As a startup, the most important (and probably the hardest) business decisions you will have to make are investment decisions and financing decisions. For every budding entrepreneur, it is not only important to know the market or to draw an edging business plan, but also it’s vital to know how you will solicit the funding and how you will use it.
However, this is easier said than done. According to the data compiled by Fundable, just 0.91 percent of the startups are funded by angel investors. This means that at one point of your entrepreneurship career (when expanding, purchasing non-current assets or adding stock) you will need to seek funding from a financial institution. It can be a game changer thought, but only if you understand its costs.
What many startups do
After missing out on the angel investment (an equity financing), many entrepreneurs jump right into debt financing. Sadly, they do it with an equity mentality.
Just because a small business loan is a CWFR (Capital with Fixed Returns) this does not mean that it should be costly. However, many entrepreneurs start making the funding mistakes when selecting the lending institution. They do not look at the lender’s reputation, their capacity to finance future giant projects, the online reviews, and most importantly, the cost of their funding.
Unclear costs of loans make businesses crumble for lack of clear payment plans and patterns.
Get the Information Right
In order to make the right decision, you will have to know exactly how much the loan will cost and at what intervals. You have to understand all the features of your desired loan, or otherwise you will be caught up by surprises. You will need to know the rate of interest on it, and whether they charge on a straight line or reducing balance basis.
You should not ignore the loan processing fees and any other cost associated with its procurement. Smart entrepreneurs do not do this on their own: they use the Business Loan Calculator.
A business calculator is an easy and accurate tool that brings all data into context and shows exactly how much you will be paying per month. Be careful to choose the right one though.
See How this Business Loan Calculator Works
Camino Financial has created an easy-to-use loan calculator. Here you can check the steps to follow. First, you decide how much capital you need. This will be based, of course, with the objectives of your loan. From experience, the amounts and terms may differ depending on whether purchase an additional asset, introduce a new product line or just grow your capital.
After you have the right figure, key it into the loan calculator together with the terms of payment. Once you are done, press the “calculate” button. Then you will see the amount you will be paying per month.
Let’s borrow $15,000 payable over a period of 24 months
Let’s say you need $15,000 over a period of 36 months at a rate of 1.5% per month. You will need to key in the $15,000 in the “LOAN AMOUNT” section. You will select the duration and the interest rate in the respective drop-downs, then hit “calculate”.
You will get the results in columnar form, helping you clearly analyze all the crucial aspects of the loan. For our case, we will be paying $542.29 per month, and the total interest for the period will be $4,522.29. The closing fee will be $1,048.50.
A calculator that allows you to make the right decision
Your business success is directly correlated with your ability to make the right decisions. To make the right decisions, you will need to have the right information. This business loan calculator will give you all the basic information before giving the next loan a nod.
