Very often our clients come to us and request analysis of their monthly capital costs to see if we can reduce monthly expenses and carry costs. Entrepreneurs almost always are short on cash and on lookout for additional business funding sources. Company, growth, business development, marketing expenses, equipment purchases and new employee hiring all adds up. WeCanFinancial.ca and our team of small business loan professionals and corporate financiers have financed hundreds of businesses. They have also followed up and advised on how to make our client’s businesses leaner and meaner. This article will concentrate on techniques on how to cut more fat out of the business and direct resources in the most profitable business manner possible.
Small business loans and operating lines are great sources of small and medium sized business funding.
Once entrepreneur comes to us for advice, we normally try our best to provide business owners with as much unsecured and also secured funding as possible. In order to allow capital for growth but also not to overload the cash flow. A properly prepared business plan and financial plan is always nice to have. Budgeting is also a key portion of daily and monthly office duties and we try to teach our clients/business owners on how to budget properly. Nevertheless, even when we provided as much capital as possible from institutional sources and very often from private sources as well, our clients sometimes come back to us and ask for help on how to reduce monthly loan carrying costs. This could be because of incorrect planning of the use of funds from a small business loan, weaker marketing response, stale inventory, or slow receivable repayments. Our knowledgeable associates, dig deep into a situation and try to work out the most reasonable solution available.
Normally when small business loan is already placed, and personal credit for the client is tapped out, the easiest way to reduce monthly interest carrying costs is to refinance portion of the small business loan through real estate equity, if entrepreneur owns real estate of course. Real estate financing is much cheaper on A side, than unsecured business financing, such as small business loan. For example, for $250k small business loan monthly payment of principal and interest would be approximately $4,600. Now if the business owners having tough times keeping up with the payment, ability to refinance this payment into real estate equity might be a very good way to temporarily reduce monthly business carrying costs. Even if we take real estate re-fi at prime rate, with amortization of 30 years, the same $250,000.00 real estate loan monthly payment would be close to $1,050.00, which is 3 times less than the small business loan payment.
The main 2 reasons why real estate loan is so much cheaper are:
a) real estate financing is normally done close to prime rate, if the source of funds is institutional.
b) Amortization on real estate loans normally between 20 and 30 years, weather maximum amortization on small business loans is 5 and very rarely 7 years.
Most entrepreneurs who we guide through obtaining small business loan financing, or any other commercial financing, are asking for amortization that is as long as possible, specifically to reduce monthly payment amounts. Banks are very smart when it comes to business financing, and they normally work out approximate life span of business assets, and place that life span into amortization. This is a risk management strategy that most small business loan lenders use in order to avoid holding the back when business lost value in its assets due to amortization and usage. Therefore getting longer amortization then 5 or 7 years for small business loans, and for most other commercial unsecured loans, is next to impossible.
WeCanFinancial.ca advise our clients through hundreds of transactions where small business loan or commercial loan fuelled the growth and development of the business, and where the costs were needed to be timed out, due to many factors. Our knowledgeable associates are well positioned to serve all segments of economy, and will provide full comprehensive package for financing to go through as smoothly as possible.
Happy Financing Everyone!