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Cost Of Locating Business Capital
“What Is The Cost Of Locating And Securing Business Capital?”
Depending on who you’re talking to, there will be those that claim there is no cost to them to acquire business capital and to others the costs is considerable.
I say that there is always a cost to find, arrange, and secure business financing.
Always.
On the no cost side of the argument, people with “A” credit who have always been able to get the financing they need through an institutional lender would claim that they never had to pay anything to locate or arrange the financing nor should they. For these individuals, I say good for you. But there is a cost of time, and business financing these days is tougher to get in place even for those of you with even the best credit and strongest lending profile. And if doing it all yourself gets the best result, that’s great… provided it didn’t take two years to accomplish during which time there could have been a substantial opportunity cost associated with not getting things in place sooner.
To me, biased as I am as a business financing consultant, there is a cost for locating and securing business capital no matter who you are. Even if you go to your bank tomorrow and get financing right away, there is no guarantee that its the best deal available on the market or even the best deal you could have secured with the time you had to work with.
And regardless of whether or not you pay a third party to assist you with the process, looking for business financing is still going to occupy your time and there is a cost to your time.
A better worded question would be how do you minimize the cost of locating business capital and get the largest possible benefit or group of benefits? Avoiding costs trying to understand and do everything yourself, especially in the world of business finance these days, just creates more cost in the long run.
And what’s hard for the average business owner to understand is that the landscape is continually changing so that whatever you thought you understood about finding and securing money for your business a few years ago may no longer be relevant.
It all comes back to how is your time best spent and, all things being equal, will you be able to figure out the best course of action that is actually cheaper for you in the long run compared to what others that work in the market every day may suggest as alternative approaches.
Regardless of what you’re personal belief system is on this subject, remember that there is a cost to this process and many times less investment in the process generates less results.
Click Here to Speak Directly With Business Financing Specialist Brent Finlay
Cost of Capital
“When Is The Cost of Money You Can Borrow, Rent, or Receive As Proceeds Become Too High?”
What the right cost of funds should be for any given deal is always an interesting question to ponder. Business owners will get a certain interest rate or rate of return locked into their mind and won’t settle for anything less. If they have properly gauged the market, this can be a good strategy, provided you have time to beat the bushes for the best deal.
In reality, however, every business financing scenario where a debt lender or investor extend money to a business for some application is a customized solution. No two are the same and at any given point in time there can be radical departures among what is available in the market for otherwise seemingly similar deals.
Sometimes you get lucky and step into a rate that would not typically be available to your business and the desired application of funds. Sometimes you’re not so lucky and its hard to find anything where the cost of funds is what you would consider reasonable.
So what is the right answer in terms of when is the cost of capital too high?
Assuming you have properly approached the market with your financing requirements, the appropriate cost of funds, at a given point in time, is what you cash flow.
If you must have money right now for operations, expansion, survival, etc., then you need to determine if you can cash flow the best available deal in the market. If you can’t, don’t take the dough. And when I say cash flow, I don’t mean come up with a forecast based on some low probability assumptions. If you can’t debt service the financing proposal on a cash flow projection with at least a 70% probability of success, then the cost of money has gotten too high.
No one wants to pay more than they need to at any time. But business financing is very fickle and even more unpredictable, so some times the deal is better than others.
The main objective is to make decisions that will allow you to fight another day versus the alternative.
If you’re too focused on securing a low cost of financing, you could run out of time and blow a good deal. If you take on financing that can’t be cash flowed within reasonable certainty, you may very well have sold the farm.
The point here is don’t get hung up on interest rates or rates of return, get hung up on cash flow and time lines. The longer you stay in business, the more often the cost of money will be in your favor and allow you to bank good returns. Its just not always going be that way, so get used to it and make the best decision today to assure better future opportunities.
Click Here To Speak With Business Financing Specialist Brent Finlay