Benefits of a Small Business Loan | Huntington Coast Capital, Inc.

Benefits of a Small Business Loan | Huntington Coast Capital, Inc.

 

Business Loans

 

Perhaps a friend or colleague has advised you to take out a loan for your small business, but you’re still in doubt. After all, you may not want to burden your business with debt. However, the following reasons may convince you to consider a small business loan.

 

1. Enjoy Flexibility

Loans for small businesses have varying terms and repayment periods that can suit your business needs. You can go for a long-term loan with an extended repayment duration or a short-term loan that has to be repaid after a short time. Your choice will depend on whether the loan is for personal, business, or mixed-use. In some cases, you can even apply for many types of loans.

 

2. Liability-Free

Generally, business borrowers do not need to have collateral or a specific revenue to apply for a loan. The lack of requirements is an advantage to a small business that just started and has limited income or no assets to put up as collateral. Hence, aspiring business owners can easily enter the corporate world quickly and get their businesses running.

 

3. Retain Full Ownership

When you get financing from investors or partnerships, you must relinquish a portion of the business. Although the arrangement may be helpful initially, problems may arise as the company expands. You have to consult partners on significant decisions and how the business operates, but a loan allows you to keep full ownership of your business.

 

4. Improve Business Credit

If you repay the loan on time, you will boost your business’s credit score. A good credit score makes it easier to get more loans at favorable terms in the future. For example, companies with good credit scores tend to get lower interest rates for their loans and can easily avoid accrued interest.

 

5. Access Funds Quickly 

Business expansion requires significant capital to hire new employees and operate the business. You can choose to wait for business profits to increase before reinvesting them. However, if you have projects that should start soon, you may take out a loan. The loan allows you to buy new equipment and finance new product development before your competitors do it first.

 

6. Take Advantage of Low-Interest Rates

Lenders often provide low-interest rates on business loans to get customers. As competition in the lending business becomes stiffer, business borrowers can negotiate for the best deals. Also, business loans are likely to come with lower interest rates than any personal loan. 

 

7. Nurture Relationships With a Specific Lender

When you nurture relationships with your lender, you increase your chances of getting a loan in the future. The lender will have worked with you and knows how you handle money. The next time you go to get a loan, you can always refer back to the previous loan that you repaid on time.

 

8. Overcome Liquidity Problems

Businesses require working capital to operate effectively. However, small businesses often face challenges that make it difficult to meet utilities and payroll requirements. Since these challenging times are temporary, the business can get through the hard times with the help of a small business loan.

 

9. Refinance Debt

If your business already has a loan, the mounting debt may interfere with your ability to pay bills and sustain business operations. A small business loan can help refinance your debt and give you time to pay off any loans. The new loan may have a lower monthly payment and interest rates.

 

10. Reduce Tax Payments

Sometimes, your tax obligations may be lower if you take out a small business loan. For example, you can claim deductibles on the interest you pay on loans. The best approach is to consult a tax expert to know how taking a loan can impact your taxes.

Taking a loan for your small business is easy if you use the right lender. Huntington Coast Capital provides lending solutions for small and medium businesses that need quick cash. Contact us for more information. 

Asset Based Loans – How To Figure The True Cost

Asset Based Loans – How To Figure The True Cost

Asset Based Loan

Understanding the cost of an asset based loan when contemplating the business loan options available in the marketplace is critical to making an informed decision. Most all business owners need capital from time to time to meet the needs of a growing business. They self-fund operations for as long as they can and if they hit their growth goals, they often require additional capital to get there.

The problem is that fast growing companies are often not profitable and have little in the way of retained earnings. This due to the fact that every dollar going in to the business is going back out to meet working capital needs. This is where asset based business loans are a dependable source of capital.

However, the analysis is much different. Your typical business loan is an SBA loan with a 10-year amortization and fixed monthly payments. This type of term loan is great for fixed costs and long term assets such as equipment, real estate, etc. But what if your needs are revolving in nature?

For example, our typical client comes to us because he has a big order that they can not fulfill on their own. Here’s a breakdown of a common scenario we secure funding for:

  • $1,000,000 loan request to cover the cost of goods and pay suppliers
  • The company has a 30% margin or can make $1,300,000 upon the sale to their customer (if they can get a hold of $1,000,000 to fulfill the order!)
  • They have a verifiable purchase order from their credit-worthy customer
  • They are expecting the total business cycle to be 60 days from the time of the order to shipment to the customer to being paid by the customer
  • Cost of the revolving credit (in this case purchase order financing, a form of asset based lending) is 2% of the loan amount per month
  • Simple equation: $1,000,000 x 4% equals $40,000 (cost of capital), $1,000,000 carrying a 30% margin equals $300,000 profit
  • Net profit on the transaction after the funding cost is $300,000 minus $40,000 or $260,000.

The question becomes, would you spend $40,000 to make $260,000? The answer for almost everyone is yes! As seen, figuring the cost of an asset based loan is much different than a typical business loan. The review consists mainly of looking at the return on capital versus “interest rate” which so many people are obsessed with.

We have actually had clients say that this cost of capital is “too expensive” on an annualized basis. If the business loan revolves every 60 days, the cost is $40,000 multiplied by 6 (60 days divided in to 360 days for the year) the cost is $240,000 in annualized capital cost. However, we need to remember the profit the company stands to make with this type of asset based loan. The net profit per turn was $260,000. If we multiply that by 6 we get $1,560,000 income on an annualized basis.

So, the question becomes, would you spend $240,000 to make $1,560,000? The answer is a resounding, YES, of course!

If your business could grow using a creative asset based business loan, we would like to hear from you and discuss the options.

To your success!

Patrick Zazueta | Huntington Coast Capital, Inc.
714-719-8966