Managing Debt for SME

Having a debt management for a growing business can be an effective way of doing business. Some small business owners are proud that they never have a debt. it is not always a realistic approach. Growth often requires large capital, and to earn the money requires you to seek bank loans, personal loans, a revolving line of credit, trade credit, or other forms of debt financing.  Then the question arise is, how much debt shall be required ? The answer to this question based on a careful analysis on cash flows and the special needs of business and your industry.

Guidelines below will help you to analyze whether taking a debt is a good idea for your company or not.

Consideration of Proposing Loan/Credit

There are several logic reasons to take a debt. In general, debt can be a good idea if used to enhance or to protect the cash flow, or to finance growth or to expansion. In this case, borrowing costs may be lower than the cost of financing, it moves through sustainable income.

Some common reasons for seeking a loan are include:

1. Working capital. When you are looking to improve or increase the supply of labor or inventory.
2. Expanding new markets. When companies enter new markets, they often face longer collection cycle or must offer more favorable terms for new customers. Loan funds can help to overcome this period.
3. Capital spending. You may need to finance new equipment to move the business into new markets or expand your product line.
4. Improving cash flow. If you still have a long-term debt of less than 10 years, refinancing can improve your cash flow performance.
5. Building trust with the lender. If you have never borrowed before, taking out a loan can help in developing a good payment history. It can engender trust and helps to obtain future financing with greater ease.
6. Planning effectively.

Before taking a loan or other financing types, you should plan your capital needs. The worst time to take any kind of debt is when you in crisis. Sudden loss in business, unable to pay salaries, or other emergency that forces you to immediately take out a loan, and put you on a very unfortunate position. A capital budgeting will allow you to predict how much cash needs, determine what will be needed and when it is needed. This will give you extra time to explore all possible borrowing sources and negotiate the terms that is most profitable. Capital budgeting should consist of a complete review of the Balance Sheet to help you analyzing the cash flow, assets and liabilities. You also need to make pro forma statement, which is projected balance sheet for the next 1-3 years.

Better Short-term or Long-term Debt ?

Besides the right reasons you consider before taking out a loan, you also need to ensure the right type of loan that will be taken. For example, you take short-term loans while the long-term loan is more appropriate. This could lead to financial problems, because the monthly payment is big enough and you have not enough money to pay it.  Then you may make decisions that are not necessary, in example to sell business assets, to meet  your liabilities.

In general, the use of short-term loans are for short-term needs. This will help you avoid higher interest burden and more stringent than the condition of long-term loans. For example, if you are experiencing a rapid increase while sales - such as those caused by increased seasonal demand - then you should look at the short-term loans. If the growth will continue in the long term, take a look at other long-term line of credit expansion based on sales, receivables, or the ratio of inventories. The term of your debt will have no impact on the debt to equity ratio. However, you will see changes in liquidity indicators such as current ratio, because currently only covers the debt obligations that must be repaid within one year, instead of debt that matured in the coming period. Thus, the positive long-term loans can affect your liquidity ratios.

New Debt Should Be Based on Current Needs

While the low interest rates and cheap money are interesting you, you may be tempted to take out a loan to buy equipment or to make other capital expenditures. If that is what happened with your business, be sure to base your decision solely on your current needs. Possible increase in tariffs is not a reason to spend money on something you do not need. For example, if you need additional computer equipment, you may want to take out a loan to buy it. However, buying additional computers now because next year the price will be more expensive, has not enough justification to buy them. You will get stuck with unnecessary equipments and debt must be paid.

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Guidance in Buying Insurance

1. Select a healthy company with a reputation of insurance agents and claims service is good. There are certain health ratios for insurance companies which can be accessed at each portal or portals insurance association.
2. Find a product with the lowest cost, find insurance providers that offer the cheapest prices for products that required protection. Alternatively, search the resource persons (agents) who are educated and trained insurance. With his help, determine the amount of protection required.
3. If you have a need for living expenses when the children grow up, pay the mortgage, pay the kids college tuition, purchase a term life insurance. If you do not have the need to pay property taxes, to support school children with Down syndrome at home, continue to support social institutions after death, providing additional income for life for the spouse left behind, then buy a whole life insurance.
4. If no person who depends on you financially, do not buy life insurance. Do not buy life insurance if you do not need, for example, when we are still very young, because we died a smaller probability.
5. Buy a term life insurance if you need such a large but limited budgets, for example, to those who have small children. If the child grew, working parents need to purchase an additional policy. For young families, purchase of life insurance products that ensure the rejuvenation options contracts based on market developments and the conversion became permanent. Compare the costs and types of insurance protection offered by your office work versus purchasing their own insurance, because there minusnya plus appropriate conditions respectively.
6. Increase the protection of your family by purchasing an individual life insurance products and not from an office or other parties (if any) for protection will be terminated (for reasons of work that causes us to move the suspension of premium payments the insured is still alive).
7. Do not compare with the cash value protection died, as if expecting the value of investments at the end of the period of protection (we do not die) so often we are disappointed to see the cash value will be equal to the premiums already paid. The need is to prepare that gives adequate protection death benefit on the left so it does not create financial problems in the future.
8. Consider what is optimal for you, buy property insurance and credit insurance from a bank mortgage providers (insurance companies and diversified insurance policy for the various needs of) or buy an insurance policy that can protect the entire needs of the people we leave behind. This is because we must compare what the optimal benefit and which are most appropriate use condition when the family left it in case of risk of death.
9. If your spouse also works, you should insure your spouse earning potential. If the party who dies is a greater income, then if not insured will cause new problems.
10. Calculate your insurance goals, record and list the name and address of insurance, policy number, value death benefit, the beneficiary, the insurance agent's name and telephone, the policy effective date, and location of initial policy.

You love your family and children? Wise and prepare your insurance policy now

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Plan Your Finance

Learn to think in terms of spending money, by considering the following questions:
1. What are my purchases are items I really need?
2. Is this a need or a desire?
3. Is there another alternative for the goods that we need those with a lower price with good quality ?
4. Can these purchases be delayed a few moments?

In short, if can not buy, do not have to buy. It is not being so stingy, but do so wise and clever to determine which is necessary and which is not necessary. Try the simple life, so you shall be more easily in managing your family finances.

Make an analysis of your spending and set financial strategy further by looking at:
1. Priority Scale. Just determine which one is the expenditure priorities. Then immediately eliminating unnecessary expenditures.

2. Percentage of expenditure. Just calculate how much of each type of expenditure to your total expenditure transactions, then sort of the greatest to the smallest.

3. Learn how you can be big spending, is the nature of need large ? if yes, it must be diminished, especially related to the consumption.

4. Create an analysis of how much money you use for consumption, how much money is used for investment, how much money used to pay your obligation.

5. Learn your shopping patterns, whether you are shopping with a credit card or by cash, whether you are shopping with a shopping list or not, where you shop, what attracted to any discounts are not necessarily proficiency level in these items you need.

The aim is to ensure that expenditure is an expenditure that you are smart and wise, that is shopping only for the real needs to be spend , and make sure you firstly cut of at least 10% of your income to put aside for the future of your family.

Do not let your big pin from the mast, which is ultimately your own deficit and dizziness.
Save and invest your money wisely for future needs, do not be wasted to satisfy today's consumptive lifestyles.

Strategies to form a large net cash flow is to increase income and reduce expenditure amounted to perhaps as little as possible and then use the surplus or net cash flow for additional investment and / or long-term financial needs and protection of families and increase your emergency reserve funds when you still have not fulfilled . If necessary, you need to make radical changes in spending patterns or shopping, so that you become healthier and produce instant profits for your family.

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Requirement of Credit Proposal to the Bank

Now, we will talk about common terms apply for credit in the bank. Like when going to open a savings account at a bank, you will be asked to submit copies of identity as ID cards, driver's license or passport. You are also asked to fill out a form that contains the data to opening your personal savings account. The goal is that the Bank has the right information, so it can identify yourself as a legitimate and entitled to make transactions from your account.

That is if you want to save money in the bank. Now what if you want to borrow money from banks? Here, the banks who lend funds as a party called the lender and the borrower of funds from the bank called the debtor. The requirements for applying for credit/loans in the bank is simpler than one might expect. Even the condition is actually quite easy. But of course, there is more data that must be completed than if you open a savings account. It is natural. Either the bank or you certainly will take a care and would not just lend money to any person if it is not certain that your money will be returned. It is different if you give it as a donation or gift.

To judge whether the candidate is given a credit worthy borrowers, then the bank must obtain the correct and accurate information, such as the character of the debtor, its current fund, the effect of current economic conditions on borrowers income, collateral was filed, and much more. Approximately the same as you, any bank in the credit application that receives incoming proposals shall implement the principle of carefulness in lending money. This is required by laws regulating the banking sector in worldwide.

Remember that for every penny that is channeled back into the community by the bank is owned by the community as well. For each customer funds in the bank, the bank promised to return it to customers at any time with interest. Therefore, banks are always doing various kinds of credit analysis to assess the credit worthiness will be given to prospective customers. Anyone can apply for credit/loans to banks as long as eligible. In general, bank debtors divided into two major categories, namely individual debtor and the debtor company (again, the debtor is the party that borrows money from a bank).

Here is a bank requirement of each class of debtors.

First is Individual Debtor. Individual debtors consist of a variety of professional backgrounds, such as doctors, artists, civil servants, fashion designers, architects, private employees, vendors, and others. Every profession has its own signature by the bank divided into three categories, namely entrepreneurs, employees, and professionals.

The requirements requested for each individual debtor generally are :
1. Copy of ID cards or passport.
2. Copy of marriage certificate (for those who are married). Banks ask for a copy of marriage certificate for borrowers who are married is to know whether the secured property is a property with husband and wife or not, so both the wife or husband are consent and the debtor may be asked to take responsibility for the property as collateral to the bank follows a number of debts.
3. Copy of family card. The same as number 2 above and also to determine whether the prospective borrower also bear the cost of living other than himself.
4. Copy of deposit account in Bank anywhere between 6 to 3 last month. This data is required the Bank to conduct financial analysis prospective debtors, in order to measure how much income debtors who can set aside to pay the monthly loan installment.
5. Copy of monthly paycheck and work certificate from the company. This requirement is only applicable to prospective borrowers who work in a company, government or private. The aim is to ensure that prospective borrowers are working there and have a steady income every month.


The second is Entity Debtor or Business/Company Debtor. It includes companies such as CV, PT, firms, and others. The requirements are :
1. Copy of ID Card of the members of the management (directors & commissioners)
2. Copy of Taxpayer Main Number
3. Copy of Business License Trade
4. Copy of Company of the Notary Deed
5. Copy of Company Registration
6. Copy of accounts / current accounts or savings accounts at any bank during the six until the last three months.
7. Financial data, such as financial balance sheets, income statements, records daily sales & purchases, and other accounting data.
8. Points 1 to 5 will be used by banks to check the validity / legality of what was stated in the deed of establishment to line of business, all licenses and letters to the state tax liability.

Point 6 and 7 used by the bank to perform various financial analysis of prospective debtors. The ability of debtors to repay their debts will be analyzed from various sides, such as the ability to repay short-term debt, management ability and effectiveness in managing its sources, the ability to make a profit, and so forth.

Warranty

When proposing a loan to the bank, usually you will be asked to pledge one of your own property to the bank so that if you are not able to repay the loan, the bank will confiscate your property guaranteed in exchange for the money you borrow. Obviously the value of collateral items must be greater than or at least be equal to the value of money you borrow. Guarantees/collateral requested by the Bank for Housing Credit is usually a house that will be purchased. On automotive loans, the car that will be bought is commonly used as collateral. Meanwhile for the Business Credit and Multipurpose Credit, the requested assurance is usually more varied, such as land, houses, shop-houses, apartments, vehicles, factories and others.

For assessing whether the proposed collateral eligible for collateral, the Bank will assess the proposed collateral back. the Bank usually has an assessment team in assessing their own warranties, although sometimes the banks are also occasionally use an outside team of security assessor.

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Financial & Debt Management for Family

The first and most important priority of money management in family is pay off your consumer debt as soon as possible. The sooner it is being finished, the better it will be. Please check your payable installment expenditures, whether it were more or less than 30% of your income. If it is more, it means your debt load is too heavy and in risk of unpaid off.


The second priority is saving at least 10% of income. The higher you put aside for saving, the better it will be. However, you do not be too much put your money in savings. After heading the Emergency Fund that is equal to five to six times monthly expenses are met, start to invest your money.


Just remember that the life style represents the expenses. If you want to know whether your lifestyle is in conformity with your income or not, Check your postal and non-routine expenditures your routine. If it does not match, do the pruning of expenditures right now. Be a smart shopper, think ten times before you spend your money. Is it really necessary and as required? Are my purchases include in productive or in consumptive goods?
The best time to shop is when the goods you need are on sale or discount in the store. However, it must also be remembered that the most important, the goods indeed are stuff you needed and has been budgeted. In that way, you can just pass stores that launch a massive sale without having to drop in and shop if you do not need anything.
Do not discard items of expenditure which are trivial and are small but regular or frequent. You do not realize that if you sum up these total items during the month were numbered no less and quite draining your pockets. So this must be eliminated.
It is also important to remember, the credit card is not an extra money. If you will use a credit card, you make sure that indeed the money to pay the bill already exists within your budget. In that way, you can certainly fulfilled the billing on time, without interest burden.


The biggest challenge in managing the family finances is to reduce the expense or to simplify the life style, and increase your income. If this can be done consistently and discipline, undoubtedly the success of managing your family finances will be easily realized.

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