Should you Borrow Money to Grow your Small Business

is it better to take out a loan to grow your business fast or is it better to struggle and fight and grow at a much slower Pace we're going to analyze the numbers today and we're going to show you the difference then you can decide for yourself so get ready so the two main types of loans that you're going to probably come across is what's called a general business loan and this is a loan that the bank gives you money just to do the operating expenses of the company and Equipment purchases loans which is more specific toward um you know exact pieces of equipment that you want to buy doesn't make a difference what the loan is let's just say that for today's example it's a 10% interest rate and I need you to wrap your head around this because this is where we get into the numbers and we want to make sure that we're clear on all of this now I know a 10% interest rate seems a little high but we're just using this for an analysis not for actual Hardon numbers hard on um anyway let's just say that you get these loans at 10% and I'm going to ask you next what is the average amount of profit that a company usually takes is it 10% as well yes the average write up on top of your proposals is 10% so do you start to see the see the connection between the dots so let's be very clear with this connection the banks are charging you 10% interest and you're charging 10% profit on a project so let's just rename it for what it is the banks are charging 10% profit on your jobs do you see that so if you borrow $100,000 the banks make 10% profit I don't care how else you put it you can call it interest I call it for what it is it's the exact same thing that you do on $100,000 job so now you no longer get to keep 10% profit on your projects because you're giving it to the bank so now if you as the owner as you as the person taking all the risks you as the person getting up in the morning doing all the hard work you want to put anything in your back pocket at the end of the day you have to make 12% profit you no longer can make those slim 10% margins because you've opted to borrow and you've opted to give that 10% to the bank so now at 12% really what you get to keep as the owner of the company is 2% 12% minus the 10% you give to the bank leaves you the owner doing all the work with 2% doesn't sound like too good of a deal so far does it all right let's get into number crunching time you've got to understand how important this is you take out a loan for 10% on $100,000 General business loan you do $100,000 worth of work and you opt to uh give yourself about 12% profits because that's what you can eek out in reality you've made only 2% profit on $100,000 you now have $22,000 to show for it let's do a comparison and let's say instead of taking out a $100,000 General business loan you take nothing out but because you've taken no loans out you can only do half of the work you can only do $50,000 worth of work and because you've taken no loans out instead of getting 10% or 12% profits you're only able to manage 5% profits let's do a comparison and show how you're still ahead at $50,000 at 5% profit margin you clear $2500 for the year do you see the difference you've made $500 more dollars you've done half of the work and still put more money in your back pocket you've got half of the headaches half of the issues half of the work more money for you see the difference okay one benefit one thing that you have to keep in mind about borrowing there's one good thing and that's writing it off on your taxes now this is getting a little bit out of the what does it cost mind frame and more of what are you saving mind frame but it's still part of the equation let's say uncle Sam's breathing down your neck cuz you've made too much money in a year well you know what you may need to go buy equipment to write some of that off and when you do the interest or the bank's profit let's call it what it is is 100% tax deductible on some years they've passed certain laws that 100% of the equipment you purchase is also tax deductible for that year now we're getting out of the realm of this video but it's something that you need to understand and wrap your head around because there's more to borrowing money than than just the actual cost it's also the savings that you can potentially have when you do it