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What if I have to Borrow Money to Fund My Business?
Home » Entrepreneurship » Launching a New Business » What if I have to Borrow Money to Fund My Business?What if I have to Borrow Money?
After you have determined that you will need to borrow the necessary funds to finance your business, it is important to decide which type of loan best suits your needs. There are several options available:
A Term Loan refers to any loan with a maturity of greater than one year and a monthly payment paid by the company’s excess cash flow. You can budget the amount of money available for debt repayment projecting future cash flow for a two to five year period.
A Seasonal Line of Credit is used to finance short term cash shortages in the normal course of business. There should be a direct relationship between fluctuations of inventory and/or receivables and the amount a new business owner should be borrowing. To decide how much to borrow, you will need to provide the bank monthly or quarterly financial statements and any other information helpful in determining seasonal trends.
A Non-Seasonal Line of Credit can be used if the need is short-term, recurrent in nature, and if there is a reliable source of repayment. Usually, this type of lending is limited to certain types of businesses, such as finance companies, real estate mortgage companies, large construction companies and utility companies. Because of risk involved in non-seasonal lines, the borrower generally must be financially strong.
A Revolving Line of Credit allows you to borrow against a predetermined maximum amount over a stated period of time.
To be successful in obtaining a loan, you must be prepared and organized. You must know exactly how much money you need, why you need it, and how you will pay it back. You must be able to convince your lender that you are a good credit risk.
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