Manage the balance.Your business plan is working and your company is growing. Now you realize that the second most important ingredient to fueling growth is raising capital. As a small business owner, here are some ways to manage your borrowing costs and obtain more loan funds. Some of the more obvious assets you have may include your company's cash flow, personal credit cards and your individual retirement account. In addition, you may also be able to borrow on the strength of your character, management experience and customer contracts. The best way to cultivate a relationship with your local bank is to establish a rapport before you need money. That includes maintaining balances in your accounts, not overdrawing your checking account and not using uncollected funds Uncollected funds The amount of bank deposits in the form of checks that have not yet been paid by the banks on which the checks are drawn. uncollected funds . Credit card loans are unsecured by the typical interest rate is 18%. Your checking account may help you get a bank overdraft line of up to $10,000. This line of credit allows you to issue checks for more than you have on deposit up to an agreed amount. Initially, consider looking to friends and family members for loans. Loans from this group may carry a lower interest rate than commercial loans or no interest at all. Next look to banks and finance companies. The small business community is the fasted growing segment of the financial market today. Nearly one-half of outside financing for small business comes from commercial banks. Finance companies and banks usually require personal guarantees and collateral. A source of collateral for a loan is your home. The approval rate for a home equity loan is much higher than for the average business loan because of its lower risk to the lending institution Noun 1. lending institution - a financial institution that makes loans financial institution, financial organisation, financial organization - an institution (public or private) that collects funds (from the public or other institutions) and invests them in . If you can't repay the loan, the lender of a home equity loan could foreclose fore·close v. fore·closed, fore·clos·ing, fore·clos·es v.tr. 1. a. To deprive (a mortgagor) of the right to redeem mortgaged property, as when payments have not been made. b. on your house. Interest on a home equity loan is tax deductible That which may be taken away or subtracted. In taxation, an item that may be subtracted from gross income or adjusted gross income in determining taxable income (e.g., interest expenses, charitable contributions, certain taxes). . Although most of the loans are made by banks, rather than directly form the government agency, up to 85% of a loan is guaranteed by the Federal or State government. It is worth investigating the LOWDOC program, which is sponsored by the U.S. SBA SBA abbr. Small Business Administration Noun 1. SBA - an independent agency of the United States government that protects the interests of small businesses and ensures that they receive a fair share of government and offers a simple quick approach to borrowing. Recently there has been a surge in independent finance companies formed to provide asset-based loan An asset-based loan is a loan, often for a short term, secured by a company's assets. Real estate, A/R, inventory, and equipment are typical assets used to back the loan. The loan may be backed by a single category of assets or some combination of assets, for instance, a and factoring to small companies. Asset-based lenders essentially make loans against accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , inventory or equipment that the lender can liquidate To pay and settle the amount of a debt; to convert assets to cash; to aggregate the assets of an insolvent enterprise and calculate its liabilities in order to settle with the debtors and the creditors and apportion the remaining assets, if any, among the stockholders or owners of the in the event of a default. For example, an asset-based lender generally extends up to 80% of non-delinquent accounts receivable and interest rates range from 14% to 50%. In summary, loans are based on character, managerial experience and collateral. Loans cost money, but look for the optimal combination of price and terms, to manage your borrowing costs wisely. Deanna Galbraith is an independent writer and business consultant based in North Hollywood. |
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