Navigating Short-Term Borrowings: A Guide for Small Business Owners
Chris Peden, CPA, CMA, CFM
I help small business owners grow their profits, cash flow and reduce their taxes by understanding their financials and creating an action plan to get there. Free Financial Assessment available (Link in “About” below).
Let’s dive into the world of short-term borrowings. It might sound a tad intimidating, but trust me, understanding this can be a game-changer for your business, as it has when my clients use it. Think of it as a financial toolkit to boost your business when you need it most.
Mapping Out Your Borrowing Needs
First things first, when you're thinking of borrowing money, figure out where you need it, how much you need, and for how long. Here’s a pro tip: always aim for a tad more than what you think you'll need. Unexpected expenses have a way of popping up, right?
The Many Faces of Short-Term Financing
Short-term financing? It’s like your business’s quick fix. Whether it’s trade credit, personal savings, bank loans, or even a loan from Aunt Sally, there's something for everyone. Now, if your business is a bit on the risky side, lenders might ask for some collateral—like inventory or even real estate—to secure the loan. It’s their safety net, after all.
Trade Credit: Your Business’s Best Buddy
You know what’s awesome? Trade credit. It's like buying now and paying later, without the hefty interest. Suppliers and equipment makers might be more willing to offer this because, well, they want your business. Just a heads up, though: don’t push it too far, or you might sour the relationship.
Personal Touch: Using Your Assets
Using personal assets like your home or life insurance can be a quick way to get cash. It's fast, and you don't give away any ownership of your business. But tread carefully; if things go south, you risk losing your personal savings or even your home.
Friends, Family, and Financing
Turning to loved ones might seem like a no-brainer: it’s quick, less hassle, and often cheaper. But mixing business with family or friends can sometimes lead to sticky situations. Clear terms and open communication are key!
领英推荐
Banking on Banks
Ah, banks. They can be your best friend or a tough nut to crack. If you’re just starting out, banks will look closely at your business plan, growth prospects, and even your character. Having a solid relationship with your bank can open doors to various loan types tailored to your needs. From passbook loans to lines of credit, each has its perks and pitfalls. Choose wisely!
When Banks Say No: Exploring Other Avenues
If traditional banks turn you down, don't lose heart. Commercial finance companies or even the U.S. Small Business Administration might be options worth exploring. Just remember, higher risks often mean higher interest rates.
Leasing: Renting vs. Owning
Leasing can be a tempting option, especially if you need equipment without the upfront costs. But, over time, those lease payments can add up, often costing more than buying the item outright. Do the math and weigh your options.
Local Love: Credit Unions and Development Companies
Don’t overlook credit unions or community development companies. They often support local businesses and might offer terms more favorable than traditional banks. Plus, they’re a great way to give back to your community!
In the world of short-term borrowings, the key takeaway is know your options, understand the terms, and always, always have a plan for repayment. After all, the goal isn’t just to borrow—it’s to grow, thrive, and make your business dreams a reality.
If you are looking for ways to double the profits and cash you earn from your business, I have a program that can help you do that.? I have developed this through years of experience and training as a CPA, management accountant, and financial manager.? You can check it out here: