Tag Archives: loans
By Lyle Johnson
College is a time for education, inspiration and maybe a bit of partying. It’s also one of the prime times of your life to consider starting a business, as many students don’t have a great deal of financial responsibilities, either from parents footing the bill, or taking out loans. Sure, you’ll have to pay those loans back after you’re out of school.
At the same time, you don’t have the pressure and burden of finding a part-time job that can work around school hours to pay your bills. You’ll simply have time to create a business that might make you independently wealthy while you’re still studying. According to Small Biz Trends, the average amount of business financing given to new upstarts was $325,000. Avoid these financial pitfalls to set you on the right path to hitting it big, and make the best use of your financing.
Why Make a College Startup
Outside of the lessened responsibilities that typically come with being a college student, the real world experience you gain by starting a business is invaluable. If you’re worried about getting stuck in the need-experience-to-get-a-job, need-a-job-to-get-experience trap after graduating, running your own business can fill that gap. Even if you don’t make the next big company, you can at least get some supplemental income to start paying your student loans back early, or eat something other than ramen.
Financing Your Business With Personal Assets
While you might not have many personal assets as a college student, you will probably have to leverage your savings and any property to finance a new startup. It takes time to secure small business financing, especially as a student with few assets. Crowdsourced financing may help tap into your network to back a great idea. Small Business Administration loans and sites such as annuity.org may provide financing options that leverage other resources that may be available to you, which are some of the easier routes, as opposed to seeking out individual investors.
Create a Budget
You have to spend a lot of cash to get your business off the ground, especially if you’re dealing with physical inventory and locations. Create a strict business budget, and don’t be tempted to spend money on non-business expenses. Once you’re making a profit, you can indulge a bit, but not before you reach that point.
Once you have reached that magical point of getting out of the red with your business, the SBA recommends you pay yourself some sort of salary. That makes your business feel like a real, proper job, and it also gives you money separate from your business, so you don’t feel bad about spending it. It might take some time, even years, to get your business profitable, but every step of the way is valuable experience.
About the author: Lyle Johnson runs a small roofing business and studies marketing at his local community college. He writes about small business, marketing and how to leverage social media.
In the US many people use personal credit cards to finance their business transactions. Business people are eager to use credit card accounts because their higher credit limits enable the business to access more cash toward business objectives.
An owner can avoid investing their own money while setting up a business by opting to use a credit card to tap into extra funds. But they should be cautious and exercise discipline to pay back the full monthly charge amounts otherwise face an insurmountable level of debt for the young enterprise.
Here are a few other risks involved with using credit cards that you should be aware of:
Accumulated debt: When using credit cards for business transaction, the owner risks spending money they may otherwise avoid if relying solely on cash. Therefore it’s advisable to track all your expenses and be aware of which ones were spent from credit accounts. Limit them to what you believe you will be able to repay in the next 30 days. If you will dedicate subsequent income receipts to be applied toward paying off your credit charges, then you avoid accumulating long term debt.
Fraud and Theft: Identity theft and credit card fraud are two serious risks associated with credit card usage, so be careful as to who you provide your account information to. Also be aware of the charges you make and confirm that your monthly statements do not contain others Charles that you did not make. Don’t pay for charges you did not make, which you are not legally responsible, but rather report them immediately to the lender.
Never disclose your credit card PIN number to anyone – it’s designed only to be used either at an ATM, through the telephone keypad or online.
Avoid prepaid credit cards (if you qualify): Apply for a regular credit card to avoid the risk of loss from misplacing or theft of a prepaid card. You can cancel a regular account card with a maximum $50 loss, but the prepaid account balance will be irretrievably lost.
Credit History: Avoid the adverse consequences to your credit history by paying all bills, especially credit card accounts on time or even ahead of schedule. Be aware that some low-interest accounts have a zero tolerance for your payments being received even being one day past the due date. Schedule it and all bills to arrive safely ahead of time to build and protect a good credit rating.
High interest rate: Late payments, poor credit histories and using the accounts for “cash advances” rather than purchases raise the interest rate charged by lenders. Payoff these sums as quickly as possible to lower borrowing cost and work toward performing better on your credit accounts to improve your score.
Christina Jones is a contributing writer to many financial publications and has written several articles on debt relief programs and Chapter 7 and 13c bankruptcy. Her expertise is in debt finance.
Charles H. Green is Executive Director of Small Business Finance Institute that educates business owners about finance. He is the author of The SBA Loan Book, 3rd Edition (Adams Media).
Businesses seeking borrowed funds need to be cognizant of the cost of leveraged money. Understanding how lenders determine and assess borrowing costs, or interest, gives the owner a tool with which to further evaluate the feasibility of borrowing money. Read More
Businesses seeking debt financing need to be cognizant of the cost of leveraging money. Understanding how lenders determine and assess borrowing costs, or interest, gives the owner a tool with which to further evaluate the feasibility of borrowing money.
Knowing how interest rates are determined is also useful for developing strategies to lower interest costs where possible and for knowing when the best rate has been negotiated for your situation. Read More
In the today’s globalized world, ease of movement has never been greater, and it is sometimes difficult for persons of different origins to communicate effectively. America has always had a multicultural social fabric, with the historic swelling ranks of immigrants growing our population since the very founding of the 13 colonies.
Today our cultural mix continues to be a blur of a faces with many different features. Distinguishing Burmese from Vietnamese, Austrian from German, or Nigerian from Ghanaian can be challenging for the average American without practiced interaction. Read More
Lenders have many criteria to consider when deciding whether to provide financing for your business operations, and all start with the traditional examination of capacity, capital, credit, collateral, and character. But, make no mistake. Regardless of the other relative strengths you may possess, it all comes down to character.
Lenders have to be assured that prospective borrowers have the ability to perform well enough to generate profits to repay their financing. They will ensure that the borrower has a vested interest in the operation with their own money, and that there is always a secondary source of repayment from which they can ultimately get out of a deal. Read More
Judgment day may be anti-climactic, since a large number of decisions are going to be made in the process; many by the business, many by the lender, and many through compromise. Diligence and purpose must be the focus of your efforts for every decision leading ultimately for the money to run your business.
An important attribute to hold onto through these processes is the perspective of your purpose, and the limitations of your business. It is all about money, but money is still only money.
The process of finding business capital is a sales challenge. You establish needs, find prospects, qualify, and try to close. It is one of dozens of challenges any small business faces every day, but it is not the only one. And solving the money problem does not solely insure success.
Money is the currency in which you operate, but there is a greater challenge in establishing a way to making it flow regularly through your business. Money doesn’t end the list of challenges.
You need to establish some limits as to what your business agree to do, agree not to do, and what it will pay for the financing it is seeking. If your lender asks too much, more than your self-established limit, walk away from the deal.
Remind yourself why you established that limit, and keep looking.
Many lenders have had the unfortunate experience of negotiating loans with a borrower who was using false, exaggerated, or misleading information to obtain credit. Whether or not the ploy succeeded, the effects are often felt by legitimate borrowers, whose applications are scrutinized with even more suspicion due to the experience. While under normal circumstances there is a natural inclination toward trusting people, be prepared to confirm everything.
Unless actual loan losses have been incurred, many lenders may be hesitant to prosecute loan applicants found to have used false information to obtain their loan. But when they do, they may get assistance from the federal government, who insures depositors and regulates banks. Read More
Don’t worry about it, it’s no big deal. Those are famous last words in any business negotiations, particularly coming from a lender to a borrower (or vice versa, to be fair). A savvy borrower who understands the terms that the lender wants in a loan agreement, must be ready to make some hard choices.
Borrowers must try to imagine the worst case scenario in their business ahead and reflect on how the lender’s terms will impact the business. Sometimes there can be ways to give the lender adequate protection without the full- scale surrender that is often described in the loan agreement. Read More
Incredibly, thousands of loans are made each day to borrowers who don’t know anything about their deal except that payments are due and the collateral will be sold if they aren’t. There is so much more the borrower should know.
Loan agreements are full of fine print which provide for many potential situations which may befall the borrower. Naturally these terms are designed to protect lender at the borrower’s unlimited expense.
Knowing about these terms does not mean that any of them will be changed or negotiated away, but the loan terms hidden in the fine print can be quite devastating if things don’t work out right. Knowing the consequences of your actions or the risks you take can sometimes make decisions easier to decide. Read More