Wednesday, February 6, 2008

How Big Should Your Small Business Loan Be?

As big as it can get, would be the answer from most small businesses and entrepreneurs, especially those who want start a new small business with start up loans.

But applying for not less than adequate financing for your small business, or getting more than what you require, can have serious negative consequences.

Not having enough credit can cause a lot of problems, right from losing a substantial sale because you don't have the cash handy to buy the necessary materials to meet the order or even perhaps having to shut down the company because you can't pay your employees.

One way out of this mess is to apply for additional credit. But then the underlying risk here is that some credit sources will interpret this as inept management. They may ask why you weren't able to correctly forecast your needs in the first place. Or even worse, that you aren't fiscally responsible.

Getting more than required to meet your Small Business Financing need may seem like a good idea but it can lead to a cavalier attitude toward expense control. "If you've got it, spend it" is not a suitable motto for any company. And credit costs money, if you use credit to pay for expenses that you have adequate cash for, you incur unnecessary interest expenses.

So how do you know what level of small business loan is just right for your business? That's what cash flow projections are for.

Every business owner should sit down once a month and project their cash requirements for the next six months. For example: You may know that the summer months are your busiest months. Sales will double for the months of June, July, and August.

But since you offer 60 day payment terms to your customers, you won't see that cash starting to come in until August. And you've had to fund, somehow, the sales for June and July.

That's where a smart small business financing strategy comes in. You can use a revolving credit line to pay for your needed inventory in June and July and start paying the credit line back down in August, September and October.

The trick is you can't start looking around for a credit source in July. If you've done your cash flow projections you'll know what your requirements would be beforehand, giving you enough time to find the credit source you need, at the terms right for your business.

Credit, of course, can be used for emergencies such as repairing broken equipment or to paying a one time yearly expense and then you can spread the credit payments over the entire year.

It can also be used to help a company expand its operations.

Introducing a new product almost always take longer than anticipated. Reaching a new target market requires patience, time and money. There can be delays in regulatory approvals, getting a patent, acquiring licenses. Moving to a new facility may mean additional unbudgeted expenses.

A small business financing such as
Small Business Start Up Loans, used carefully, can help solve these situations and others. It can be a cushion against the unknown and a good financial management tool.

11 comments:

Gene S. said...

"As big as you can get!" when asking such a question about a business loan seems like it would be the most logical response, right? But it's important to think very carefully about what you can and cannot afford; if you borrow too much money it can be difficult to make your monthly payments, leaving you in a bigger financial hardship than the one you started in.

Anonymous said...

Need Payday Loans No Faxing! Visit Instant Payday Loans Online and apply for no faxing payday loans, no fax payday loans, No Fax Loans,No Faxing Loans,No Fax Cash Loans,cheap payday loans, cash advance loans for uk residents.

Anonymous said...

Apply for cash loans, same day cash, same day cash advances, instant cash loans today, cash advance payday loans and fast cash loans. Apply online easily and get your cash needs fulfilled.

Anonymous said...

Cash loans offer small funds for a short time period. Any type of borrower can take up cash loans and cope with emergency needs easily.
Visit:http://www.cashloanservices.co.uk

Rave said...

Cash loans are a speedy source that provides quick monetary assistance. They fulfill your short term financial needs easily.The approval of cash loans is fast and simple because it doesn’t involves lengthy formalities like faxing of documents, credit check and paperwork.
Visit:http://quickcashloans.me.uk/

Anonymous said...

Payday loans are best financial help extended quickly. These are instant remedy that solves short term financial problems easily. payday loans don’t involve lengthy and time consuming formalities at all.
Visit: http://www.easyloans4uk.co.uk/

Anonymous said...

Emergency cash loan work as a saviour in any sort of financial crisis. Keeping all the factors in mind can help you in the long run.Emergency Cash loans configured to meet urgent financial requirements of the people suffering from shortage of funds.
Visit: http://www.emergency-cash-loans.net/

Anonymous said...

Cash advance payday loans are short term unsecured loans. These loans offer short term finances which are feasible enough to meet your urgent needs.
Visit: www.easycashadvancepaydayloans.com

Anonymous said...

When there some unexpected bill crops up or you want to avoid any late payments, a timely monetary help is all you need at that moment.Emergency cash advance loans are especial loans for such circumstances.
Visit: www.emergencycashloansonline.com/

Anonymous said...

At times, life brings several unexpected expenses with it. During such circumstances you should have funds to deal with such emergencies. If in case you do not have sufficient funds, then you can pay off all your unexpected expenses with Emergency loans from Emergency Cash Loans Online

Anonymous said...

If you need payday loans instantly then Instant-Payday-Loans-Online may be the right answer. Instant-Payday-Loans-Online is specialized in providing perfect finance solutions for times when you need a little extra cash for unexpected bills.