ForumsFinancing Tips

Well, It can be good if you have a plan on making more money for your business, but most people take out loans in order to pay personal finances. If it will benefit your business in order to increase your business, then yes. But if your using it to do other things, than no. The reason for this, is the fees associated with paying it back, and if you don't, you will be banned from accepting visa, mc. There are up's and down's with accepting any type of loan, it just depends on how you plan on using it. ITS A LOAN!! plain and simple.

I would imagine that the interest rates alone would make one very uncomfortable. Sometimes debt is unavoidable...but one should always be hesitant to enter into 'agressive interest agreements'.

DD Posted earlier:
"I would imagine that the interest rates alone would make one very uncomfortable. Sometimes debt is unavoidable...but one should always be hesitant to enter into 'agressive interest agreements'.

I shall stand beside my 'unfair' statements.

For all the "others" then, this seems like a real life math "story problem."

Business A nets $5,000 a month. Business A could increase net profits to $7,200 a month by expanding its operation. The necessary expansion will cost $17,500. The owner of Business A, who is unable to secure a traditional loan, approaches a local "investor" who is willing to loan him the $17,500 provided the owner pays back $1,000 a month for the next two years (an annual percentage rate on the loan of 32.38 percent!). Should the owner accept the loan?

If the owner doesn't accept it, his cumulative net profit two years from now will be $120,000.
($5,000 x 24 months = $120,000)

If the owner does accept it, his cumulative net profit two years from now will be $131,300.
($7,000 x 24 months = $172,800, less $17,500 spent on the expansion, less $24,000 in payments to the "investor")

So even while paying outrageous interest, the owner would achieve 5 percent annual growth. Over a five year period, the business would net $390,500 with the loan, compared to $300,000 without it. (I obviously didn't calculate the tax consequences of the loan interest or the additional profit).

I don't think a business owner who has few other options can automatically dismiss a high interest loan just because it's a high interest loan. If you KNOW that an influx of cash will produce a tangible business return, then this is one of those cases where, "do the math" really is the right answer!

Lighthouse, Really great answer. Using your illustration and the doing the math shows great insight.
LUCKIEST

Merchant loans (AKA merchant cash advance) are more expensive than traditional bank loans, but they have some advantages, like:

• no great credit required
• fast funding process
• no collateral required (you won't risk your assets)

you can read more about merchant loans in this website: http://www.mymerchantloans.com

-Dave

You are right - expensive but some times the best option for businesses that don't have a lot of other choices (especially in times like these.)

Most Business Cash Advance financiers require at least a year in business and over $5,000 per month in monthly credit card volume (from Visa/Mastercard). However, there are other advancers that only require 4 months accepting credit cards and $2,500 on average per month. They also take into account how much your accept in debit payments, checks and cash - in determining your advance limit.

Business Cash Advances can be a great way for growing business to expand - but they have to be used properly. They should not be long-term financing vehicles. If your business is having a slow period or has an opportunity to grow right now - these are great - use them, pay them back and move on. If you try to use them as long-term financing - they get really expensive and easy to abuse.

Business Money Today