There is truth in the phrase “It takes money to make money”, and applying this truth to your business can help you reach the next level in your financial success. The phrase “Most businesses fail due to a lack of investment capital” is also true and for business owners who seek to expand their business model to generate more income, one key ingredient to making this happen is working capital, aka MONEY.
For many, time costs money, and when a business lacks money to build their business model and expand their operations, they also lose time that the business can actually exist successfully and keep their doors open without depleting their entire budget.
This is where the power of leveraging your business can turn itself into a miracle of success.
As a business owner, it is key to understand your profit margins in order to understand the type of loan your business can afford to take on. Let’s take a simple scenario as an example for how to take a loan and make it work in your favor:
If you sell a tee shirt for $5 each on the street, and you bought that tee shirt at $1 from a wholesale supplier, your net profit is $4 and your profit margins from spending that one dollar are 400%. Let’s say you don’t have any cash, or prefer not to use your own cash, to buy the tee shirts, so you decide to borrow $10 from someone and agree to pay them back $15, that’s basically 50% interest. Now you used the $10 to buy 10 more tee shirts and end up selling the all the tee shirts you bought for a total of $50 in gross revenue. You then pay back the lender their $10 plus the $5 in interest. Your net profit is still $35 and your profit margins are still at 350% and you are running a profitable business despite borrowing money at 50% interest! This simple example can be expanded and scaled at a much higher level, and seeing the bigger picture can still be related back to this simple business model. Looking at a business’s profit margins can help determine how it can afford to take on a loan.
When we take this example of leveraging more money to buy more resources at a lower cost, investing and selling services/product at a higher rate of return to generate more income and more profits, using the net profits to save and re-invest into your business to increase efficiency and improve overall financial effectiveness, we can create a whole new game. Sounds easier said than done of course!
In conclusion, leveraging the business model’s profit margins are key to determining how much a business can afford to borrow as a loan and have that business reach the next level of its financial growth.
For more information on business loans, please see these articles below:
What Small Business Loan is Best for You?
How to Get approved for a Business Loan?
How to Get Approved for a Business Line of Credit?
Secured vs Unsecured Loans
For More information on how to get Approved for a Business Loan, please contact the company Credit Line Capital.