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Money matters


Imagine you bought a new event rental business in February 2020. When you did, you chose to fund the business with a five-year note instead of a 10-year note. You didn’t like the idea of ​​having debt, so you wanted to get it over with as soon as possible. You have decided to bear the larger monthly payments, even if it would make your cash flow tight.

Then the unexpected happened: the coronavirus (COVID-19) struck, and your business was forced to close for several months. Once you were allowed to reopen, no one was hosting big events. For the foreseeable future, your business has undergone unimaginable changes. Now you wish you had chosen to fund the business over 10 years instead of five. Although I am using the example of a business acquisition, this information is important for all business owners who have or are considering taking on debt. Always make sure you understand the terms and conditions before signing on the dotted line. Debt is a great tool for business owners looking to grow their business, provided they use it correctly. Give yourself a comfortable monthly margin in an emergency.

The fundraising strategy is always to play both offense and defense. This is why I often encourage entrepreneurs to consider using the US Small Business Administration (SBA) to buy themselves the flexibility of money over 10 years, especially when an SBA loan of less than 15 years old has no prepayment penalty. This means that if times are right and the money is flowing, you could pay off the SBA loan in five years. Or, if a crisis arises and cash flow is tight, your monthly payment is always lower because it is based on a longer term.

The next question I always get is, “What about the interest rate?” To that, I always say, ‘Don’t be so sensitive to interest rates. Now, that doesn’t mean you shouldn’t be on the lookout for the shockingly high interest rates you see with some short term lenders online. But, when it comes to 4% on a five-year bank loan and 6% on a 10-year SBA loan, don’t automatically assume that the loan with the lower interest rate will be better for you. . Having lower monthly payments will help, not if, but when, your business faces challenges in the future.

For example, an entrepreneur who received an Economic Disaster Loan (EIDL) two months ago was considering repaying the loan. She felt her business had largely recovered and she didn’t like the idea of ​​being responsible for paying off a loan. My advice for her? Not so fast.

In a time of uncertainty, possession is 99% of the law. Its EIDL loan is for a 30-year term at a nominal interest rate. The monthly payments do not have a serious impact on his cash flow. In my opinion, she could treat the payments as an insurance premium and keep the money. That doesn’t mean she should use the money frivolously, but there is little reason not to keep it.

Remember that the fundraising strategy is a combination of offense and defense. You want to be located to take advantage of unexpected opportunities and deal with surprises you didn’t anticipate. This philosophy is more real than ever in these uncertain times and plays a huge role in long, not short, thinking.

Ami Kassar is the Founder and CEO of MultiFunding, a Philadelphia-based consulting firm that specializes in helping business owners across the United States develop creative and cost-effective alternatives for their needs and debt structure. commercial. He can be contacted at [email protected] or multifunding.com.

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