Leveraging to enhance your business growth is key to your wealth creation. Here are six mistakes you should avoid when setting up your next business loan.
- Making a Weak Pitch
If you want your banker to get onboard, it is critical that you go in with your needs and desires well laid out. Why do you need this expansion? How will it increase your revenue? Understand your business plan and cash flow projections and be able to articulate it well.
- Waiting Too Long before Borrowing
I get it, no one likes debt – but leveraging to grow your business is the best type of debt. This is debt that can grow your net worth and where you can typically write off the interest for tax purposes. Paying upfront for your expansion plans can place undue stress on your cash flow. Consider a business loan or lease to take advantage of tax benefits and boost your growth sooner rather than later.
- Requesting Too Little
Having a deep understanding of your business plan and cash flow projections will help to ensure that you request sufficient funds. You want to avoid ending up in a crunch that actually results in slowing your business growth because you don’t have sufficient funds to promote your new service for example.
- Assuming that Interest Rate is Everything
Yes, interest rates matter, but they aren’t the whole story. You’ll want to consider the terms that the lender is offering. Over how long a period will the bank lend you their money? How do those payments fit in with your revenue growth projections? Are there prepayment options without penalty? What guarantees do you have to provide to secure the loan?
- Rapid Repayment
This goes back to cash flow again. If your cash flow increases substantially more than you had anticipated, use that to create further growth and wealth creation opportunities, especially if you will be subject to pre-payment penalties. Remember, none of us truly know what is coming down the pipeline (anyone remember COVID-19 shut downs?), so having some extra cash at the ready is never a bad thing. Avoid tying up your cash unnecessarily.
- Not Having Sufficient Leading Relationships
We like to think that by doing all our business with one institution that we will get the best offerings. However, business banking and leasing relationships aren’t what they used to be with the consolidation of branches and employee turnover. Likewise, should something go south, you don’t want to be stuck with just one lender holding all the cards, ultimately tying up your business success. It’s worth your time to shop around and ensure that any lender isn’t locking you into tied selling – it’s illegal BTW.
As your Chief Financial Officer, I am here to help you make smart financial decisions that align with your business growth, personal wealth creation strategy and long term interests. Helping you understand your money and assisting you in making smart decisions about your debt repayment, insurance protection, tax management and wealth creation, are just some of ways that I work as your fiduciary.
Have more questions than answers? Educating you is just one piece of being your personal CFO that we excel in. Call (780-261-3098) or email (Roxanne@C3wealthadvisors.ca) today to set up your next conversation with us.
Roxanne Arnal is a former Optometrist, Professional Corporation President, and practice owner. Today she is on a mission to Empower You & Your Wealth with Clarity, Confidence & Control.
These articles are for information purposes only and are not a replacement for personal financial planning. Everyone’s circumstances and needs are different. Errors and Omissions exempt.
Optometrist and Certified Financial Planner
Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS). She subsequently built a thriving optometric practice in rural Alberta.
Roxanne took the decision in 2012 to leave optometry and become a financial planning professional. She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.
Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.