In order to be successful when starting and operating a business, one requires adequate cash flow. Most start-up business experiences cash problems when trying to grow, which is unfortunate for entrepreneurs with brilliant ideas but limited resources.
You might have some money to start a business but the question is, is it enough to adequately run it?
If you answered “no”, then a business loan could be the solution you’ve been looking for.
There are many types of business loans, and all of them require monthly payments. And we get it, it can be stressful thinking of owing money and not being sure if you’ll be able to make the monthly payments. A Camino Financial business loan calculator will come in handy in such scenarios to help you determine the actual cost of the loan and will help you determine if you can afford it.
Don’t just take a small business loan because you need one, take a business loan because you can afford it.
What to consider before getting a small business loan
There are three factors you need to consider before taking a small business loan.
1. Be Sure of the Total Amount You Need
Once you have completely made up your mind that you need a business loan, go the extra mile and determine the exact amount you will need. While calculating the interests, don’t forget to factor in other extra charges (like origination or closing fees).
If you don’t have an exact figure, you might end up taking a smaller amount that won’t be enough to achieve your goal. This will result in two things: either your business will fail somewhere along the way or you will have to start the entire process of loan application all over again
Be sure to not get for a larger amount (more than you actually need) since the bigger the loan, the higher the interests will be. For you to determine the exact amount you will have to:
a. Know what assets you will spend on
Assets are what your business requires. For example, if you are starting a restaurant, the kitchen equipment (like cookers, chairs, refrigerators, etc.) are your assets. Do research to learn each cost.
b. Are there any other expenses?
Not everything in a business is an asset, some are expenses. For example, your restaurant will need printed menus and that is an expense
c. Calculate the money you need to get started
Businesses in their initial stages rarely generate enough money to cover for its expenses. Estimate 12 months of costs and expenses. Then subtract the cost of the sales for the same period, the result is the money you will be missing.
Ensure that you have an equivalent sum of money to that difference so that you can run your business smoothly.
2. Monthly Payments Don’t Exceed 80% of Your Monthly Net Profit
When starting a business you must aim to make reasonable profits. You can calculate the monthly payments you’ll make by using the business loan calculator. If your monthly repayments exceed 80 % of your expected monthly profit, then don’t take that loan as it will not be beneficial to you.
For example, if you plan to start a business that will make you $1,000 per month in gross profit yearly, then you can afford to pay a loan with $800 per month.
3. The Total Cost of the Loan Shouldn’t Exceed the Total Return Expected After The Investment
After calculating your monthly loan repayments using the business loan calculator, compare it with the expected total return from your planned investment. If the loan repayment is lower than the expected return, you should take the loan. But if it is higher than the expected return, then it is not advisable to take up the loan.
Let’s say you plan to set up a law firm with that loan and make $5,000 gross profit annually, you should only take the loan if you can afford the monthly payments and the total cost of the loan is below $5,000.
A business loan calculator helps a doctor help patients
Let’s look at an example of how small business loan can help your business and how you can use a business loan calculator to do your math.
Dr. Joseph Jamal, the sole proprietor of J.J Medical Centre in New York, makes a monthly profit of $2,000. He considers investing in hospital equipment (like an X-ray machine, microscopes, and an ultrasound machine) to boost his profits.
In order to buy the equipment, he would need to take a small business loan of $20,000 with a monthly interest rate of 2% which he intends to pay within 24 months. If he acquires the equipment, his monthly profits would increase to $4000.
Dr. Jamal used a business loan calculator to determine the total cost of the loan, ensuring that the monthly payments did not exceed 80% of his monthly net profit, he also made sure that the total cost of the loan did not exceed the total return expected after investing.
Using any business loan calculator is really easy.
He keyed in the loan amount, chose his payment term and monthly interest rate, he then clicked on the “calculate” button.
The result was immediate and he determined that the total interest of the loan would be $6,776.13 and his monthly payments $1,057.42 (which is lower than his monthly profit). He will still make a monthly profit of $2,943 after monthly loan deductions.
With the loan he got, his business was able to provide additional services: this meant more clients and more profit.
Calculate your success
If you are considering taking a business loan, make a business loan calculator your friend.
Taking less money than you need is synonymous with poor planning, and your business will fail terribly. The same applies to getting a larger loan that your business won’t be able to pay. With a business loan calculator, you will be able to know all the details you need about the loan so that you can make an informed decision.
If a business loan calculator can help you avoid all these hustles, why not use it?