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Thinking of taking a business loan

Discussion in 'Business & Tax Advice' started by Meerakat, Jan 14, 2020 at 8:21 PM.

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  1. James2774

    James2774 Jr. VIP Jr. VIP Premium Member

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    There is so much you can do for free or with other people's money why take out a loan to start?
    Loans are best used for scaling.

    So many people think loans should be to help them out of a bad spot or to start their dream, but truth is as has been said, get a working business first. Once it shows promise, scale with a loan if you can or want to.

    Where do you live? 7k can be saved up by hustling in a few months Im sure. If you are dedicated to your business, than the dedication/work needed to save 7k should be no problem. If you cant save it, then its not for you imo.

    First priority should be the business plan, and then doing everything you can for free/low cost.
    Lets say youre dropshipping. You can build a shopify store easy and free, create funnels/landing pages, a start a blog, guest posts, link building, find your product, etc all for free. Why take the loan out before all that is done?
    During that time save a few hundred and test ads.
    Theres so much you can do to find success or find your step with virtually nothing in that niche.

    Same with any other business really, especially if its online.

    Lastly if you DO opt fort a loan id use the method I posted (but got taken down), open up an LLC, work towards a high credit score, and take out a 0%APR business credit card, much cheaper than a loan usually. Works for US residents/citizens.
    www.fundandgrow.com does this

    Next look into other products like factoring. If you are B2B factoring is a great way to get cash coming in quickly from your sales.
     
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  2. RonyKing247

    RonyKing247 Newbie

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    OP,
    I ma 100% sure your move is wrong, it will end in jeopardy.
    thanks goodness some have said same above.
    its better you learn with open heart here.

    You dont take out a loan and you later start thinking of which business to use it for.
    And infact you dont take out a loan to START a new business unless you have been working on a businss who'd been yielding and you have a need to scale up

    Please dont put yourself in an unnecessary pressure, take your time.
     
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  3. Mimi ^^

    Mimi ^^ Newbie

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    In my opinion, you shoud focus on 1 business first. Then after you got exactly the profit for every month then you can move to other section. I am not judging bro but running new business with loan should have perfect calculation in the future.
     
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  4. Meerakat

    Meerakat Regular Member

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    Ha-ha, this is why I love BHW :). Don't worry guys, I am just underage and not eligible to take a loan - I just wanted to see what people would say and get their opinions on why it is a risky decision or a "correct" decision.

    I do really appreciate your opinions and would love to get more opinions on this, as of now I have read each and every reply. Thanks to whoever took their time to think and reply on this matter.
     
  5. Ravi Davda

    Ravi Davda Jr. VIP Jr. VIP

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    Love this. But who knows if it's winning until you try it?
     
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  6. waytoodark

    waytoodark Newbie

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    Just make sure that it will be worth the risk.
     
  7. perrymason

    perrymason Jr. VIP Jr. VIP

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    With the current banking situation you could borrow money at a very low interest rate.

    Just make sure your startup idea is golden and be ready to work like hell to pay up the note every month, no matter what starting a business ain't easy.
     
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  8. BassTrackerBoats

    BassTrackerBoats Super Moderator Staff Member Moderator Jr. VIP

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    You are recommending factoring?

    I'd never do that and I've been in business for 40+ years.
     
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  9. James2774

    James2774 Jr. VIP Jr. VIP Premium Member

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    Id also like to add to this that "start up" does not mean "start from zero"
    I mean i guess it can, but most "start ups" are working businesses that have been in business for 6 months or longer, without a business you arent a start up, youre simply not a business yet and there is a difference.

    people have it in their heads that they are a start up often, and
    Well I didnt say to get it, I said there are other products not just traditional loans that can help grow a business. Its certainly less risky than a traditional loan if you could utilize it, bc its backed by a receivable, a good already sold.
    Why not? Its all case dependent, lots of companies factor for good reason.
    Its a much better cost of capital than say a cash advance (anything is of course and Im surprised at how many people take them out considering other options), its quick cash flow and much faster then taking out a loan or any other product if cash is needed asap, and a factoring facility in general can gain you access to a cheap LOC by combining your equipment, land, all assets in general with receivables into one LOC.

    You can also gain access to P/O financing if your factoring company offers it.

    I have one client a cannabis manufacturer who is acquiring factoring now, and that is going to gain him 15 new retail stores to distribute in, as they wont take his product unless he offers 60 day terms. His other clients are now more likely to place larger orders and give him preferential treatment over other suppliers who do not offer terms.

    You can also use it to scale. If you are receiving orders faster than you can scale with cash, and are already on terms, factor them to get cash faster and move to your next order.

    In all, it costs what, 3%? Youre paying $30 on $1,000 order. 300 on 10k. The cost of it is really nothing in the grand scheme, if the cash advance will benefit you, where else will you get that? Its also easier to get than a traditional LOC.


    Also sure plenty of people use it and put themselves in a death spiral, truckers for example.
    ANyway im open to hear why you personally would never, Im not arguing that they are great, they fit their need like anything else. Hell even an MCA can have its place I guess.
     
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  10. xpro

    xpro Regular Member

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    I would not do that! Save your money then start your business. A lot of new businesses fail.
     
  11. t2van

    t2van Regular Member

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    100% agree.

    Best way to get screwed over... THEY work if everyone pays but people don't look at how many "big" companies are going under on a quarterly basis and I doubt there is even a number for smaller business...

    If you factor against an invoice and the client goes out of business or does not pay.

    You are left out of pocket with the client. Goods or service time can not be recovered and on top of all of that, you still have to repay the cash advanced.

    If you need the money, the client has a history of paying on time, then great but even then it's still a risk.
     
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  12. simplify

    simplify Jr. VIP Jr. VIP

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    ".. Like a mad man" Lol
    In fact, that is the 100% truth.

    OP, if you are not 100% sure about the ROI, then you are stuck. And that's risky so it's usually a wrong move. To be honest.

    Please make do with what you've got right now and scale up gradually.
     
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  13. James2774

    James2774 Jr. VIP Jr. VIP Premium Member

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    Ah ok so recourse being the problem here.
    Yes good point.

    If the client does not pay after terms, you are left to repay the factor the advance. However non-recourse is available (though less so sometimes)

    My cannabis company is 100% non recourse.
    You can also look at a P2P invoice exchange called https://www.hiveterminal.com/en/
    This is non-recourse as well as the invoice buyer assumes risk of non/delayed payment.
    You may also get your clients to pay you with behalf.com, not factoring but the same idea, your client signs up and is given terms/credit through behalf.com, im almost positive that the risk is carried by the customer, not the business.
     
  14. BassTrackerBoats

    BassTrackerBoats Super Moderator Staff Member Moderator Jr. VIP

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    I've familiar with factoring and other alternative finance options and know that the costs are extreme compared to traditional LOC. Sure, that is easy money to get but 2 finger Louie down the road is also easy money.

    Same with merchant cash advances... super easy to get (I've sold them myself when I had a financial services firm) but very expensive money.

    I know some companies using a factoring service as part of their business model and they have margins that gives them reason to do so but for most businesses it makes no sense.

    There is probably a place for those and other "hard money" options but I would never recommend expensive money when there are other avenues most can pursue.

    Back when I sold money I'd pursue the other avenues for my clients long before going the dirty route.

    Not saying you are out of line in your recommendation just discussing the subject and doing so as a regular member and not as staff so please don't take this as a personal attack.
     
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  15. James2774

    James2774 Jr. VIP Jr. VIP Premium Member

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    No way no offense taken not at all, I offer to get people out of MCA, but ill certainly sell an MCA if thats all they can get.
    Its honestly the best replacement for those types if they can get it, bc their bad credit doesnt matter and the money comes just as quickly and much cheaper than an MCA.

    Most of those clients do not qualify for a LOC by far, at least clients who are looking for cash. Its the people who arent looking that should get a LOC now so theyll have it when they need it.

    In his case, of a startup, its also much easier to factor and P/O finance, who is giving a LOC out to a new business? Not really anyone tbh. So youre a year in or less and want to take on more orders, need cash, or want to be more attractive to customers by offering terms, factor is def an option that allows you to sell more and get cash faster. Youre paying to grow fast however.

    Id certainly look for non-recourse however, and building a relationship with the factor early on.

    And yes def margins matter.
     
  16. t2van

    t2van Regular Member

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    So... IF they don't pay your invoice you don't need to repay the cash advance? Sorry can't see that happening neither can I work out, how it would work... I'm not just talking about the client not paying after "28 days" or whatever but that client going out of business as well.
     
  17. BBulldog

    BBulldog Jr. VIP Jr. VIP

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    All of the members above gave you a proper response, but I want to add that - you don't even know what you want to open, but you're thinking of taking a loan? That kind of thinking will get you into trouble fast. Money in itself is just temporary and won't solve your problems. Not to mention that you could "easily" earn those $7k if you put your mind to it.
     
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  18. BapeWars

    BapeWars Junior Member

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    Like @BBulldog said, you don't know what you want to do. Most people who take out loans know exactly what they need it for, and what they need to spend it on. Saying you may spend bits of it on dropshipping, bits of it on Instagram, a little on YouTube + CPA is a massive cause for concern.

    Go back to the drawing board. There's no reason to rush this especially when it comes to loans, which by the way, have insane interest rates nowadays.
     
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  19. onlinemarketer12

    onlinemarketer12 Power Member

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    It is very risky, better to earn that money on your own by doing freelance work or doing a job.