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Cheap Loans?

Small Business Loans

 

When most entrepreneurs begin the entire process of seeking a business loan, one of the first concerns that occupy their thoughts is the cost of the borrowed funds - namely the interest rate they will be charged.


As you know, just obtaining a lender to consider your company loan request is hard enough these days - but, to obtain someone to provide your business capital for a price that you feel is the most good for your operations is down right impossible.


Every single day I get requests from entrepreneurs (start-up or established business people) who wish to know where they can get a cheap business loan.


My response is always exactly the same - define cheap.


No loan is affordable but on the other side no loan is pricey either - if it's offer proper use.


The main difference between a few percentage points on the loan isn't any t nearly as meaningful as what's completed with the loan proceeds. Loans should be a leveraging asset - and therefore you leverage current income to acquire a loan then use that loan to generate more in new revenue compared to loan costs.


Thus, a loan is only an asset for use with a business in the operation or mission to generate more income and wealth.


Let us take an easy example:


You and also another local competitor have identified a market niche that could potentially create new uses for your current products. While this marketplace is yet unproven, you both believe that it has tremendous potential.


You go to your lender seeking a business loan for $100,000 for three years. The lender agrees and quotes an interest rate of 10%; making your monthly loan payment approximately $3,227.


You are feeling that this rate is excessive given the long relationship you have had with this lender and all sorts of money you have paid for them over the years. Plus, you spent a couple of hours online researching that the average business loan rates are around 8%.


Your lender states that he may be capable of getting your rate reduced to 8% but you will have to hold back until their next loan committee in two weeks to have it approved.


At 8%, you monthly amount borrowed would be approximately $3,134 - a $93 per month savings or $3,351 within the lifetime of the borrowed funds within the 10% rate for the same amount.


In the mean time, your competitor would go to exactly the same lender and gets to be a loan quote for the same amount in the 10% rate. Your competitor takes the offer.


By the time the loan committee approves your 8% rate - your competitor has already executed its marketing plan for this new market, has created demand for its products and is now generating an additional $10,000 per month in new revenue from this niche.


Once your loan is funded, you are trying to complete your marketing plan but find that you are a bit past too far as well as your business is only able to generate $4,000 monthly in revenue (your products is viewed as a copy cat to the new market leader - your competitor).


Although this new revenue pays for the borrowed funds - the new revenue generated for the business is still some $6,000 monthly lower than your competitor.


Let's consider the main difference. Over three years, the quantity you need to repay for the loan is $112,811 ($3,134 times Three years). Your company brings in $4,000 per month for all those same Three years and also you earn $144,000 having a net gain of $31,189.


Your competitor spends more on his loan - $116.162 - but earns some $360,000 or net profits of $243,838 or 782% greater than your business all because you wanted an inexpensive loan.


The bottom line here's that the price of the loan really didn't matter here. The cost that the business paid for not getting into this niche before your competitor is much higher (a loss of revenue of some $6,000 per month in revenue) then the $93 monthly you saved.


If you compare his rate of 10% to the profit he made of some $6,773 monthly ($10,000 - the monthly payment) - his loan actually was the cheaper one.


And, it really doesn't matter should you actually had a competitor attempting to beat you to the market. It comes with an opportunity cost of not implementing a business loan or by not receiving it when the time is right.


Even if you were just delayed a couple weeks while fighting for a lower rate - the quantity of income that you simply lose by waiting (a sum that you could never make up as time does not go backwards) would exceed the number you were attempting to save - in this case, (if you was without a competitor beat you to the niche) waiting fourteen days would cost about $5,000 in new revenue while you were only getting a savings of $3,351 at the lower interest rate.


Now, I am not saying that you ought to not test to obtain a better deal or lower interest rate but, ensure that in so doing you aren't quitting more then you're attempting to save.


Thus, while you squabbled over a few percentage points looking for that what are known as cheap business loan, the price you taken care of not getting your loan on time by far exceeded any potential savings.

Term Loans

Last updated 979 days ago by termloans395