A very successful business owner and mentor of mine used to say, “The path of least resistance is what makes men and rivers crooked.” In your business, the path of least resistance is using a credit card or some other form of borrowing. Before you know it, the amount of debt has piled up, the interest you pay on the debt is significant, sometimes 18-24 percent, and you begin to question whether borrowing the money was a good idea or not.
So, you took out a line of credit, but you forgot about the 30 day annual payout requirement on the line when you signed the commitment letter. You don't have the cash to pay the line in full. So, what's next? Maybe you took out a term loan for a piece of equipment. Cash flow is really good and you're thinking about prepaying the loan to save interest expense. Good idea or bad idea? Well, it depends.
There seems to be a lot of business acquisition activity in the marketplace right now. I have several clients that are in various stages of this process. Depending on whether you're on the buy side or the sell side, here are three ways the acquisition can get financed.
Bankerese is a language understood by bankers, but is a foreign language to most business owners. Communication is happening, but the business owner doesn't understand what's being said or the implications it has for his or her business. Often, we step in and interpret. Here are three of the most important ones to know:
Businesses that took out debt a year ago or even 3 years ago may find themselves in a situation where the cash flow used for the loan or the purpose of the loan has changed. Many businesses find themselves in a situation where a refinance makes sense because they either want to reduce their loan payments to use cash flow for growth or they may want to increase the loan amount because their business is expanding. Businesses are dynamic, but a loan repayment is usually static due to the fixed term of the loan. A floating rate loan is the exception.