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Financial Experts Discuss When Small Business Owners Should Take On Debt

Financial Experts Discuss When Small Business Owners Should Take On Debt

Ed. Note: The following paid content was provided by Camino Financial, who is a client of KHTS AM-1220.

Financial experts from the Santa Clarita lending company Camino Financial sat down with KHTS AM-1220’s George Cummings to discuss when small business owners should take on debt.


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“Think of debt as a type of investment that you would make in your business,” said Sean Salas, co-owner and operator of Camino Financial. “So whenever you raise capital or make an investment you want to make a return on that investment. That means paying back the original investment plus a gain on that cash.”Financial Experts Discuss When Small Business Owners Should Take On Debt

There are several reasons the small business owners of Santa Clarita should invest in their business, according to Salas.

“One (reason) is to fund working capital,” he said. “Typically cash gets tied up in the business and impedes them from taking on orders and making money on that. Another thing is buying assets– buying eqiupment or opening a new store. And a third reason that we see is just overall growth, potentially investing in marketing, hiring another salesperson, etc. so that you can grow your business.”

A common question Salas hears from small business owners is why they should tap into outside sources if they have their own money.

“There’s really two reasons,” he said. “One is every time you reinvest cash into your business, that’s investing your own equity back into the company, so you’re putting all your eggs into that basket. You potentially want to think about de-risking yourself and tapping into other sources of capital.”

“The second reason is once you tap into the debt markets, you can actually lower the cost of your capital structure. So maybe the first type of debt you get is a credit card that has a higher interest rate. Once you build a track record you can start accessing cheaper sources of capital.”

Down the line, small business owners may need to borrow a large amount of money, usually ranging between $50,000 and $200,000, and not having a credit “track record” will make it extremely difficult to get it, Salas added.

Salas recommends using a line of credit to finance short-term cash needs and for working capital.

Financial Experts Discuss When Small Business Owners Should Take On Debt“Some businesses are seasonal and they have certain months where their business does not generate enough cash, so they can draw on that line of credit very similar to a credit card and only pay interest on the debt balance that’s drawn from that accessible line,” he said.

Related: Free Credit Assessment Tool For Santa Clarita Residents

Another debt instrument Salas recommends for some small business owners in Santa Clarita is a term loan, which starts at about one year and can range up to 10 or even 30 years.

“You pay based on an agreed term and it’s usually a fixed schedule and at an interest rate that’s agreed upon,” Salas explained. “There’s several sources, like the SBA (Small Business Administration) through commercial banks that provides government-guaranteed loans, which are the lowest rate that’s available to small business owners.”

Term loans are typically used for long-term investments, he continued, such as buying a new store or opening a new restaurant that you expect to pay back over a five-year period.

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Alternative sources of capital include invoice financing or factoring– which involves using a specialty lender to obtain funds for unpaid customer invoices that won’t be paid right away –or merchant cash advances, which provide cash up front that is paid back based on a percentage of credit or debit card sales transactions, according to Salas.

“(Merchant cash advances) are really helpful for people who don’t have the best credit and need cash very quickly,” he said. “It’s a very quick and simple process… It’s a higher cost but it helps build your credit, so that’s one way to think about it.”

Small business owners interested in learning more can call the experts at Camino Financial or visit their website for more information.

Camino Financial

25350 Magic Mountain, Suite #300

Valencia, CA 91355

661-481-2206

KHTS AM 1220 - Santa Clarita Radio

Financial Experts Discuss When Small Business Owners Should Take On Debt

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About Melissa Lampert-Abramovitch

Melissa Lampert-Abramovitch has been writing for KHTS since Feb. 2014. She currently writes “Community Spotlight” and feature stories, and coordinates all aspects of both the”KHTS Adopt a Pet” video feature series and “Top Things to Do in Santa Clarita.” She is the creator of “KHTS Adopt a Pet” and acted as News Editor from 2019-2020, as well as Features Director and Newsroom Manager from 2016-2018. A former Valley Publications Staff Writer, Melissa was a contributor to the Santa Clarita Gazette and Canyon Country Magazine from 2015-2016. She has published feature stories with Pet Me Magazine, The Pet Press, The Signal, COC's Cougar News, and KJAMS Radio.