All Home-Based Entrepreneurs Need Access to Capital
By Richard A. Henderson, Publisher of Home Business Magazine
|“One trend important for raising capital involves current interest rates. And it is a good thing.”|
Whether a new start-up or an establish business that seeks to expand, all businesses need to raise capital. It’s not just a start-up thing. In fact, access to money and capital can be most critical for established businesses when they hit "soft stops" and require operating capital. This risk becomes more acute during times of economic downturns, when unsecured small businesses are often last on the list to be paid.
The sources of money are nearly endless. Just two decades ago, prior to "The Internet Age," primary sources of capital were from traditional banks and money lenders. As businesses and investors became linked through the Internet, sources of capital greatly diversified. So use the cover story to brainstorm through the widest number of options for raising money. Access the Internet to research capital sources and to better understand key financial trends.
One trend important for raising capital involves current interest rates. And it is a good thing. Despite record levels of money supplies and debt across all industries, interest rates remain at historically low levels. Significant factors behind artificially low costs of capital are ongoing recessionary consumer and business demands. Overall low demand keeps rates low. So whether accessing a traditional business loan, using the Small Business Administration (SBA), or going hi-tech by linking together multiple investors through the Internet, the cost of interest to access that capital is about as low as it has ever been.
The flip side of the coin is that interest rates and costs of borrowing could rapidly change from historically low to unsustainably high. Not only could a sudden rise in business and consumer demand push up internet rates; but inflation due to devalued money could push up rates, too. So the lesson learned is access capital now! Don’t delay. Interest rates will only go up. When you negotiate rates on business capital, bargain for slightly higher rates if you can lock those rates in for longer durations.
Another important part of raising money is to "un-raise" that money — to pay it off. The lure or trap of low interest rates is that you can end up carrying large levels of debt, at little monthly cost, that stays "hidden" on your books. Burdens that become a cancer on your business’s health, the way our $17 trillion dollar national debt has become a cancer on America’s financial health.
If rates rise to anywhere near where they should be, the interest rate the U.S. pays on this debt would approach $1 trillion per year (instead of the current ridiculously low $250 billion). There should be no higher priority in our government than dealing with this debt, before it collapses the economy. Unfortunately, high levels of polarization and partisanship in Washington DC continue to prevent a rational dealing with the issue.
Economic solutions that maximize consumer demand and raise average national income will be the most beneficial to the home-based business sector, and to all business sectors. Increased income translates into increased purchases of goods and services generated by home-based businesses. Support policies that reach these goals, and don’t get distracted by today’s polarized sloganeering. HBM
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