Repayment of a business loan requires that the borrower make a monthly payment back to the lender. That monthly amount includes a partial repayment of the loan principal, plus monthly interest on the outstanding balance. Loan payments are amortized so that your monthly payment remains the same during the repayment period, but during that time, the percentage of the amount that goes towards principal will increase as the outstanding loan balance decreases.
Debt consolidation loans allow businesses to transfer the account balances from credit cards, lines of credit or installment loans into a single loan and to make a single monthly payment. For debt consolidation loans to be beneficial, the repayment period for paying off the consolidation loan should be shorter than what it would be for your existing debts without the loan. Secondly, the interest that you pay over the repayment period should be less than what you would pay with your current repayment terms.
Financial ratios provide a means of measuring the overall health of a business. While numerous tests exist, the most popular measure the overall health of your business analyzing income, liquidity, assets, debt and profitability.
Income Analysis
Even if a business is profitable, it might fail because it is not generating enough cash flow. Money that is tied up in inventory and receivables is not available to help the business pay its bills. You can vary inventory levels, payment terms, and other variables to find the formula that is right for your business to make sure you are generating a positive cash flow.
If you are trying to pay down some of your business debt, you might be wondering how long it might take by making the regular payment, or what the impact might be if you increased the monthly payment each month. If you increase the monthly payment, the amount of the increase typically gets applied directly to reducing the amount owed, or principle. Reducing the amount of money you owe will reduce your interest charges each month, as the interest rate will be applied only to the outstanding loan balance.
Does it make better sense to buy or lease a new piece of equipment? That depends on several factors, such as the residual value of the equipment you intend to purchase, the amount of money you pay up front as a capitalized cost reduction and the cost of financing. A lease will usually be a more attractive option when compared to an equipment purchase when measured over a comparable term.
Business lines of credit often have more flexible repayment terms than a standard business loan. Business loan payments are typically fixed over the repayment period, while business lines of credit can offer interest-only payment terms, or outstanding balances can be repaid using a variety of repayment strategies. Companies with uncertain or fluctuating revenue streams, such as startups or seasonal businesses may benefit more from the flexible repayment terms a business line of credit offers.