Businesses start and they close. That’s a given unlikely to change. 

However, there’s one way to keep businesses thriving that many business owners hesitate to pursue. They fail to apply for a small business loan to avoid going into debt. 

Why?

It’s because they’re uncertain whether they can repay the loan.

When your business needs to move from A to B, debt can be a good way to keep growing. If going into debt seems too scary, business loan calculators (like the one Camino Financial offers for free) are a proven technological tool to help you decide whether to take out a loan. You know how much you’ll pay before you ever contact a lender. 

Let’s first review the history of how businesses succeed and fail.

Statistics on the life of a business

The US Census Bureau reported in 2018 that business applications have been on a steady increase since 2004. In the third quarter of 2004, there were approximately 575,000 business formations compared to roughly 790,000 in the first quarter of 2017.

By the same token, a 2018 Forbes report indicates that 80% of small businesses survive the first year. Only 45.4% to 51% of small businesses survive to five years, with only one in three businesses reaching the 10 years mark. That’s businesses fail to develop products that meet the needs of consumers, insufficient capital, wrong staff members, fierce competition, and pricing.

There’s more to this story. When business owners don’t have enough working capital, they tend to ignore the problem or take out a loan and default on payments.

Debt, getting loans and failing to repay

In 2017, US News shared a report by the National Small Business Association indicating that 73% of small businesses got financing mainly through loans, venture capital, credit cards, and crowdfunding. 

The NSBA statistics indicated that 31% of the businesses couldn’t grow their businesses or expand operations, 14% were unable to increase sales, and 13% reduced the number of employees by not having access to more capital.

Even when businesses qualify for loans, some can’t pay off the debt.

Dun & Bradstreet 2018, Industry Delinquency and Failure Report indicated there is an overall 5.4% rise in business failures and an overall 3.2% rise in delinquency rates. The construction industry had the highest increase in business failures at 21% and the automotive sector jumped to a high delinquency rate of 5.6%. 

The report indicated that steady Federal Reserve rate hikes and the trade war between US and China may have contributed to businesses struggling to keep their doors open.

These failures could be avoided with a business loan calculator.

Having more answers than questions about financing is how business owners avoid defaulting on payments. When you know beforehand that you can comfortably repay a loan, you won’t mind going into debt temporarily.

Business loan calculators are handy gadgets you can use to enter loan amounts, terms, and interest rates to find a comfortable loan amount for your business. Within seconds after entering the information, the online calculator provides real costs for you to review. 

You’ll know the fees associated with taking out the loan, total interest paid, the payment amount, and the total costs to take out the loan. At any time, you can reset the calculator to create different scenarios and find the right match.  

Additionally, you should only get the loan if the loan information meets two other requirements.

  1. The monthly payment shouldn’t exceed 80% of the net profit.
  2. Total loan costs must not exceed the expected total return after making the investment.

For example, if your net profits average $900, your monthly payment shouldn’t exceed $720 and an estimated return of $14,000 compared to $11,000 in costs means the loan is a profitable solution to improve cash flow.

If data you input into the business loan calculator doesn’t meet the above criteria, you’ll know right away to pursue other financial solutions so you don’t jeopardize your business’s future. 

Taking the right step forward means success

By now, you can see the importance of thinking through whether or not you should get a loan. 

When you have all the information at your fingertips, you can make a hard business decision easier and move forward confidently. 

A business loan could be just what your business needs. Why not use a business loan calculator to help you sort through your financing options? Then, you can contact a lender and know what to expect before you ever commit to a loan.

Are you ready to have a thriving business?

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