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How Financing Can Benefit a Growing Business

Does your company buzz? You might think that you do not need to go into debt and let the good times pass. However, times can change quickly and whether you are focused on growth or maintaining a steady and steady business, healthy working capital is critical to continued success.

Even better times may be possible if you get long-term, low-cost financing. Like all things in business, everything is a matter of economics. The labyrinth of debt options is daunting, but focusing on low-payout loans will simplify this journey to a safer financial future.

Some of the key questions are: "Can you get a loan at a lower cost than your current debt?" In addition, "Can you buy key equipment, increase the hiring? or marketing and increase your turnover? an additional working capital helps you improve your operations so that your growth accelerates? "

If the answer is yes, and that is usually the case, the best way to do this is usually with a Small Business Administration Loan (SBA). The SBA is a government agency that promotes the success of the US economy by providing assistance – such as education, advice, and loans – to small businesses. After all, small businesses are the backbone of the US economy with 89.6% of US employers having fewer than 20 employees, according to the 2012 Census data.

The SBA's 7a Loan Program is its main form of assistance to small businesses, and it is widely regarded as the best loan available for a small entrepreneur. Through Program 7a, the SBA does not create its own loans, but instead guarantees loans from banks licensed by the SBA. By securing the majority of each loan, the SBA reduces the risk for the bank, allowing borrowers to access affordable capital, with reasonable monthly payments and low rates.

The low-cost capital of the SBA and its long repayment terms (typically between 5 and 25 years) make it an ideal way to inject low-cost funds into your business. This can help your small business in many ways while strengthening your bottom line and making your business healthier in the long run. Here is how SBA funding can help you:

Long-term cash flow

Take a quick look at your cash flow or cash flow into and out of your business. Here are some examples of how a loan used for cash flow could be a great benefit.

  • Seasonal businesses could make big profits during holidays or mainly in summer. Companies such as boat rentals, landscaping, roofing and retail often have peak seasons. The financing can serve as a cash bridge, allowing you to cope with expenses during the low season and prepare to climb and succeed during the high season.
  • Financing can help fund major construction that you may not have benefited from without additional funds. You can use the proceeds of your loan to buy equipment, increase your inventory and hire more employees for expansion or for larger projects.
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Providing a valuable working capital

Working capital is a measure of the short-term financial health of a business and is calculated by deducting current liabilities from current assets. The long term of an SBA loan helps small businesses stabilize their operations beyond the short term, effectively manage overhead, payroll and retain employees.

Purchase of equipment

The right equipment at the right time can help you grow and stay competitive in your business. Even with high incomes, you may need to expand your bar or buy this new boiler or generator to grow. Instead of putting this purchase on a credit card or using another expensive option, consider loans with the lowest rates and do not be tempted by short-term financing. You will get the equipment you need without spending money.

Repaying High Interest Debt

One of the biggest advantages of an SBA loan, especially if you have taken out an expensive online loan, is to reduce the cost of your debt capital. Are you currently making payments on a high interest rate debt? Taking more debt may seem crazy. It can be crazy smart if it reduces your current cost of debt.

Taking a low cost loan to pay off an expensive one is a great strategy for saving money. Refinancing an expensive debt levied on a short-term online lender can reduce your monthly payment by several thousand dollars, releasing considerable sums of money that can be allocated to your growth needs.

SBA loans against non-SBA loans

There are many online lenders offering short-term debt, probably a lot too much and it can get confusing. A typical offer of these lenders, depending on the credit strength of the borrower, would be a 36-month or 3-year loan at 18%. Assuming the balance is $ 150,000, a comparable SBA loan would be much longer, 10 years with a rate of interest of about 7%. Assuming the loan amounts are equal, the rate and term difference results in a lower monthly payment, $ 1,742 for the SBA loan, compared to a huge monthly payment of $ 5,423 with a typical non-bank online lender. This translates into estimated annual savings of the SBA loan of $ 44,174 in the first year alone.

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The conditions differ according to the credit quality of the companies, but the savings achieved by small businesses through an SBA loan compared to the plethora of online options represent substantial savings that could be reinvested directly into the business. # 39; company.

It's time to expand

Is there more growth potential for your business now? Adding additional merchandise or offering a new service can help attract customers or increase sales to existing customers. If you have a success strategy that relies on strengthening your offerings, a low-cost loan can help you.

Inventory of Boost

Is the demand for your product soaring around the holidays? Or do you have products coming out of the shelves in summer only? If your business is cyclical, you may find that your money is not quite enough to increase your inventory with peak demand. With an SBA loan, you can buy stocks to give your business a chance to capture those periods of high demand. Strategic and timely purchases keep you profitable during the high season with shelves full of products.

Marketing and Advertising

You can have the best service or the best product, but you have to spread the word. Marketing and advertising are often the first thing that reduces when a business owner looks at the budget and this can be fatal. Loan funds can be used to implement strategies to reach new customers. You can also use the loan product of a small business to hire an employee or even a part time contractor to help customers with their queries.

Loan obtained, start

Once you have determined that a loan for a small business is the right solution, determine how much you need to borrow to achieve your short and long-term goals. Your banker will need a clear idea of ​​your use of the loan product. Be specific about your needs and the use of funds at the time of funding and in the first year. The key here is that funding should be used to improve your business only, not your personal financial health. This long-term, business-driven perspective will motivate you to think about the operational and strategic needs of your business.

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Then find a lender you can trust and start with a bank. Examine the non-bank lender of the day you see online advertising and look for a trusted bank option first. Many small business owners are jumping banks and looking for solutions online. If you do, look for business transparency, excellent customer service and excellent reviews, but most importantly, look for partnerships with banks.

Check out sites like TrustPilot and make sure the company you work for has Better Business Bureau certification. Strive to get the lowest rates with the longest terms and do not be fooled by "teaser rates" or terms like "total cost of capital". There are many non-transparent lenders. The good news with an SBA loan is that you know you can trust a US government backed loan.

Finally, always know that credit is the key. The higher your credit score, the more likely you are to get a low cost loan when you need it.

Author: Leo Jacobo is Vice President at SmartBiz Loans. Leo is responsible for lending operations to banking partners as well as internal sales. SmartBiz Loans is an online lending platform and a banking technology platform. The company's sophisticated online software provides SBA's preferred lending partners with personalized, automated, underwriting and documentation support, making approval and financing quick and easy.