Business Loans – Catering To Enhance Your Business Capability
Your plan for starting your own business may be delayed lacking the sufficient funds for it. But, with the provision of business loan, it is not that tough to foray into a business. Your plan can be converted into reality soon after the approval of the business loan. A simple click on internet opens for you, a wide range of options to make you efficient for your own venture.
You are never debarred for the business loan for either of the matter of credit record or collateral. Your approval much depends on the layout of your business presented by you. You can choose the either of the option of secured or unsecured to avail the loan. Secured loans are backed collateral that is placed by you. When you don’t wish or unable to place any collateral you can grab the amount through unsecured option.
The amount in a business loans depends upon the borrowers’ personal profile. It can vary with the way you go for it i.e. secured or unsecured. However the general range of amount that a business loans provide is
Business Loan: The Debt-to-Equity Ratio
Business financing or obtaining a needed business loan is not really rocket science on the part of banks, non-bank lenders or financial institutions. It is just a matter of realizing a return for the risks taken given their cost of money.
Sounds easy enough – but, what does it really mean. Banks and other lenders just want to get repaid and earn a reasonable profit. Just like you expect in your business – you want customers to pay for your goods and services. Lenders are no different and the principles are the same.
Banks have to get their inventory (cash to lend) from either depositors or investors (both of which add costs to the lender) – very similar to a manufacturer purchasing raw materials. However, when the manufacturer sells its finished product – the company expects to get paid (to cover both costs and profits) in a relatively short period (60 to 90 days).
Banks / lenders on the other hand could wait years (even decades for large commercial or real estate loans) before recouping their principle (costs) let alone their profit (interest and fees). Thus, banks and other lenders must work very hard to ensure the safety and soundness of the company requesting a loan (borrower) and to reasonably ensure themselves that they will be repaid.
Most lenders (banks and non-bank lenders) typically look for two items when assessing a business loan prospect. Is the business willing to repay the loan based on how it or its owner have repaid debts in the past (credit report) and can it repay; meaning does it have the cash flow (inside the business) to make the monthly payments and will this cash flow continue over the life of the loan.
But, as stated, while this is not rocket science – banks and other lenders tend to get quickly caught up in long-winded calculations in determining a borrower’s ability and willingness to repay. One such calculation is a business’s Debt-to-Equity ratio (sometimes called the Debt-to-Worth ratio).
David A. Duryee in his book “The Business Owners Guide to Achieving Financial Succe$$”, states about the debt-to-equity ratio “It is a basic financial principle that the more you rely on debt verse equity to finance your business, the more risk you face. Therefore, the higher the debt-to-equity ratio, the less safe your business.”
Here, equity could mean either outside equity injected into the company by investors, founders or owners, equity generated through the business from sustained profitable operations, or both.
In plain English, this has to do with the assets of the business. Most businesses have to purchase or generate some type of assets over time; be it equipment or property, intangibles or financial assets like cash and equivalents or accounts receivables.
Thus, if your business has financed these assets with a lot of debt – should your business not be able to pay, there would be many other debt holders in line to liquidate those assets to try and recoup their loses – making your new debt holder (the bank or lender) lower on the list and in a worse position to get repaid should your business default.
To clear this up a bit more, as Mr. Duryee states, think about this ratio in dollars; “If you apply a dollar sign to this ratio, a debt to equity ratio of 2.25 would mean that there is $2.25 in liabilities for every $1.00 of equity, or that creditors (banks and lenders) have a little over twice as much invested in the business as does the owners.”
To calculate your business’s Debt-to-Equity ratio, simply divide your total liabilities (both short-term and long-term) by equity – or visit the financial ratio calculator at Business Money Today and look for the Safety Ratio section.
Most bankers or lenders will not even consider a loan prospect with a debt-to-equity ratio over 3.00 times – but, some equipment or capital intensive industries may have higher ratio standards.
Know this, according to Kate Lister in an article with Entrepreneur magazine; the debt to worth ratio will show a lender how heavily financed your business is with other people’s money (not including investors’) and if your ratio is high, your business will be considered high risk or un-lendable.
To combat this, work to ensure your business’s debt-to-equity ratio is as low as possible should your business seek outside debt financing in the near term. You can either increase the amount of equity in your business (take on more investors, generate and retain more net profits, or infuse more in owners’ equity) or work to reduce your overall liabilities (paying off suppliers, other debtors or reducing any outstanding liability on the business’s balance sheet).
Lastly, not only will lenders review your current debt-to-equity ratio, but will attempt to measure it over time (that is why most bankers and/or lenders ask for three or more years of tax returns or financial statements). They not only want to see a low ratio today, but want to see this ratio trending downward over time. As your business’s debt-to-equity ratio trends down, the safer your business becomes when seeking a business loan.
Business Insurance – Key Facts Summary of Cover
Here in the UK, you have two options when looking for a business insurance quote. Firstly, you can speak to a broker or intermediary and secondly, you can go direct to the insurer.
The first option is one that everyone apart from the direct companies will always advocate as it gives you choice. You may get a quote via an insurance comparison site or through your bank, these are all types of intermediary because they are seeking information from you, in return for a quote.
When looking for a quote, you must, by law, receive certain information. You must receive this information either in hard copy or electronic format.
If you do not receive the following three things, then you have not received a legally binding quote and your broker or insurer has failed in their service to you.
Firstly, you need to receive a quotation document that identifies you, your address, what you do, the sums insured or limits of indemnity applicable and what type of cover is provided ie public liability, professional indemnity or a full commercial combined insurance package.
Secondly, you should receive a terms of business between the intermediary or insurer and you. This should contain details of what they will do, their charges and their Financial Services Authority regulation status. You must watch out for fees and charges. Some brokers will charge you up to £50 for a duplicate employers liability certificate, which only costs a pound or so to produce.
Lastly, a summary of cover. Any quote is based on a certain type of policy. If you accept the quote, then you will (within 30 days) receive a policy wording. At the quote stage, you will receive a simplified version of this policy in the form of a Key Facts document. This is intended to outline the cover provided and the major exclusions applicable. For example, a shop insurance key facts will outline that theft cover is included, but shoplifting is excluded. It is difficult at times when you are faced with an onslaught of paperwork, but you really do need to sit down and read through the documents.
It doesn’t matter whether you are looking for a small business insurance quote or you are a major multinational looking for a multi country commercial combined insurance, you will need to see these three things. They may not come as three separate documents but they should be easily identifiable.
Your insurance is more than important, it is vital. If you buy the wrong cover your business may suffer irreparable damage. Take the time to read through what you receive before agreeing to take out the policy. If you do not understand anything, speak to someone. This raises a final point that if you go to a comparison site, they only sell based on price. The cost to you, apart from the premium, is that in the event of needing clarification or just to discuss a quote, you are on your own. They do not usually have people available to talk to. This is one of the other benefits of speaking to a broker.