July 21, 2004 -- Why is it important to plan the way you borrow?  Often, small business owners approach the subject of borrowing reactively, rather than proactively.  By taking a strategic approach to your company’s external financing, you will be able to enhance your overall business planning and, ultimately, the value of your company.

Reasons to Borrow

Borrowing needs can be divided into two main categories: short term and long term.  Short-term loans are generally used to fund daily aspects of running the business.  They essentially bridge the gap between sales made and the accounts receivable collected.  Long-term loans are for needs exceeding one year, usually to finance activities such as business expansion or equipment and property purchases.

Strategic Use of Money

Take a strategic look at your needs. Think through: 1) the reason for the borrowing, and 2) the appropriate loan for the specific purpose needed.

Return on Your Investment

To determine your anticipated return on investment (ROI), compare your cost of capital to the ROI.  Make sure that the additional profit generated by the loan will cover the cost of the loan.

In making a decision to borrow look at the big picture.  Taking a strategic approach can result in long-term benefits for your business.  For more advice on strategic borrowing, call Susanne Spinell Shuster at 215-564-1900 .

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