Business Owners Need to Know These 6 Lending Terms for Success
Running a company is no small task. It involves managing people, finances, marketing strategy, and inventory all at once. You need to be a logistical master, and that mastery starts with learning the terms of art that allow you to build a strong company. To be a successful business owner, you need to understand how to report your progress to yourself and how to fund your growth. That’s where these terms come in handy.
For starters, you’ve got to understand your income statement. It’s the core document you need to start making financial projections, and it shows you all the incoming money you can expect from various sources. A detailed income statement will also include estimates for when the payment will arrive based on agreements with the customer and past payment behavior. It’s important to be realistic about your expectations for payment, and to learn to accept that sometimes there will be obstacles to collecting.
That’s where understanding your financing terms comes in handy. For example, an SBA loan is a small business loan designed for long-term investments in equipment, facilities, or other core assets. They can even be used to acquire an existing company, allowing more entrepreneurs to fulfill their dreams of being a small business owner.
Another important term to know is business term loan. These are one to five-year instruments that involve disbursing a lump sum of cash to you up front. You then make regular payments to repay the loan over the course of its term. Typically they involve fixed interest rates, but those rates are higher than you would expect to see from loans designed for asset purchases.
Equipment loans are loans specifically designed to finance equipment asset purchases, and they can be financed through the SBA or through regular loan financing. They are often but not always fixed rate loans. It’s also important to understand equipment leases and the tax burden reductions they can bring. The two terms go hand-in-hand, and a firm understanding of which equipment is better to lease and which is better as an owned asset is key to being a successful business owner.
The last term to learn today is the most important. That’s your business credit score. This score helps banks and other lenders measure the risk involved in lending to you at this time. The better your score, the more likely you are to get the financing you want at the terms you want. If you’re looking for a way to access more of these credit resources, you need to know how to improve and maintain that score.