How Can A Loan Help My Business

Any loan can be a blessing or a curse for those who contracted (and not only). The difference makes first usefulness. If that credit to meet certain needs (not to be read picky) and, moreover, it has been used in production, it can often be a blessing. The loan may be converted, but a burden unbearable where its use has brought real added value to the business entity.

When we talk about needs, we must distinguish between the needs and the long time or short duration. In general, long-term needs related to investment, while the short-term are generated by seasonal work or contingencies arising in any economic activity. In principle, the first category are financed through long-term loans, given that investments produce benefits that are typically felt over a longer term and short-term needs should be financed by borrowing short-term all.

So the question arises: When is it appropriate long-term credit? The answer is given in the first row right above principle. A long-term loan should satisfy some momentary activity occurred. It could be, for example, the completion of the stock of goods, necessary because of the delay in cashing the goods sold or due to low inventory turnover rate. Or it could be a necessary working capital aimed at increasing production or permanent, or to honour special orders. Another legitimate reason for a loan is the short term and honouring of obligations to partners (for example: Suppliers), if it remains unpaid obligations could cause failures or loss in other areas of the business.

A special case is loans to cover debts to the state. They are, however, quite risky for the following reason: although they may save the situation at the moment, however, if the activity in question is not profitable (very possible given that there are already outstanding debt), then it does not happen more than a postpone the inevitable, even more serious consequences because the debtor could lose the final and any bank guarantees required for these loans.

Whatever the destination of the credit should be considered from the outset that the rates payable. The advantage given that the total interest charge for credit is less than a short-term credit for only one term is offset by the disadvantage of having monthly payments higher than a medium or long term loan. Therefore it is very important to predict the beginning cash flow as realistic and monthly rates are adjusted accordingly.

It should be noted here that many companies have had problems because borrowers are counting on some short term revenue likely. Applicable to farmers who rely on agriculture subsidies, grants lately have not been paid on time and in full. It is also the case that entrepreneurs have different amounts receivable from customers in payment instruments, but also of those who count on loans that they will contract or several transactions that will take place in the future (I have encountered numerous cases the land that is “sold ” no longer sell or loan “approved” are not approved).

Long-term loans and credit lines specifically would be preferable for any time or resources to have liquid assets available to pay those amounts in case of urgent need. In recent years appeared more and more situations where financial institutions have refused to extend credit lines and requested full reimbursement amounts in the form of loans, relatively long periods of time. Thus, borrowers found themselves suddenly having to pay large sums of money in several monthly instalments impossible for some of them not having the liquid assets.

Above all, it should be noted that the purpose of the loan must be to develop its business, or at least survive until better times. In these circumstances, it probably would be a suitable motto: “, a contracted credit is better than one outstanding . ” …this, of course, only if you intend to pay off.

Long Term Loans

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