While poor management is cited most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second. Whether you’re starting a business or expanding one, sufficient ready capital is essential. But it is not enough to simply have sufficient financing; knowledge and planning are required to manage it well. These qualities ensure that entrepreneurs avoid common mistakes like securing the wrong type of financing, miscalculating the amount required, or underestimating the cost of borrowing money. 

SBA Certified/Preferred Lenders

Estimating Costs 

In order to determine how much seed money you will need, you must estimate the costs of your business for at least the first several months. Every business is different, and has its own specific cash needs at different stages of development, so there is no universal method for estimating your startup costs. Some businesses can be started on a shoestring budget, while others may require considerable investment in inventory or equipment. It is vitally important to know that you will have enough money to launch your business venture.

To determine your startup costs, you must identify all the expenses that your business will incur during its startup phase. Some of these expenses will be one-time costs such as the fee for incorporating your business or price of a sign for your building. Some will be ongoing, such as the cost of utilities, inventory, insurance, etc.

While identifying these costs, decide whether they are essential or optional. A realistic startup budget should only include those things that are necessary to start that business. These essential expenses can then be divided into two separate categories: fixed and variable. Fixed expenses include rent, utilities, administrative costs, and insurance costs. Variable expenses include inventory, shipping and packaging costs, sales commissions, and other costs associated with the direct sale of a product or service.

The most effective way to calculate your startup costs is to use a worksheet that lists all the various categories of costs (both one-time and ongoing) that you will need to estimate prior to starting your business. The following tool will assist you in performing that task: 

Startup Cost Estimate Calculator

You should examine your credit reports at least once a year, the three major credit bureaus–EquifaxExperian,TransUnion–maintain files on nearly 90 percent of all American adults.

Loan Consolidation:

People consolidate their student loans for the same reason they usually refinance their mortgages: to reduce their monthly payments. When you consolidate, your original loans are paid off in full in return for a new loan for the combined balances.

The new loan will typically have a lower interest rate that is fixed for the life of the loan. If this sounds appealing to you, my guide provides you with the basic information you’ll need to get started.

The Armchair Millionaire Guide

Is consolidating right for me? If the consolidation loan offers you a lower rate than what you’re paying now, it probably is, particularly if you’re having trouble making your monthly payments. If you’re close to paying off your student loans, however, it may not be worth the trouble.

What interest rate will I pay? It depends on the rates you’re currently paying on your loans. The interest rate for consolidation loans is calculated by taking the weighted interest rate of all the loans being consolidated and rounding up to the next nearest one-eighth of one percent, with a cap of 8.25 percent. There’s an online calculator that will do the math for you on the U.S. Department of Education’s loan consolidation Web site at loanconsolidation.ed.gov

How much will I save? According to Sallie Mae, the leading provider of student loans in the United States, consolidating student loans could reduce your monthly payments by up to 54 percent. However, these kinds of savings are achieved in part by extending your repayment term. (Depending on the amount you’re consolidating, this could be all the way up to 30 years.) If you choose to extend your repayment term, it will take longer to pay off your overall debt and you’ll pay more in total interest.

Any other advantages? Many lenders will reduce your interest rate by one percent after you’ve had an on-time payment record for a certain period, such as 36 or 48 months. You can also receive a quarter-point reduction in your interest rate by agreeing to pay by automatic debit. Also, there are no pre-payment penalties on consolidation loans.

Where do I get a consolidation loan? From any bank or credit union participating in the Federal Family Education Loan Program, or directly from the U.S. Department of Education. The loan terms and conditions are generally the same, regardless of where you consolidate.

THE BOTTOM LINE: Once you consolidate your student loans, they’re gone and there’s no going back. Since you can only consolidate once, be sure that it’s the best financial move that you can make before plunging ahead.

By Lewis Schiff, Armchair Millionaire

Lewis Schiff founded the Armchair Millionaire Web site in 1997. His first book, “The Armchair Millionaire,” was published in 2001. Today, www.ArmchairMillionaire.com is a fast-growing community of common sense savers and investors.

Loan Consolidation Links:

FSA Ombudsman www.ombudsman.ed.gov/ombudsman/index.html

The Federal Student Aid Ombudsman of the Department of Education helps resolve disputes and solve other problems with federal student loans.

Economic Hardship Deferement Request form the Dept of Education |ifap.ed.gov/dpcletters/attachments/gen0107h_EHDR.pdf

Deferment is a postponement of repayment under various, specific circumstances. For more information on deferments Click Here

Upromise. Pay off your education loan faster | www.upromise.com

Now Upromise – the service that helps families save for education – helps MOHELA loan account holders pay off their education loans. When you join Upromise for free, leading companies will contribute a portion of what you spend with them into your Upromise account, which you can use to help pay off your education loans.