more than one lender simultaneously Norton to maximize their chances of success.
Something that can also add to the timeline is knowing that the banks may come back and ask for more information. Some of the additional information banks may require can be formal appraisals or environmental assessments. If the bank requires an environmental assessment or formal appraisal be done on the business, that process can, and often does take longer than 30 days, which only adds to the already lengthy timeline. If business owners aware of this and budget their time accordingly they can avoid running out of time when applying for loans.
Whenever possible entrepreneurs should aim to work with banks that are willing to work with them. Great bankers will be problem solvers for the entrepreneur. Meaning various banks will have different risk tolerances when deciding to loan to entrepreneurs. A great banker will let business owners know which parts of their application need to be changed or adjusted in order to fit the banks requirements. Having a banker that is willing to work with entrepreneurs is huge asset to the entrepreneurís their business success.
By knowing how banks work in deciding business loans, entrepreneurs can be armed with knowledge when they decide they need to approach banks for business loans says outsourced CFO. And getting their loans in a timely manner can make all the difference to the success of an entrepreneur in their business decreasing the chances that they will run out of cash and have to close their business.
