Do you know how much to ask for when you’re seeking a loan to grow your small business?
The first thing your eyes might land on when you visit the SmartBiz website is this sliding calculator:
This tool instantly shows you monthly payments, loan terms, interest rate and other details based on the amount you borrow.
But you have to know where to slide! Before you start gathering paperwork, the important question you need to ask is: How much money do I need to borrow?
The smart businessperson will strike the perfect balance between not borrowing enough and borrowing too much.
Here’s a sample scenario. Say you borrow $10,000 to invest in your small business and have a solid plan in place for how to spend borrowed funds. Once you get the money, you can put it into the best business bank account to make your plans come to life. In other words, you can start using the money as soon as your loan funds. On the other hand, if you don’t have a plan and guessed at the sum, you might leave the money sitting in your business account while you try to figure it out. Since you’ll be making repayments and paying interest, the best course of action is to have a plan in place so that you know how to make your small biz flourish. The details are in the planning, and the planning will reveal how much you will need to borrow to maintain a viable and thriving business.
There are two important documents you need to analyze to come up with the right amount for your business.
Cash Flow Analysis
A cash flow analysis provides a means for you to conduct a periodic check on your company’s financial health. A projected cash flow statement estimates the stream of money that will be coming in based on a history of sales and expenses. A monthly cash flow statement reveals the current state of affairs. A cash flow budget is your core tool for maintaining control of company finances and elements include:
- Starting cash — This is your starting balance — what you have on hand at the beginning of each month.
- Cash in — This is all cash received during the month, including sales, paid receivables, interest or cash from sales of assets or stock.
- Cash out — Includes all fixed and variable expenses.
- Ending cash — This is your ending balance. Add starting cash to cash in for total cash, and then subtract cash out.
Your business plan is a living document needed to run your small business as efficiently as possible. A well thought out plan helps you to step-back and think objectively about the key elements of your business venture and informs your decision-making on a regular basis. It’s also a great place to start when figuring out how much you want to borrow for your small business loan.
The U.S. Small Business Administration has a Business Plan Tool that is a step-by-step guide to help you get started. Click here for more information. Also – reach out to your local small business development center; they are a non-profit organization designed to help small businesses grow.