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Small-business owners who have never borrowed money are usuallyproud of that fact, but sometimes not taking out a loan can hurtyou.
"Borrowing money is necessary for most growing companies.That's the way small businesses break out and becomelarger," says Tom Kellogg, president of Hartford,Connecticut-based Business Lenders Inc. The company, which hasoffices in Connecticut, Massachusetts, New Jersey, New York andRhode Island, is one of the Northeast's most active SmallBusiness Administration lenders.
A loan can also help companies that have problems paying billsor need to pay off creditors and improve cash flow.
When should you think about seeking a loan? Business Lenders hasidentified nine instances when you should consider a loan. The topthree:
1. You want working capital to add employees, increase long-termsales and generally help the business grow. "Companies cangrow using internally generated capital, but it might be muchslower growth, and they will be exposed to risk for an extendedperiod," says Kellogg.
2. You want to increase your market share. To carve out a largershare of the market, you may need to offer more favorable terms tocustomers and take on new ones who are creditworthy but slow
payers.
3. You want to take advantage of early-payment discounts.Suppliers may offer discounts on invoices paid within 10 daysinstead of the standard 30.
Other reasons to consider a loan are to purchase new equipment,refinance existing debt, establish a relationship with a lender,buy a commercial building or hedge against a downturn inbusiness.
On-Site Planning
If you're confused about retirement planning, a trip onlinecould help. Diversified Investment Advisors and Aetna RetirementServices have each created interactive Web sites to educate usersabout retirement savings options.
The Diversified Web site (http://www.divinvest.com) usessimple games to help users understand concepts and providesworksheets users fill out to determine risk tolerance. Theworksheets use variables such as age, current income, expectedretirement age and retirement goals to calculate how much money youshould save annually to meet retirement needs.
The Aetna Web site (http://www.aetna.com/financial/investment)is geared toward people who already have a basic understanding ofinvesting. It uses interactive tools to identify users' risktolerance, then creates a sample portfolio. Aetna says the siteworks just as effectively for those with $100 to invest as it doesfor those with $100,000. Users can also analyze their currentsavings accounts and investments to see where changes areneeded.
Border Crossing
If you're investing solely in the U.S. market, you could betaking unnecessary risks, says Paul Melton, publisher of TheOutside Analyst newsletter, which compares stocks from morethan 15,000 companies in 42 countries.
"[The danger is] market risk, which is anywhere from 25 to50 percent of total risk, and stems from the tendency of stockprices in any one market to rise and fall in unison," explainsMelton. (Nonmarket risk, on the other hand, is risk inherent in thecompany, such as a management scandal or a drop in earnings.)
To reduce market risk's effect on your portfolio, Meltonadvocates investing globally, which he explains further in his newbook, The Financial Times Investor's Guide to Going GlobalWith Equities: Make Investment Gains Across Frontiers (PitmanPublishing). The book targets long-term conservative investors witha minimum time frame of three to five years.
Melton recommends you don't begin global investing until youhave $250,000 to invest, but adds that those with less than thatcan go the mutual or closed-end fund route. His book explains thoseoptions as well as other ways of investing in foreign shares,including direct purchase through foreign stock exchanges.
Contact Sources
Aetna Retirement Services, (800) AETNA-60, (http://www.aetna.com/finmail.htm);
Business Lenders Inc., 15 Lewis St., Hartford, CT 06103,(800) 646-7689, (860) 244-9202;
Diversified Investment Advisors, (800) 770-6797;
The Outside Analyst, fax: 011-31-206738161.
