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Termyn8or -> RE: New loans or loansharks? (11/18/2009 8:33:18 AM)
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Not so sure. If a business can increase it's buying power and order products that will sell at a good markup, in the end they make more money. I forgot who, but someone around here used to do that every year around Christmas time with a credit card.
I know a guy couldn't qualify and asked me, for $25,000 at 25% per annum. I didn't quite have it but I know the guy pays his bills. The loan was to be for equipment with which he would make alot more than his initial investment. Actually he probably could qualify at 25%, but didn't want to give the bank his money like that. I think it was more trying to take his business elswhere because they weren't treating him right.
The thing that bothers me is the automatic payment. If anyone ever takes up such an offer, start a new account just for that. I would never go for it on a non credit based account. Like my checking, I actually had to go around with the bank so the ATM card is just as it was, can't be used for POS transactions or anything. All I do with it is deposit money and checks. Doing it this way I've had the account for almost 25 years and never had a slipup. (knocking on wood right now).
Any automatic payments come from credit cards, but I'll bet these loans do not allow that. I don't know about now, but a while back when a store would have a "six month same as cash" deal, that's what they meant. They would not accept payment via credit card after the interest free term. The interest was frequently higher than 18% and they were almost sure to at least get a little bit of the interest money.
Use of money is worth money these days, it is a fact of business. Consumers are into instant gratification and the product must be on the shelves. In fact when you walk into a high end electronics store most of what you see is owned by banks. It's called floorplanning and is done by Westinghouse credit and a few others. If the store picks the right merchandise, that is what will sell quickly, the interest is very minimal. If they get stuck with a truckload of white elephants things can go sour.
Borrowing money to make money is one thing. Borrowing for frivolous things is another. If I borrow $25,000 for equipment, in the case of my buddy it was for equipment to do basement waterproofing and if I'm destined to make $100,000 in a summer in the business, I come out ahead. After the loan is paid all that interest money is mine next year.
I could've gotten the guy the money, but declined to do so because it would eat up too much of my headroom so to speak. Ten grand would not have been a problem, but that's what the stuff cost. It was tempting because you don't get 25% on your money anywhere. Not in anything secured at least.
At any rate, a business should only borrow money for expansion, not for day to day expenses. If you think it's a good idea to keep an eye on normal checking and savings accounts, apply the same to credit and you should be fine. Think of taking a loan as the same thing as taking money straight out of your pocket. In fact that is, in essence what you are doing when you use credit. It just comes out a bit later, and a bit bigger.
It's basically a big game of "mathematics" and is about the same thing as smart gambling.
T
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