How to set up accounting books for your business

How to set up accounting books for your business

Lesson Details:
March 02, 2020

I: Introduction

A small business loan is a main source of financial support for small business owners who may need additional capital to expand their operations. A small business loan can be used to buy inventory, pay off debt, pay rent or cover other operating expenses.

Banks are the most common sources of small business loans, but other financial institutions such as credit unions, leasing companies and financing companies also provide capital for starting and growing businesses.

Banks provide business loans to businesses with good credit histories and strong collateral. Most small businesses do not have sufficient assets to provide collateral, so banks require small business owners to put up personal assets for security. Personal assets include real estate, stocks, bonds, insurance policies, automobiles and other items that are not necessary for day-to-day operations.

Small businesses that pass the bank’s credit requirements are evaluated to determine the amount of the loan. The business owner’s financial statements are examined closely to determine whether the company can afford the loan payments. The number of employees working in the business is also considered because larger companies are more likely to make their loan payments.

II: Body

A small business loan can be used to finance any kind of asset, but the most common use is to purchase inventory. Inventory is an important part of running a successful business because it ensures that there are enough supplies on hand to meet customer demand. Without inventory, a business owner would have to place orders each time a customer ordered something. If inventory is not readily available, customers can take their business elsewhere.

Businesses typically keep an average of 30 days’ worth of inventory on hand so they can fill customer orders. Business owners can use a small business loan to purchase additional inventory when they have sold out of stock. This allows them to maintain steady sales and avoid making customers wait too long for their orders.

Businesses sometimes use a small business loan to pay off debt. Paying off debt frees up money that can be used to make investments and expand the company. Companies also use loans to pay off debt when interest rates are lower than the rates at which they borrowed money before. Paying off old debt with new debt is called refinancing debt. Business owners often refinance debt when they want to take advantage of better interest rates before their old debt matures.

Many small businesses purchase their facilities with a small business loan. They must use a commercial property lender to borrow money for the purchase because banks usually do not lend money for this type of investment. Commercial property lenders charge higher interest rates than banks and require additional collateral, but they allow borrowers to take advantage of lower down payments and shorter repayment periods than banks offer. Commercial property lenders also evaluate borrowers based on their credit ratings and financial statements rather than their credit history and collateral.

III: Conclusion

Course content