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Gaining Interest

Get the lowdown on interest rates and how they affect your bottom line.

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Q: What's the approximate current interest rate on a loan to a successful small business? What factors have combined to create this rate? Would the current rate be considered attractive or unattractive to business? Also, how are the current and anticipated rates of inflation influencing the rate of interest? What's the expected return on investment a business would need in order to borrow at this rate?

A: Thanks for the good questions. For information on current interest rates, visit They have all the current rates listed under the "Markets" button. It's a good resource. But remember, your rate will depend on a few things:

How long is the loan for?

How risky is your business plan?

What assets are you willing to attach to secure the loan? Many small-business owners use a home equity loan as start-up capital. This is fine as long as your business works.

How's your credit?

What's your relationship like with your banker?

Would you believe me if I told you that your interest rate for your small business isn't all that important? No matter what price you pay to borrow money, it's a legitimate business expense. All your expenses are passed on to your customers via your selling price. The number-one reason businesses go out of business? Not enough sales at the right price. Your right price is high enough to cover all your costs of doing business, plus bring in plenty of profit for you.

A percentage point or two on your financing will have no real impact on your success or failure. Find a bank or lender who will work with you and will help you learn business from their side of the balance sheet. It will be a powerful alliance, I promise. Don't go for the lowest-priced money. Look for service, and develop a real relationship with your banker.

One of the primary keys to your success is your selling price. Most folks start out way too low. If your financial plan is tight, meaning no margin for error, you won't make it. Set your prices high enough to cover all your costs, plus generate a generous profit and a bit more-because the unexpected will happen. One of your employees might quit or get hurt. The weather may throw a wrench in your delivery schedules. Perhaps your best customer will go out of business. If your selling price is too conservative, one unfortunate event will cripple your business.

A great banker can be a wonderful ally as you grow your business. Interest rates aren't nearly as important as a supportive relationship with a banking professional. Find a great banker and nurture the relationship, and you'll be well on your way to success.


Check out "Buddy Up" for tips on how to develop a friendly relationship with your bank.

Author Ellen Rohr nearly starved in her family's small contracting business--until she learned how to manage money. "Do what you love, certainly," she says, "but the money won't just take care of itself." Ellen's pricey college education didn't prepare her for real-world business. "Financial business basics aren't that difficult...but where do you learn them? Unfortunately, business literacy isn't taught in school. I teach the basics and take the mystery out of making money." Ellen's mission as an author, columnist and seminar leader is to help people make a living doing what they love.

The opinions expressed in this column are those of the author, not of All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.