For growing businesses, one of the most difficult things to manage is cash flow. Companies typically need more cash because investments in people, marketing and inventory come before customers pay for products or services. Knowing how much cash you can borrow to fill this gap is critical. A business loan calculator can be used to determine what you need and what you can afford to pay back.
This is an important piece of data to have: Borrowing too little can lead to a cash shortfall; borrowing too much can mean you are unable to repay the loan with current cash flow from the company, risking default. You can determine the amount you can borrow by reviewing how much extra cash your company generates every month on its cash-flow statement.
A business loan calculator can be an effective tool for determining how much your company can safely borrow and repay over a specific period.
A business loan amount calculator can help you determine your monthly loan repayment based on the amount of money that's borrowed, the interest rate, how often it is compounded and how long you have to pay it back (in months or years). It can also calculate the effect of additional payments toward reducing your total interest or any other fees that are being charged by the lender.
You can use a business loan calculator to determine whether or not you should...
Buy New Equipment
Many times, companies need to buy new equipment to produce products to be sold to customers. Obviously, the products need to be manufactured before they are sold, and money needs to be invested for the purchase of the equipment up front.
Using a business loan calculator, put in the amount of money that needs to be borrowed to finance the equipment. Review current prime interest borrowing rates and add a few percentage points on top of this. Calculate how much extra cash flow the company currently has from the profit it generates monthly. Use this as a monthly payment amount for loan repayment.
You can adjust the length of loan, but I recommend making it no longer than five years (or the useful life of the equipment). For example, using a business loan calculator, if the equipment costs $250,000 and the business funding can be secured at 7 percent, this can be paid back over three years if your company generates additional cash flow of $8,000 a month.
Boost Marketing or Hire New People
To expand sales, many companies invest in more marketing to generate additional prospects. Similarly, they also invest in more team members to turn those prospects into customers and support them.
A business loan calculator can be used to determine how much you need to spend ahead of generated sales. First review how much free cash flow your company is generating from profits. Use this number to determine how much you can borrow with a one-year repayment plan.
With no underlying asset, this money will be more expensive to borrow than any business loans for equipment. For example, using a business loan calculator, you can determine if your company generates free cash flow of $9,000 a month, at a 10 percent interest rate, it can borrow approximately $100,000 for it to be repaid in one year.
Buy More Inventory
Many companies need to pay for inventory before customers purchase it. This happens during new product launches or seasonal cycles, meaning additional cash is required before the sale is paid for.
To determine how much additional money will need to be invested, a company should research what its inventory turnover rate will be. How much product they need to stock to meet customer fulfillment rates and minimum order quantities from vendors will decide how much they need to borrow.
It is a good practice not to borrow for longer than a company's seasonal cycle. For example, if, with the holidays, December is the peak sales season for a business, repay the business loan in one year. If you have two peak sales times of the year, repay the business loan in 6 months.
Again, interest rates on these loans can be less than 10 percent and the amount borrowed should be what the company can afford to pay back within six months or a year.
Fund Current Losses
Somewhere in the life cycle of their business, many companies lose money and need more cash for business funding. At these points, they look for a cash-crunch loan. These types of business loans are typically needed very quickly and can carry high interest rates of up to 50 percent.
To determine how much money is needed, forecast what your cash-flow deficit will be for the next six months. This can be done by projecting out your profit and loss statement and understanding how long it takes your customers on average to pay their invoices. Borrow only as much as you can safely pay back monthly by reviewing your past cash-flow statements.
A business loan calculator can be an effective tool for determining how much your company can safely borrow and repay over a specific period. Use one before you borrow in a cash crunch.
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