“Being Able To Access Cheaper Forms Of Money Can Maintain Long Term Profitability”

Financing your business with cheaper money will promote the longer term health of your business.

Easy to say, but it can be hard to do.

Why?

Because cheaper money is lower risk money, meaning that you always hold significant risk yourself and you continually work hard at minimizing the risk for lenders and investors. In order to maintain access to the lower cost forms of debt and equity, the business financing year in and year out approach is to methodically move through the market and closely monitor the economy so that your collective neck is not sticking too far out.

For many small and medium sized businesses, the principals of cheaper money make sense, but the desire to grow and take risk can easily push a business into higher cost capital that may be difficult to get rid of over time. And if the margins are too thin, then the business owner can easily end up owning a job that hands over all the potential profits to lenders and creditors.

Small business financing lenders get rich by they themselves accessing the cheapest forms of money and then marketing it up 5 to 10 times when they lend it out to SME’s. The key to small business lending success is not to kill the patient, but to price the money and set the debt service at levels that allow the borrower to continue to function.

In their haste to get started or grow too fast, small business owners convince themselves that an equity stake and a proper balance sheet are going to take too long to get into place, turning to more expensive sources of business financing to buy assets or fund working capital, all the while protesting that the cheaper sources of business credit have conspired against them.

The reality is that cheaper money has an equation and discipline that goes with it. And sometimes the process for getting and keeping access to lower risk funding requires a slow and steady pace.

And while there is a certain segment of business owners that are prepared to go for it and earn their way out of more expensive debt, the majority are not prepared to go through boom and bust cycles, opting for steady, profitable growth.

In order to achieve this, business owners and managers need to first learn the requirements of cheaper money and then make sure that they are always reconciling their actions and spending against these requirements, otherwise the business results that get generated can easily fall outside of the requirements of many of the main line banks and institutional lenders that provide the lowest cost levels of business financing.

Bean counting and financial discipline are not always the most popular focus areas for an entrepreneur or business owner. But a lack of focus in these areas creates business imbalance, which can easily lead to more expensive money and effectively serfdom with the business owner turning over the potential future profits to money lenders and settling for a modest wage.

Perhaps some would view this as still better than working for someone else. But it pales in comparison to what may be possible if you keep your financial and credit profile in order.

Click Here To Speak To Business Financing Specialist Brent Finlay