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If you’re a small business looking for funds, get well-acquainted with your town’s community bank, or credit union (if it’s skilled in small business matters).
Institutions are permitted to exclude their cash balances as they determine how much money to keep on hand in reserve.
At issue for me was the over-regulation in the wake of the Great Recession, which hurt small banks. This now means financial institutions are allowed to operate at higher limits in lending to provide more capital to small businesses.
Small business owners faced unnecessary financial risks because they increasingly seek debt consolidation and loan refinancing as the result of high interest rates and onerous fees.
If you’re a small business looking for funds, get well-acquainted with your town’s community bank, or credit union (if it’s skilled in small business matters).
Due diligence
Borrowers should ignore advertised rates and to calculate the true cost of loans.
Small business owners sometimes blindly enter into loan agreements with fixed interest payments and poor terms. Since most merchant cash advances and small business loans charge a fixed amount of interest and can include prepay penalties, many of these businesses will be faced with effective interest rates well above triple digit percentages if they refinance.
Business owners should continue to pay on the original until paid off, and get another loan if more funding is needed.
Great Recession’s residual effects
The Great Recession was caused in part by the predatory behavior of small-business lenders. In How to Ease Debt-Collection Headaches, I explained how tight credit traumatized 360,000 businesses thanks to unscrupulous practices of lenders like the nation’s 15th largest credit card company, Advanta, headed by CEO Dennis Alter:
Advanta has been repeatedly accused of bilking countless customers with predatory interest rates at higher than 30 percent for dubious reasons, and abruptly cutting credit lines without warning to unsuspecting businesses long before the recession was acknowledged by economists. Little wonder about Advanta’s downfall. Its business customers couldn’t pay their credit card bills.
Advanta and others also wrecked the personal credit of entrepreneurs by requiring personal loan guarantees and Social Security numbers.
Recommendations
Here are six tips:
1. Make sure your business credit profile is accurate by requesting a copy from Experian, Equifax or Dunn & Bradstreet
2. Maximize your good credit accounts by working with businesses that report trade information
3. Positive payment history is a major component of a strong credit profile so be sure to pay creditors on time
4. Maintain sufficient cash reserves in your business checking account to increase your credit limit
5. Choose a business loan without prepayment penalties or fixed interest repayments
6. Compare loans and other financing options calculating the total borrowing costs (interest paid + fees + loan amount) in dollars and cents
In conclusion, get to know your nearest community bank or credit union, whatever is best for your situation. That’s my counsel.
From the Coach’s Corner, here are banking tips:
6 Best Practices to Capitalize on a Business Loan – Whether it’s a business loan, a cash advance against your credit-card income, equipment lease or purchase or commercial mortgage loan, don’t have stars in your eyes. Be pragmatic.
4 Best Practices to Refinance Your Business Loan – Would you benefit by refinancing your small business loan to get a better interest rate and lower loan payments? Certainly, you would benefit from a lower interest rate and loan payments if you have cash flow issues. But there other matters to consider before refinancing your loan.
5 Tips to Build Your Business Credit, Access Capital – Sometimes a business needs access to capital to grow. But in order to grow, it helps to build credit profiles to land financing.
Applying for Bank Loan? Here’s How to Shorten the Process — Business owners generally have two concerns when trying to get a bank loan or line of credit. Either they can’t qualify or they face scrutiny beyond belief. Wouldn’t it be great to save time and shorten the process?
Financial tips:
Primer for Best Practices in Preparing Financial Statements – A good financial system is vital for your business. Not only will a properly prepared financial statement tell you what’s transpired in your business, it will give you a snapshot regarding your future.
Budgeting Basics for a Micro Business – For entrepreneurs, often the most difficult part of launching a business is preparing financial projections. It may not be the most enjoyable task, but budgeting is imperative for maximizing performance.
Accounting / Finance – Why and How to Determine Your Break-Even Point – Uncertainty can kill hope in business. Best practices in management mean having the right information to alleviate uncertainty in business. For that you need the right tools.
“It’s easy to get a loan unless you need it.”
-Norman Ralph Augustine
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