Debt is indeed a great word to many small businesses not because lenders reluctance towards extending their credit but because of the effect it has on their purses. Experts say that incurring debt could be a wise decision for some small businesses if it occurs under the right conditions.
It is also quite obvious that small business credits are on the rise. This was made certain in a survey conducted by a financial analysis company, Sageworks, located in Raleigh North Carolina. The survey involved about 159 financial institutions and more than 50 percent of them said that they have a plan to increase their lending to small businesses but only 11 percent said that they plan to reduce it.
Philip Chang of Carbon Publicity, a media firm in Chicago which helps small businesses with financial issues, said that they do not foresee any difficulty with small businesses obtaining financing.
Making the Most of Your Debt
Cost is an attractive part when it comes to incurring debts. Since interest rates are low, small businesses who want to obtain debts for the first time can easily do so with little expense. More so, businesses which need to reorganize their existing debts can easily do so with little expenditures.
Charles Green, a small business financing consultant says that debts are less costly in actual terms since interest rates are always low. The profit and loss of a business can be greatly influenced if the existing obligation is refinanced for lower costs.
However, you must not incur debts simply because the interest rates are low. According to Green, it is wrong to take on debts to improve a struggling business. The improvement that may occur when cash is infused into the business may be short-lived, you may not be able to meet the repayment requirements in the long term.
Be cautious when dealing with debts
It is important that healthy businesses consider debts with utmost carefulness. A Chicago certified financial planner Julie Murphy Casserly suggests that it is better not to take on large debts with a hope of an upcoming major growth. She suggests going for a manageable debt in order to be able to handle it despite how bad conditions may turn. She stated that you should decide on the debt that would still allow you freedom of movement even if the sales decrease of 2008 or 2009 should recur.
In case you have a solid financial prospect or circumstance, you should carefully look into the kind of debt that works best for you. Because of the ease they give in growth and loan-payback, Casserly suggests going for fixed-rate loans.
Green also suggests making investigations on lines of credits surrounding long-term loans even though it may seem to be the best choice. Of course, they offer you high level of flexibility when it comes to accessing the cash and paying back. However, they are not the best for businesses without reliable cash cycle.
When is the most appropriate time to go into debt?
Nowadays, lots of features encourage small businesses to go into debts. However, it is important that you shop around in order to compare interest rate, loan costs and so forth. Casserly also suggests that the best place to start for small business should start with locally based banks. She pointed out that such banks may have favorable and attractive terms for their loans and also they may also be interested in supporting small businesses.
However, you do not have to go for these offers in a rush. Make sure debt is kept as minimum as possible. It is important to shop around in order to get the best deal and also ensure that you go for a manageable debt. In conclusion, Calafati pointed out that a business can go on and take a new debt if they have put everything in place in their firm and adjusted their models to ensure financial stability required for the new debt.