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Virtual Accountant | Increasing Cash Flow Using Financing
Running out of money business is a significant challenge for most business owners has virtual accountant. 50% of all entrepreneurs close their business within five years, and 29% of those failed business owners list running out of money as the reason why their business failed. This makes running out of money the second most common reason for businesses to fail in Canada, and business owners can use some strategies to help them avoid that. One strategy is using financing in order to help them increase their cash flow. The way it works is that a business owner will apply for financing in order to purchase assets, even if they have cash in their business. That way they can get the asset that they need in order to grow their business, while keeping cash in their business. The reason why this is so significant, is because business owners are far more able to qualify for asset loans then they are obtaining loans for operating capital.
In order for businesses to utilize this strategy, they often need to come up with creative ways to obtain loans, as their business ages they become able to secure loans from traditional lenders. When consulting with their virtuals accountant, business owners may hear about the Canada small business financing program. This is a program designed by the federal government to help small businesses qualify for loans. In order for businesses to qualify under this program, we must make less than $10 million in revenue per year. This means lots of small businesses meet this minimum threshold to qualify for the loan.
Business owners should understand that one of the benefits of this loan, is that the federal government is effectively guaranteeing the loan. If they have been turned down by a traditional bank, due to the bank believing thereís not enough security on the loan, this can significantly help. This loan can be a great option for businesses who have been turned down by their bank, businesses that donít have a great credit history due to being new, or entrepreneurs that need funding for more risky projects.
From the bankís perspective, there are disadvantages to this loan. Virtual accountant says that there is a lot of paperwork, that often falls outside of the banks typical scope of work. They also have to coordinate with the federal government, and these loans typically take more time than usual to process. Business owners should understand that smaller banks are usually more willing to work with entrepreneurs who are trying to qualify for this loan. The reason for that is because they are more able to work outside their bankís scope, and are able to do more in order to keep their businesses happy. Small banks and small credit unions are the best place for business owners to start.
Business owners who are planning for this loan, should be proactive and create a formal business plan in advance of the planning for this loan. There virtual accountant will be able to help them with this, to ensure that not only will they be able to qualify for the loan, but they have a plan in place to help them pay back the loan once itís approved.
The second most common reason for businesses to fail in Canada is running out of cash confirms virtual accountant. Half of all entrepreneurs end up closing their business within five years, and 29% of those entrepreneurs say the reason they close their business was because they ran out of money. Business owners can use several strategies to combat this problem, and as Robert Kiyosaki, the author of Rich dad poor dad is famous for saying in his book, ìgood debt is a powerful tool, but bad debt can kill youì. By utilizing that as a tool to help increase cash flow, business owners can finance asset purchases in their business, in order to help keep cash in businesses bank account in order to help operate their business.
Many business owners often wonder how they can use this strategy if they are no longer able to get financing through their bank. If business owners can work closely with their virtuals accountant, they can look at all of the various nontraditional funding options available including government financing such as the Canada small business financing program. Business owners who use this program, are able to qualify for loans that they previously worked able to, because the federal government to ask as their guarantor. This is great news for businesses that need assets in their business as well as increase cash flow.
While this loan is not limitless, the limits on what businesses can be approved for is quite significant. Getting business owners up to $350,000 to purchase assets and leaseholder improvements. Business owners can secure even more, up to $1 million for real estate, or a combination of assets, leaseholder improvements and real estate. Itís up to the business owner working with their virtual accountant to figure out how much money they would like to be financed for, and for what combination.
Just like regular loans, thereís going to be interest charges on this loan as well as application fees. Many business owners may fear that nontraditional loan like this would come with extremely high interest rate, and while itís not superlow, business owners should be relieved to hear that the Canada small business finance loan comes with an extremely midrange commercial low rate. Itís a set rate that includes prime plus 3% to make rate that is currently sitting at 6.5%. In addition to that, business owners can expect a loan application fee that is charged in the first year only to help pay for processing and qualifying for the loan.
By working with their virtual accountant, business owners can explore nontraditional options for how to get financing in their business to help them increase cash flow in their business and avoid the reason that so many business owners fail.