Hi guys,
This question might be a little off property, but I read this forum a lot with property investors setting up interest only loans using long term loan repayments, so they have more cash capacity to invest in more properties. Do you investors apply the same method with business loans? for example if I wanted to get a business loan for $100,000 would it be better to pay it off short term or long term, short term results less interest but higher monthly repayments and long term vice versa higher interest but lower monthly repayments. I am thinking long term re-payments as the amount would be less, enabling more extra cash capital to invest back in the business to grow faster rather than paying off higher repayments. Obviously this question depends on how I run the business and how I manage my financial capabilities. I guess it is kind of like property, would I quickly try pay off the mortgage as fast as I can with my own money or let someone else pay the mortgage while I use my extra cash for other investments. Thanks for reading guys.
Ronnie
Hi Ronnie,
There will be others more qualified in the specific area of finance but as a small business owner I understand your dilemma. The fact is most small businesses don’t succeed. The primary quoted reason is cash flow. Given these statistics I would say a longer term loan with lower repayments is likely to present as lower risk. Having said that business finance is an ENTIRELY different animal to real estate. The risks are higher, the returns generated much more variable etc.
Personally I run a cash business with no substantial debt other than a small cc for expenses (and frequent flyer points ;) and a car loan as it is quite tax effective. I pay for all my other business costs out of proceeds. I don’t want to be in a position where I am pressured to earn more in the business just to pay for more debt.
The ideal in my mind would be a long term loan (small repayments required) but freedom to accelerate the payout if profits improve. You don’t want to carry debt unless you need to. If the profit is there, pay it off. You can always take on more debt for expansion, marketing, etc etc, but it all comes at the cost of increased risk. At some point you want a business with minimal debt and maximum profit. Thats my rant done!
BuyersAgent | Precium
http://www.precium.com.au
Email Me | Phone MeSouth Coast NSW Independent Buyers Agent - Wollongong to Batemans Bay and Regional NSW. DOWNLOAD OUR FREE 14 POINT PROPERTY BUYER'S CHEATSHEET to avoid painful mistakes at precium.com.au
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