In light of these turbulent times, many small business owners find themselves short on working capital (some people call that “cash”) to get them over the hump and into more profitable operations.
The number one mistake made? Using credit cards. Bad idea! Interest rates are really high and it can hurt your credit rating. (Credit rating agencies attach HIGH importance to your “Credit Card Utilization Rate.” Which means, if you use more than about 11% of the total limit on all your credit cards, it lowers your credit score.) Another mistake is to answer those phishing emails that everybody gets promising “easy loans” etc. BEWARE! Many of these are scams, others lend at high interest rates (sometimes even higher than credit cards).
Instead, here are some simple basic tools every small business owner should use.
#1-Go through the trouble to establish a Line Of Credit with your local Bank. This can be used to cover a temporary shortfall to keep your bills paid on time. Here’s the catch. It is NOT a long-term loan. Pay it off ASAP.
#2-Talk to your banker about how to get a more long-term SBA loan which does give you easy to make monthly payments. The SBA is the actual lender, your Bank acts as an intermediary. It is a complicated process, lots of paperwork, but in the end, great interest rates make it worth it. Of course, some banks offer their own long-term loans at similar terms to the SBA (sometimes even better), so ask your Banker what they suggest and how they can help you get it done.
#3-Borrow from family members. We call that the “Family Bank.” Many times, there are elderly family members who have a lot of cash stuck in LOW interest paying CDs. If they are willing to loan you some of that at about 4-5% higher interest rates than they are getting on their CDs, you both win and the Bank loses. (The Bank no longer has the use of their CD cash to lend to others at higher interest rates, and you aren’t one of those borrowers from the bank either. Your elderly family members make more money on their cash and you pay the same interest you would have paid a Bank.)
#4-Equipment Financing. Purchase all large equipment through the vendor’s lease/purchase financing arrangements. Vehicles, Trailers, Large Tools, Copy Machines, Computers, Specialty Equipment, etc.)
So there you have it. Be smart. Have fun growing your business. Remember the reason you started it…Freedom! (Example: Now you only work half days. The first 12 hours or the 2nd 12 hours.)
Did you hear? Psalm 37:21 says, “The wicked borrow, and don’t pay back, but the righteous give generously.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.