There are millions of businesses in the United States, most of them small, a few of them quite large. Many of the smaller businesses make regular use of loans to maintain their cash flow, from medical practice loans to restaurant funding options to construction loans or the best contractor funding in the area. Small business loans are vital, since a small company will have little cash of its own to work with, and some businesses are not profitable at all until several years into their existence. So, it is urgent that a small business owner knows how and where to take out medical practice loans, invoice factoring loans, and more to keep their cash flow smooth, and thus avoid bankruptcy or other cash issues. So, when it comes to medical practice loans, invoice factoring, or construction, what are some essential guidelines for taking out the most practical loans?
Medical Practice Loans Done Right
A business leader who runs a medical practice should first be confident about how much money they really need to loan, and how much is too much. Just taking out a massive loan to “play it safe” has major potential to backfire, since this may result in “dead” money sitting in the account, doing nothing but representing interest that must be paid back. Taking out a bigger loan means having more interest, and that can get out of control. But taking out a too-small loan does not help either, so a business owner may consult advisors before taking out medical practice loans. Getting a loan exactly large enough for their medical practice’s needs is ideal. What is more, a medical practice owner should keep an eye out for additional loan opportunities should the need arise, such as a chance to move their practice to a more profitable location or buy medical equipment that is on sale temporarily. Loans should be taken out only on an as-needed basis. Finally, be ready to consult the lender and make sure that they are a partner, and not just a source of money. A proper partner will help the borrower maximize value and keep costs to a minimum.
A construction company will probably need to take out some loans to complete a project, often $100,000 or more. But these loans are practically unique in how they operate. It should be noted that construction loans are broken up into pieces, and the borrower will not get it all as a lump sum up front. Instead, the construction company borrows the first piece of the loan and uses it to complete the project’s first phase. Inspectors will look over the site, and if the project is going well, then the next piece of the loan is given, and this process repeats itself until the project is either canceled or completed. It is compartmentalized, in short. And when the project is finished, the construction company will finance that loan by taking out a mortgage on the newly completed structure, then use it to pay back the loan in installments rather than a massive lump sum. One last note: if the project is canceled early, then the construction company only has to pay interest in the money that it borrowed, not the grand total of money that it would have borrowed.
Truck carrier companies charge invoices to their customers for services rendered, but those invoices take time to arrive, and the company has expenses in the meantime. So, that company can turn to invoice factoring firms, which will acquire the right to collect 100% of that invoice when it is paid in full, and give the carrier company a large up-front loan. Typically, 70-80% of the invoice’s value right away. This smooths out the carrier company’s cash flow, and once that invoice is indeed paid, then the invoice factoring company collects it all, and gives the carrier company another, smaller loan. All this may add up to 95-98% of the invoice’s total value or so, while the factoring company keeps the last 2-5% as a service fee. The carrier company sacrifices a small part of the invoice in exchange for getting most of the money up front, which is critical for small companies with thin cash reserves.