Are you a savvy borrower?
A love of accounting is probably not the primary reason most entrepreneurs decide to start a business, but most of us would agree that at least a basic understanding of good accounting and bookkeeping practices is an important part of running a business. Likewise, mastering the ins-and-outs of financing is important
[text background-color=”subtle-grey” max-component-width=”static” content=”%3Cp%3EA%20love%20of%20accounting%20is%20probably%20not%20the%20primary%20reason%20most%20entrepreneurs%20decide%20to%20start%20a%20business%2C%20but%20most%20of%20us%20would%20agree%20that%20at%20least%20a%20basic%20understanding%20of%20good%20accounting%20and%20bookkeeping%20practices%20is%20an%20important%20part%20of%20running%20a%20business.%20Likewise%2C%20mastering%20the%20ins-and-outs%20of%20financing%20is%20important%20if%20your%20business%20relies%20on%20borrowing%20to%20fuel%20growth%20or%20fund%20working%20capital%20needs.%3C%2Fp%3E%3Cp%3EAlthough%20there%20are%20more%20financing%20options%20available%20today%20than%20ever%20before%2C%20it%E2%80%99s%20important%20to%20understand%20some%20of%20the%20basics%20of%20small%20business%20borrowing%20so%20you%20can%20make%20informed%20decisions%20for%20your%20business.%3C%2Fp%3E%3Cp%3ERegardless%20of%20the%20particular%20loan%20or%20the%20particular%20lender%2C%20here%20are%20two%20things%20you%20need%20to%20consider%20when%20evaluating%20any%20financing%20options%3A%3C%2Fp%3E%3Ch3%20style%3D%22text-align%3A%20center%3B%22%3EHow%20much%20does%20the%20borrowed%20capital%20cost%3F%3C%2Fh3%3E%3Cp%3ELoan%20costs%20will%20vary%20from%20lender%20to%20lender%20and%2C%20depending%20upon%20the%20loan%20type%2C%20repayment%20terms%20can%20range%20from%20a%20few%20months%20to%20several%20years.%20All%20will%20impact%20the%20cost%20of%20the%20funds%20you%20borrow.%20As%20a%20rule%20of%20thumb%2C%20a%20shorter-term%20loan%20of%20six%20months%20will%20likely%20have%20a%20lower%20overall%20dollar%20cost%20than%20a%20loan%20of%20several%20years%2C%20but%20the%20periodic%20payments%20will%20be%20higher.%20It%20is%20therefore%20important%20to%20understand%20how%20the%20length%20of%20the%20loan%20term%20impacts%20overall%20cost%20and%20the%20size%20of%20the%20periodic%20payment.%3C%2Fp%3E%3Cp%3EMost%20of%20us%20are%20familiar%20with%20how%20to%20think%20about%20a%20mortgage%20or%20an%20auto%20loan.%20Determining%20the%20right%20fit%20for%20a%20business%20loan%2C%20however%2C%20is%20a%20little%20bit%20different%20and%20may%20be%20more%20complicated.%3C%2Fp%3E%3Cp%3EConsider%20the%20scenario%20where%20you%E2%80%99re%20borrowing%20to%20purchase%20inventory.%20The%20cost%20of%20borrowed%20money%20could%20potentially%20impact%20the%20profitability%20of%20the%20inventory%20you%E2%80%99re%20purchasing.%20For%20example%2C%20if%20you%20plan%20to%20turn%20over%20the%20inventory%20in%20a%20relatively%20short%20period%20of%20time%2C%20you%20may%20be%20better%20off%20paying%20less%20interest%20and%20a%20higher%20periodic%20payment%20over%20a%20few%20months%20rather%20than%20several%20years.%20More%20specifically%2C%20if%20the%20accumulated%20interest%20on%20%2410%2C000%20of%20inventory%20is%20%244%2C800%20on%20a%20loan%20with%20a%20term%20of%20four%20years%20and%20your%20margin%20is%2050%20per%20cent%20(or%20%245%2C000%20in%20profit)%2C%20that%20particular%20loan%20might%20not%20be%20a%20good%20fit%20if%20you%20can%20get%20the%20same%20%2410%2C000%20for%20%241%2C500%20in%20cost%20on%20a%20shorter-term%20loan.%20That%E2%80%99s%20why%2C%20in%20terms%20of%20a%20business%20loan%2C%20it%20makes%20sense%20to%20consider%20the%20total%20loan%20dollar%20cost%20when%20comparing%20one%20loan%20to%20another%20and%20assessing%20whether%20the%20loan%20fits%20the%20particular%20business%20use%20or%20need.%3C%2Fp%3E%3Cp%20style%3D%22text-align%3A%20left%3B%22%3E%C2%A0%3C%2Fp%3E” /]
[text header=”Do you have the cash flow to make the periodic payments?” background-color=”light” text-color=”white” content=”%3Cp%3EDetermining%20whether%20your%20business%20has%20the%20cash%20flow%20it%20will%20need%20to%20make%20the%20periodic%20payment%20is%20just%20as%20important%20as%20determining%20the%20total%20cost%20of%20the%20loan.%20This%20is%20why%20you%20need%20to%20consider%20the%20loan%20terms.%20Shorter-term%20loans%20will%20likely%20include%20a%20lower%20overall%20dollar%20cost%20of%20funds%20than%20a%20longer-term%20loan%2C%20but%20will%20usually%20include%20a%20higher%20periodic%20payment%20%E2%80%93which%20could%20become%20problematic%20for%20a%20business%20with%20unpredictable%20cash%20flow.%3C%2Fp%3E%3Cp%3EFor%20example%2C%20if%20most%20of%20your%20cash%20flow%20happens%20at%20the%20end%20of%20the%20month%20or%20on%20a%20quarterly%20basis%20when%20your%20customers%20pay%20larger%20invoice%20amounts%2C%20and%20that%20cash%20flow%20carries%20you%20through%20the%20following%20period%2C%20a%20short-term%20loan%20that%20requires%20daily%20or%20weekly%20direct%20debits%20from%20your%20business%20chequing%20account%20(a%20common%20practice%20by%20short-term%20lenders)%20might%20not%20be%20a%20good%20idea.%20On%20the%20other%20hand%2C%20if%20your%20business%20has%20a%20consistent%20influx%20of%20cash%20every%20day%20or%20every%20week%2C%20a%20short-term%20loan%20could%20be%20a%20good%20fit.%3C%2Fp%3E%3Cp%3EIn%20that%20regard%2C%20it%E2%80%99s%20important%20to%20understand%20the%20nature%20of%20your%20cash%20flow%2C%20as%20well%20as%20whether%20you%20have%20a%20positive%20balance%20when%20your%20loan%20payments%20are%20due.%3C%2Fp%3E” /]
[text header=”Understanding Business Loans” background-color=”subtle-grey” content=”%3Cp%3ELoan%20costs%20will%20vary%20from%20lender%20to%20lender%20and%2C%20depending%20upon%20the%20loan%20type%2C%20repayment%20terms%20can%20range%20from%20a%20few%20months%20to%20several%20years.%20All%20will%20impact%20the%20cost%20of%20the%20funds%20you%20borrow.%20As%20a%20rule%20of%20thumb%2C%20a%20shorter-term%20loan%20of%20six%20months%20will%20likely%20have%20a%20lower%20overall%20dollar%20cost%20than%20a%20loan%20of%20several%20years%2C%20but%20the%20periodic%20payments%20will%20be%20higher.%20It%20is%20therefore%20important%20to%20understand%20how%20the%20length%20of%20the%20loan%20term%20impacts%20overall%20cost%20and%20the%20size%20of%20the%20periodic%20payment.%3C%2Fp%3E%3Cp%3EMost%20of%20us%20are%20familiar%20with%20how%20to%20think%20about%20a%20mortgage%20or%20an%20auto%20loan.%20Determining%20the%20right%20fit%20for%20a%20business%20loan%2C%20however%2C%20is%20a%20little%20bit%20different%20and%20may%20be%20more%20complicated.%3C%2Fp%3E%3Cp%3EConsider%20the%20scenario%20where%20you%E2%80%99re%20borrowing%20to%20purchase%20inventory.%20The%20cost%20of%20borrowed%20money%20could%20potentially%20impact%20the%20profitability%20of%20the%20inventory%20you%E2%80%99re%20purchasing.%20For%20example%2C%20if%20you%20plan%20to%20turn%20over%20the%20inventory%20in%20a%20relatively%20short%20period%20of%20time%2C%20you%20may%20be%20better%20off%20paying%20less%20interest%20and%20a%20higher%20periodic%20payment%20over%20a%20few%20months%20rather%20than%20several%20years.%20More%20specifically%2C%20if%20the%20accumulated%20interest%20on%20%2410%2C000%20of%20inventory%20is%20%244%2C800%20on%20a%20loan%20with%20a%20term%20of%20four%20years%20and%20your%20margin%20is%2050%20per%20cent%20(or%20%245%2C000%20in%20profit)%2C%20that%20particular%20loan%20might%20not%20be%20a%20good%20fit%20if%20you%20can%20get%20the%20same%20%2410%2C000%20for%20%241%2C500%20in%20cost%20on%20a%20shorter-term%20loan.%20That%E2%80%99s%20why%2C%20in%20terms%20of%20a%20business%20loan%2C%20it%20makes%20sense%20to%20consider%20the%20total%20loan%20dollar%20cost%20when%20comparing%20one%20loan%20to%20another%20and%20assessing%20whether%20the%20loan%20fits%20the%20particular%20business%20use%20or%20need.%3C%2Fp%3E” /]