All businesses that want to grow face the same challenge. They depend on having sufficient capital to cope with the growth. Many business owners have gone from experiencing strong growth and positive numbers for a period, then getting problems at the other end. A business loan secures you capital for those investments that require growth. Typical examples of this are production plants, tools or vans.
You do not go bankrupt because of debt, but because of lack of money. This may sound a little strange, but read on so we explain how this works.
Corporate loans – an example
We have set an example to show why growth financed by loans can be more favorable than using equity.
A production company produces 10 million a year. They have a market potential that equals that they can double what they do now. To increase production, an upgraded machine is required which costs 5 million.
If the machine is to be paid without borrowing, it requires half of the company’s total annual turnover in capital, in order to pay the machine. This is an enormous obsession in the business that it probably will not manage. If the business has this money and uses it, it will nevertheless create high uncertainty and weak ability to pay in the future.
If the machine is purchased with mortgages that are repaid over 10 years, the annual sum will be only 500,000 plus interest. This amounts to only a fraction of the sum each year. In this way, the business ensures lower costs and a higher degree of security. While the cost spreads over time, the income also increases. The company has a turnover of NOK 100 million more than 10 years than if the machine had not been purchased.
Thus, during the loan period, the machine has cost 5% of the turnover (plus interest) instead of 50% of the annual turnover as it would have done at a cash purchase.
This means that the company has secured its own ability to pay and its solvency by borrowing funds, rather than paying everything immediately.
Opportunities for loans
When you apply for a loan through us, you have a greater chance of getting the loan granted, than if you go to your daily bank. That’s because we have business partners who specialize in helping small and medium-sized businesses with growth and liquidity.
The daily bank your weights the requirement for equity differently depending on who applies for a loan. That is, you probably get a percentage of poorer loan options on equity, than what you get with a private home loan, for example.
Our partners solve this by tailoring loan packages to small and medium-sized businesses depending on their needs. For some, a series loan of a given sum can be smart, while for others it is better to borrow an invoice. There are many opportunities and our partners will find the best solution for you.
The key to a good collaboration is to be open and honest with those you are borrowing money from. Everyone understands that running a business is not just a dance of roses. Show your lender both your strengths and weaknesses so they can get a real insight into who you are and what your business has to offer. Then it will very often open up opportunities for corporate loans, despite the fact that one may not have a high degree of equity.
Being open about your own weaknesses creates trust, and if the lender has confidence in you, you will probably also get the very best terms on your loan.
Interest and conditions
The interest rates and conditions you end up with vary depending on several factors. Firstly, it depends on what the money will be used for. If you are going to expand real estate or farm buildings, this will normally give a relatively low interest rate. If you want to expand the machinery and vehicles, the interest rate will usually be a few percent above what you get on property. If you go for a overdraft facility, the interest rate will be about the same level as a cheap consumer loan.
It is always the case that higher security, equity and value of mortgage objects will provide better room for negotiation on the terms. That doesn’t mean you have to have all this to get a loan. A corporate loan will generally always be less expensive than taking a private consumer loan to cover expenses in the company. In addition, it is then the company and not you personally that guarantees the loan (sometimes you give personal guarantee on business loans as well, to get better terms).
Dissemination of loans
Sut Lovingood.no is not a financial institution, but a bridge builder between lenders and borrowers in the business sector. When you search for business loans through us, we have made a preliminary work and found good financial partners for you.
The partner you get through us will be a provider that helps you find the best solution for your business. You shouldn’t worry about meeting someone who just wants to push you their most expensive consumer loan. Instead, you get a strategic long-term partner who wants to contribute to growth in your company.
The actual customer relationship therefore becomes direct between you and the lender if you want to go for one of the players you receive via us. Our service is completely free and non-binding for you so you are free to accept or reject offers as you wish.
Good luck with the growth. It can help with a business loan.