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Knowing How Much Money to Borrow For Your Business

Posted by attorney Robin Gronsky

When you are thinking of borrowing money (from a bank or a private lender), you must be precise about how much money you need to borrow. You need to research what all of your costs will be in order to know your bottom line number.

For example, if you want to borrow money to buy real estate, you will need more than just the purchase price of the property. The buyer pays for the legal fees of his own lawyer as well as the lender’s lawyer, the title examination and insurance, environmental study fees, building inspection costs, as well as all of the lender’s costs – tax service fees, flood search fees, appraisal fees, and surveyor costs. Plus there will be application fees and points and other closing costs.

If you are renting new space, you may need to pay architect fees, space designer fees, moving costs, utility deposits, telephone installation costs, signage, printing costs for new stationery and business cards, and other not-so-obvious costs.

If your business is growing and you need a loan to make more product to sell, you may need to spend money to pay for storage of additional inventory, to pay for additional machinery to make the extra products, costs for additional employees, higher insurance premiums, and higher utility costs.

Only when you have investigated the true costs of what you intend to spend the loan proceeds on will you be able to back into the amount that you need to borrow. In order to determine the correct loan amount to take you will need to assign a cost to every operational, financial, or developmental aspect of your business need. By researching all of your costs needed to implement your business strategy, you will have a better idea of how to enact your strategy. And this level of research and planning to insure that you will borrow enough money to carry out your business plan also shows your lender that you fully understand the task that you are undertaking and therefore are in a better position to pay back your loan. This will make it more likely that a lender will approval your loan application.

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