When establishing and operating a small business, entrepreneurs use a large variety of sources to fund the requirements for capital and revenue expenses. Usually the start is made with own savings and credit card purchases, and when the demand for funds increase, institutional lenders like credit unions and banks are sought out for additional loans. If the business is doing really well and holds out great promise, additional funds can be infused by angel investors or private equity investors who will take a portion of the equity of the company and exit with hopefully fat profits at the time the company makes a public offering.
During the course of this great journey often entrepreneurs lose track of how they have funded the business, and end up paying unnecessary interest that they could have saved and ploughed back into the business. Take a look at some common methods that will help you save valuable money.
Use a Local Lender
While taking loans for your business, you must keep in mind the value of a local lender, who is supposed to be very much in the community. This definitely increases the accountability level of the lender to you as a client, while handling your specific loans. In case anything goes wrong, you would be having someone to contact, someone who has been coordinating with you all through the process. You have easy access to a local lender thanks to proximity and easy availability. You can speak to your local lender directly whenever you wish.
A local lender offers extremely competitive rates and you are able to negotiate directly with him and hence, can save a lot of money. He might be aware of any special down-payment assistant program on offer by some local government agencies. Not only are you able to save an impressive amount of money thanks to relatively lower and more affordable rates, you can cut down misunderstandings and miscommunications, while interacting with your local lender.
Repay Loans Early
While at the time of taking the loan most entrepreneurs negotiate for the longest loan period to bring down the monthly payments without really bothering to think about whether they need the loan for so long. Once the loan had been taken, most are content to live with the monthly repayments. Do the math and you will be surprised that in many cases it is actually beneficial for you to retire the loan ahead of time with your savings. If there are a number of such loans, pay off the ones that carry the highest interest rates first.
Retire Credit Card Debt
Because of their nature of being unsecured debt, credit card outstanding represents perhaps the most expensive way of funding your business. True, swiping a credit card to buy equipment and supplies can be extremely convenient but making the minimum monthly payment and rolling over the balance can prove to be very expensive indeed. Keep your credit card outstanding to the minimum, and if you have accumulated so much dues that you cannot pay it off with your savings, then consider going in for a credit card balance transfer scheme that will buy you some additional time to raise adequate resources. You can even think of taking on a low-cost loan from local lenders to pay off the dues, but be very careful as personal loans too can carry very high rates of interest.
Just because you started out with one loan does not mean that you have to stick with it till the end of its tenure. The money markets are extremely dynamic and competitive so always be on the lookout for cheaper finance that can be used to replace the more expensive debt. However be careful to match the remaining tenure as else you would be scrambling for another loan soon to replace that one. Remember the shorter the loan duration the less the outflow on account of interest even if the monthly repayments are higher.
Consider Debt Consolidation
If you think that your finances are completely messed up because you have taken on too many unsecured loans and are finding it difficult to keep track of all of them and make the necessary monthly payments, you could consider debt consolidation. This is a technique that will simply aggregate all your loans and consolidate them into a single one. You can request for a repayment schedule that you are comfortable with to ease the financial stress.
About The Author
Arthur Davidson is a business consultant who specializes in assisting entrepreneurs to structure their enterprises in such a way that they can raise funds from multiple sources, including local lenders, and keep the cost of capital down.