Need To Borrow Money

Why do I need a loan or need to borrow money in the bank? Often the specific demands force us to seek a loan of money. Most people must have a specific reason to borrow money. Some of them their reasons for buying or renovating your home, pursue higher education, a memorable wedding, starting your own business, investing in the right time, taking advantage of the sales, emergency conditions, to purchase valuable items.

Should ensur money for business expansion? Business expansion is positive but need to do this calculation. One is whether to borrow from banks to meet funding requirements. Companies ready to face the consequences of this move? The consequence is that they need to borrow money in the bank.

Although the general state of the economy had fully recovered, many companies felt it was time to expand or business expansion, as demand increases and capacity is full. In the case of consumer products such as food and household needs, it is.

Of course not all businesses have the same. The property sector is still not quite feel the movement striking demand. The banking sector has not felt the need to expand by opening new branches after so many banks suspended business activities and so many bank branches were closed.

Reluctance expansion is one of the main obstacles why banking funds can not be disbursed to the corporation as expected. Instead the company to expand in respond well by the banking sector, although there are still major concerns for lending large amounts, as it was before the crisis.

Banks still tend to act very conservative by cutting demand for credit and also ask a lot of collateral in the form of fixed assets. Bank's conservative attitude is a good brake for many companies already thinking to expand and want to borrow more from banks.

Often the company's management was annoyed that credit demand was rejected by the bank for various reasons. Those who first denied credit demand in 1996-1997 should thank those who refused, because that's what saved them from getting into trouble during the crisis.

Instead they are presented with a lot of credit, and in a short time to absorb so much of the credit had experienced a lot of difficulties during the crisis. For expansion, the fund does not always come from the company's own internal expansion especially if done with the addition of land, buildings and machinery which is quite a lot, in a relatively short time.

Certainly not enough time for companies to raise enough funds and almost certainly needed funding from new investors, banks or other financial institutions. Nothing is free. Loans from banks and financial institutions and investors there is interest also asked for an adequate rate of return on investment of any kind. The company expanded to take into account good care of all that.

Companies should look at its ability to generate earnings in the past and also have to take into account its ability to generate additional earnings after obtaining a loan, after paying the interest on the loan he used.

The company has always considered that the credit earned will definitely increase sales and thus increase operating profits, such that the company will have more ability to pay greater interest.

The past is a sure thing because it happened but the future is a certainty estimate is doubtful. What is certain is uncertainty. The best estimate is an approximation that is expected to protect both debtors and creditors.

Estimates can be missed. Many macro factors and other factors beyond the company can not be controlled. Past success does not just be repeated. Management must take the best case scenario and the worst if only calculation misses, unfulfilled sales and costs were higher than the past.

Do not just see the bright sun without the possibility of dark clouds or heavy rain. The main concern should be directed to the profit and loss and cash flow over the last year.

Cash flows

Not one to estimate the increase in cash flow after expansion but should also take into account the scenario if sales rose only a little or no rise at all, whether the company is able to meet its obligations to the bank.

Loans can not be based solely on the value of the guarantees given. The loan must be based on the company's ability to meet interest obligations and mortgage or the so-called sustainability of debt. Buy more assets with borrowed money can be done easily by anyone.

The question is whether the addition of these assets is necessary and whether additions will indeed increase sales and profits. For companies that require management capabilities that are not only successful when the size of the company is still small but still a great time to be larger firm size.

Human resource factors or resources should receive the attention of the brain itself, as the company expanded and became the greater will definitely face problems far greater its magnitude. That usually is not a problem is the ability of the company to increase production.

Usually also not be a problem to take care of financial and administrative aspects that are becoming more complex but they are not comparable to the problem of rising sales. There is no point in adding an asset without being able to generate more sales.

If operating income is not sufficient to meet the interest obligations, the company will suffer losses, may not even have enough money to pay the interest. If so, then the company may only be paying interest on the new loan. It hurt because the new loan will add to the interest.

Therefore, before expansion, before seeking additional loan, make sure first that the sale could be improved and greater profits can be generated. The entire preparation should be done carefully, in order to avoid 'surprises' or shocked-shocked unnecessary. The expansion was intended to make the company become bigger, not to shut down the company due to a fatal error.