Properly Funding your Business

Starting or expanding a business can be very expensive and may involve you considering borrowing the money to do so. While it may seem like a good idea to do it, to help you generate more business, more turnover and ideally more profit, it is important to make sure that you fully understand the benefits and consequences of actually doing so. There is little point generating an extra 10,000 dollars of profit each month, if it is costing you an extra 12,000, by the time you include the loan repayment, on top of the other incurred costs.

Make sure you have everything planned out

Whether you are starting a company, or expanding an existing one, it is not enough to just go ahead based on the idea that you can do great things, if only you had a little extra cash to throw at the problem. It is important that you prepare a fully structured business plan or model, where you can identify exactly what your operating costs are going to be, what your product or service is worth, and how much profit your activity is going to generate. This should be easier if you are growing an existing firm, but it is vitally important to understand that as a company grows, so do its costs. Your business funding document needs to cover everything, right down to the last small items.

Know how much you need to borrow

It is important to make sure you know exactly how much you are going to need. Borrow too much and you are paying too much interest unnecessarily. Borrow too little and you can leave yourself with cash flow problems, which can cripple your business. Once you know how much you need, you need to understand and be comfortable with exactly how much it is going to involve you paying back. A longer term loan with good rates, might seem quite attractive, though do not forget, that the longer the term the loan is over, the longer you will be paying interest. You can easily end up paying more back in the end, than a shorter term loan, with slightly higher repayments.

Getting the right interest rate on your loan

It is definitely worth shopping around to see what interest rates you can find. If you are consolidating loans, make sure your new rate is going to be lower than the ones you are consolidating, or you can find yourself paying out even more each month and not helping yourself. Beware of suspiciously low rates that may be offered, as they may well have a sting in the tail, and never enter into a loan contract until you have seen exactly what the rates and repayments are, and they have been clearly laid out for you in writing.

An Internet search will undoubtedly provide you with many organisations that are ready to lend you money. In Australia, credit providers and brokers must be licensed, and It is extremely unwise to do business with any company that isn’t. Aside from the interest rate, make sure all fees and charges are clearly laid out, and understand exactly what penalties you may face for a late or missed payment, or if you wish to repay the loan early.