The Business Board

Posts Tagged ‘Business Loan’

Often, entrepreneurs ask how a business LOC should be used. In previous articles we have primarily focused on the different types of business lines of credit and how they can be used in conjunction with startup operations of a business. However, in this article, we will shift our focus on how a business line of credit is usually used in the course of business for company that has been established. Typically, business LOC and other revolving credit facilities are used to finance the ongoing inventory purchases, payroll, and other short term needs of a business. The long term acquisition of financing equipment, real estate, and other large purchases is typically complete through the acquisition of traditional business loans or SBA backed loans.

The use a business line of credit for the development of a business is most appropriate for businesses that are not overly capitally intensive. This includes professional practices or small businesses that do not require large equipment purposes. Again, a business LOC is a fantastic credit facility for those seeking to establish a small business because it gives you the flexibility needed to draw down principal balances as needed rather than having to take on a lump sum loan. Professional practices and other service related businesses can startup and survive using a line of credit because there are no goods changing hands. Unless you a retailing business or distribution business, you may want to investigate using a traditional business loan versus a business line of credit in order to launch the operations of your business.

Much like our discussion regarding unsecured business loans, this article will focus on business loans that are primarily secured by the cash flow of your business or your personal income. When looking for a business loan, it is imperative to understand how much of a business loan you can afford to undertake. This includes not only your current income, but also a projection of your anticipated income that will accrue through the use of debt proceeds. The most important aspect is to look at your current income. This is also the most important business metric that a bank or finance company will look at when determining whether or not you are a worthy credit risk. Actual income is far more important than expected income. With that said, you need to ask yourself some very important questions when determining the amount of debt you are seeking. These questions include, but are not limited to:

What is my current income?
Will my current income fluctuate?
How much do I anticipate that I will earn once I use the proceeds of the business loan?
If this business does not work out, can I afford to continue to pay off the loan given my current income?

One of easier ways of becoming an entrepreneur is to acquire a business that has already been established by someone else. The risks related to acquiring a business are significantly lower than starting a business from scratch. Established businesses already have customers, an operating history, and hopefully profits as well. Additionally, obtaining a business loan for the acquisition of a business (while more paperwork) is usually easier than obtaining financing for a startup. This primarily due to the fact, again, that the risks are lower.

The 7a SBA loan can be used for business acquisition purposes. As we have discussed before, the flexibility of this loan can allow you to finance varying parts of the acquisition differently. Prior to applying for a SBA guarantee, you should see if the business for sale has been preapproved for a SBA loan. If a business broker is involved then the broker may have acquired pre-approval from the SBA so that the transaction can happen more quickly. Additionally, a business broker will have generally assembled much of the paperwork required by the bank and the SBA in order to render both a lending and a guarantee decision.

From time to time, business owners that are selling their businesses will already have a business plan in place showcasing the necessary components of the business and the owner’s anticipation of how the business will grow over the next three to five years. This business plan is generally modified by the incoming owner based on the ideas that the new owner will implement once the business has been acquired.

The home-based online business in its most charming form promises pajama adorned attire in a private home office and full-time personal lives, and some days this may be the case; for those just embarking on the journey, considering working from home for the first time, or finding themselves unsuccessful starting off, here are some strategies provided by Chantelle Axford, owner of the successful online pet supply company, Peninsula Pet Supplies on how to operate a small business online from home.

Benefits

Online businesses definitely allow the freedom of ‘being your own boss’, and investing in a career that utilizes your strengths and personal interests.  Clients and customers work with you personally, which is a rewarding and personal connection hardly afforded in many other careers.  Even if profits aren’t within reach until the online business has been established for some time, an online business offers the best return on investment (time, money, dedication) and personal time outside of the home office.

Business Plan

Every business, even online, needs a business plan even if this won’t be a tangible document brought before a business loan board at the bank.  This is the very first step of a sustainable business.  Business plans evolve as the business evolves, so no plan should be absolutely carved in stone, but goals should be outlined.  Review and update the business plan accordingly.  Contact a business consultant to help you put together a business plan if you need assistance.