A blog post

Guide to Small Business Debt

Posted on the 19 June, 2018 at 12:19 pm Written by in General

debt

The Complete Guide to Small Business Debt

. . .  it takes money to make money

Debt financing provides business owners with the opportunity to invest in new equipment, additional employees, and pretty much any other operational necessity that arises.

It’s crucial to have a firm grasp on how your initial investment will improve your bottom line.

36 percent of U.S. small business owners who’ve borrowed funds are “very or somewhat” uncomfortable with their debt load, according to a Gallup Poll.  The poll also found that 49 percent of those small business owners say it’s “extremely difficult” to pay down their current debt. Next-

  • the different types of business debt,
  • how to conduct an ROI analysis,
  • the concept of good debt,
  • prepayment penalties,
  • how to pay off business debt.

 

Common types of small business debt

  • SBA loans and grants from the U.S Small Business Administration (https://www.sba.gov/funding-programs/loans) provide various government-based loan types that include general loans, disaster loans, microloans, and real estate and equipment loans. The Annual Percentage Rate (APR) is often among the lowest available. For example, a general small business loan has an APR between 6.5 percent and 8.5 percent as of June 2017,  but SBA loans can be difficult to obtain.
  • Small business term loans are repaid, with interest, over a specified time period. Approvals can be fast and may not require collateral. But you could face a relatively short repayment term (say, 36 months or less). As is often the case, your APR can vary, depending on the lender, the amount borrowed, and so on.
  • Small business lines of credit differ from loans. With a line of credit, you’re approved for a specific dollar amount, which you draw from as needed. A loan, by comparison, is for a lump sum up front. Another advantage to a line of credit is that you only pay interest on what you’ve borrowed. The APR can fluctuate, however, while a loan’s APR is usually set, and rates may be higher than a term loan’s rate. Also, you may pay a small fee, such as 1 percent to 3 percent, whenever you borrow from the line.
  • Small business credit cards are a popular way to buy now, pay later. As with consumer credit cards, small business credit cards are available from a variety of financial institutions. Some cards offer cash-back rewards, others give you travel perks, and so on. It helps to shop around and compare cards.

 

     Stay tuned for the next installement-

Conducting an ROI analysis of the growth opportunity can help you decide if    more debt makes sense now