Stan Bril Outlines Borrowing for Success, Factors to Consider When Taking New Debt

No matter how large or small a business is, taking out a loan is sure to be one of the toughest decisions the company must make. Sooner or later, revenue and cash flow might become a problem either because of bad fiscal management strategies or the need to finance business growth plans. In which case a loan seems like the right step to take.

Lending Specialist Stan Bril, the founder and leader of the private commercial lending firm MCG, considers loans a necessity for every successful entrepreneur and small business who is trying to push their way out of a financial setback or navigate the intricacies of taking the company to the next level. “Borrowing money isn’t inherently bad,” he says. “In many cases, it can be the most viable way to keep the lights on as you plan your next moves to expand the business and open up new markets.” Typically, loans come with strings attached, it’s important for the entrepreneur to do their homework and answer these vital questions before signing on the dotted line.

What is the Cost?

The cost of finance can have long-term implications on the company’s future. In fact, the very act of borrowing might lead to an increase in the cost of equity. Shareholders might get jittery when the company starts borrowing. To compensate for their higher risk, the company would have to increase the rate of return for investors.

“It’s important to be realistic,” says entrepreneur Stan Bril, “not just about how much money you need but also about those long-term commitments such as cost of equity as well as the short-term costs that are part of every loan.” Short-term costs are additional costs that include broker fees and origination fees among others. Taking out a loan might seem like an easy way out of a financial situation, but as usual, there are repercussions to consider. When thinking of the impact of the loan on the business, it’s also worth adding up all the costs of this loan to know if it will help or hinder the company’s goals.

What is the Risk?

As a necessary step toward success, borrowing money can have its own risks. Much like someone spending more money than they’re making is a financial problem waiting to happen, a business has to consider the risks involved with taking a loan. Especially if for some reason the company wasn’t able to meet that kind of financial commitment. Author Stan Bril puts it in simple terms, “If you borrow money from family or friends you risk ruining the relationship if you don’t pay them back. Borrowing from private investors or financial institutions, on the other hand, can be a better option especially as the risks are calculated well in advance.” This is, in effect, true since many experts on both sides evaluate the financial situation of the applicant carefully before approving the loan thus reducing the risks.

Known for his blunt and straightforward approach to business and his incomparable ambition, Stan Bril suggests that every owner’s goal should be to mitigate the risks by looking for the most suitable source of funding available. He also notes that assuming risk is a two-way street. While some entrepreneurs might consider the terms of a loan as too risky, some financiers might evaluate a business as too risky and demand higher returns for the loan as a result.

What is the Credit Score?

What many people forget to take into consideration when applying for a loan is that their credit score will influence the lender’s decision. Whether the borrower is an individual or a business owner, the credit score of the person or the top executives of the company is a decisive factor in the financier’s granting or rejecting the loan application as well as the terms of that loan. That’s because the score reflects the financial history of the applicant and indicates their fiscal responsibility and money management skills.

According to entrepreneur Stan Bril, a credit score of 700 or more is a good motivation for the financial institution to approve the loan. Getting a credit report is easy and there are online resources that offer it for free. It’s also worth noting that a high credit score will reduce the interest rates of the loan and vice versa. So, a score below 600 might not necessarily mean that the loan will be automatically denied, but, if approved, it will come with exorbitant interest rates.

What’s the Alternative?

The business rule of never take the first offer also applies to the situation of borrowing money. These days there are many funding sources that can help a business. For some small businesses, the first impulse is to go to the nearest bank and apply for a loan. But that might not be the wisest of moves, financially speaking.

“When an influx of cash,” says lending specialist Stan Bril, “is what stands between you and business growth, then signing up with a big bank or a credit union with its rigid rules and uncompromising conditions can knee-cap the whole enterprise.” Luckily with the many venues available for businesses, it’s easy to find a financier with more flexible repayment options and one who looks at every aspect of the case, not just the bottom line.

What’s the Catch?

That’s another reason why borrowing money from large financial institutions might not be in the best interests of small businesses. The fine print is usually loaded with unpleasant surprises. All the more reason for the entrepreneur to read the terms and conditions carefully and not assume that all loan terms are the same.

According to Stan Bril, the payment structure is one of the parts of the document that merits a closer look. That’s what sets one lending firm from the others. If, for example, the interest will end up being more than the principle by the time the loan is fully repaid, then maybe it’s better to find another financier. In the end, borrowing money is the kind of decision that needs to follow a lengthy process of research, making comparisons, and poring over the terms of payment.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.