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How To Avoid Damaging Financing For Your Business

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How To Avoid Damaging Financing For Your Business

Getting financing for a company is not always an easy task. Banks constantly toughen the criteria for granting loans. In fact, if you have already requested a loan for your company, you may have realized that to obtain financing, you almost have to show that you do not need it, something paradoxical, right?

To avoid a situation that puts the company’s stability and growth at risk, reading this article will help you with some tips to prevent harmful financing.

Avoid credit through business associates

There isn’t more damaging financing than when the business associates request financing instead of the company. This procedure is usually used when the company is heavily in debt, and the bank does not want to take risks with the company. However, regarding taxes, it is not the right solution; let’s see why.

When this measure is taken, proceed as follows:

– One of the partners, the most solvent, personally requests the loan that his company needs, and lends the money to the company.

– This partner becomes a financial creditor of the company.

– The company delivers to the partner every month the amount of the loan instalment (which corresponds to capital plus interest) to make the corresponding payment of his personal credit.

– The partner includes the interests he pays as an income. However, the interest that the partner pays in a personal capacity for the financing is not a deductible expense in personal income tax.

Thus, the partner would be taxed for the collection of interest that he could not consider deductible when paying them. Therefore, from a tax point of view, it is better to get the company to apply for financing directly.

In credit policies use at least half of the requested money

Another suggestion is that, if you get to obtain a credit policy, you should bear in mind that if you do not use at least half of the money you request, the bank could put obstacles later to renew it

For example, if you want to renew it, the bank could reduce the policy limit, something that would not have happened if you had used the entire amount.

Therefore, if you see that you are not going to use the policy much at the moment, you can charge that account for payments to suppliers, or payroll, for example. Thus, although you will have to pay more interest for having more capital, the bank will not restrict subsequent limits due to lack of use, so it will be easier to renew the policy.

See the bank as your most important partner

The bank is the best credit partner that any company can have. It has the money that a company needs and does not want shares in the company in return. That is a great advantage!

However, you have to know what is essential for the bank when approving a loan. For example, you need to have a clear and realistic business plan to make them understand where you will use the money.

On the other hand, the main partners must have a good credit history. That will give an idea of correct money management for the business. 

In addition, the bank will ask many questions regarding the business model it has. You have to be open to answering all their questions and knowing in depth how the business works.

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