How Financing Services Help You Save Money

So your business needs money for capital or equipment. Sounds expensive. So what are your options? And which options are best for the long-term health of your business… and your pocketbook? Let’s review some ways that financing services for your business can actually save you money!

Here we go:

Why Pay More in Interest if You Don’t Have to?

Financing services can help you find the right amount of money for your business at the best interest rate, which could save you boatloads of money over time. For instance, let’s say you borrow $300,000 at a 9% interest rate and a repayment period of five years. Over the life of that loan, you will pay $73,650.60 in interest. If, however, you borrow that same amount at 10.5% interest and a repayment term of seven years, you end up paying $124,888.80,124.84 over that repayment period! That’s almost twice as much in interest with a 1.5% higher interest rate and a two year longer term for repayment.

Any good financing services company will help you understand the costs associated with interest and terms. 

Why Take Money Out of Your Own Profit (and Pocket) for the Business?

One method that some business owners use to secure new equipment or capital is bootstrapping. This means taking money out of your business’s profit to make a big investment in the future. While this using-cash-on-hand method may have its upsides, it may actually cost you more in the long-run. Why? Because the amount you have to invest will always be limited to the amount of profit (and the amount of that profit that you are willing to forego). Chances are, there isn’t enough profit to really secure the capital or equipment you need. If you or your stakeholders receive distributions from profit, then bootstrapping for capital or equipment means short-changing yourself and your stakeholders in the short-run. 

Again, financing a business for the use of capital or equipment is a lot like betting on your future, but with other people’s money. The idea that you have to go without profit (or take less of it now) because of capital or funding needs means you are ignoring the other options out there.

Business Financing Can Save You More than Money

While there are some alternatives to business financing—like getting an investor—you have to look at the long-term consequences of giving up equity in your company. With equity, you aren’t just giving up money, but giving up autonomy. Business financing in the form of a loan is paid back. And once that load is paid back, there is no more cash drain from the company (like there is with an equity investor). Let’s take this as a example:

We’ll use the $300,000 loan example again as a comparison.

Let’s say you get the 5 year loan at 3.5% interest and pay it back in five years. Your monthly payment is $5,457.52, which you will pay monthly for 60 months. Yes, as mentioned earlier, you are spending $27,451 in interest over the span of that loan repayment period.

But let’s say you get an investor who gives you the $300,000 for a 20% stake in your company. If your business’s monthly equity averages about $150,000, you will pay the investor $30,000 each of those months. That is one monthly payment is alone more than the total interest you pay in the 5-year loan scenario. And unlike the loan, which you pay off in 5 years, you will continue to pay the investor until… yep, you buy their share of the equity back.

The point is, getting an investor can be a huge cash suck on your business. And of course for the 20% stake, they will want a say in how you operate your business.

What Type of Loan is Right For You?

Now that we’ve established that business financing (in the form of a loan) can actually SAVE you money, it’s time to look at the two main types of financing. You’ll need to decide which is right for you:

• Long-term business loans (6—30 years) – These common business loans are provided by lenders to businesses. Long-term business loans require repayment of the principal with interest and fees added to it. These business loans normally require regular payments on a set schedule, but repayment terms and interest rates can vary.

1. Short/normal-term business loans (5 months—3 years) – A short-term business loan is intended to be paid off much faster than a regular business loan. Some common types of short-term business loans include merchant cash advances and invoice financing. Commercial equipment and working capital equipment upgrades are another reason for short/normal-term loans. (One alternative to borrowing money for a commercial equipment loan is equipment leasing. This will increase your operating expenses but mean less debt for your business.)

Next Steps?

So you’re ready to look at financing for your business but you aren’t sure of the right next step? 

Let us help you.

Envision Finance Corporation looks beyond the transaction and focuses on building partnerships to ensure success and longevity with everyone. Envision Finance Corporation is a Veteran owned and operated, group of passionate individuals devoted to finding small, medium, and large businesses’ financing for equipment and working capital. With Envision, you’ll find transparency and integrity, and benefit from knowledgeable and efficient processes to get your business the capital it needs to grow and thrive.

When you work with Envision Finance, what can you expect?

• We typically ask for 3 months worth of business bank statements (personal bank statements will do if no separate business account exists), an Invoice/quote for your product or services, and your story. By story we mean what you do, where you started, where you plan to take the business, and where this transaction fits into that plan. 

• For start-ups or people asking for large amounts (typically $100,000 or more) we require a Personal Financial Statement (PFS), Tax Returns (typically 2 years personal and business), and a Business Plan (typically only start-ups), and Current Interims (or current year-to-date financial statements).

Envision works with funding sources across the nation and vendors in virtually every industry. We find solutions for your financing needs. No one works harder for you than we do.

Contact us today using this form. We will get back to you!