Using Bad Credit Business Loans To Smooth Collections
Financing is an often mentioned yet poorly understood aspect of running a business. In addition to being vital when looking for business loans or bad credit alternatives, it’s important to understand in terms of pricing and time in the course of the day to day. In an Entrepreneur.com article, BlueVine CEO and Founder Eyal Lifshitz offered some perspective on common financing errors made by small business owners, with the last point focusing on discounts related to expediting collections. The article points out that when a discount is offered in order to get paid faster, financing comes into play. A 10 percent discount for up front payment would seem advantageous, until compared with a scenario wherein financing is obtained for the month at a 4% rate for the month, allowing for cash on hand to last the month, with the full collection amount being gathered in the 30 day term. In the end this strategy saves the business owner 6% of what they would have lost by giving the discount. It is this type of thinking that can help business owners better understand where money, rate and time come together to create a more dynamic picture, allowing them to make better and more profitable decisions about their cash flows.
Be sure to put the costs of your money into perspective with the costs of your time. The cost of your time can be an x factor in the calculation of your financing. For a traditional bank loan, you may find that you must wait much longer for both the underwriting and funding process than you would when obtaining alternative capital, and should you have weak credit, you may not be able to be approved. Alternative capital costs more, but is much faster to obtain, so when looking at long and short term goals, it’s important to understand the time frame with which you are working and make sure that you can afford both the hard costs of interest and the soft costs of your time investment and effort.
Photo Credit to J R on Flickr