We all know cash flow is the lifeblood of any business. Today, we’re going to talk about what the true cost of dealing with a bank is. Not just numbers in terms of how much interest you’re paying, but the true financial cost and the true emotional cost of dealing with a bank. It’s easy to think about dealing with banks in terms of origination fees, interest rates, and loan terms. We know all of that. But what is the true cost of depending on a bank for access to money?
The first and foremost issue is: you don’t control that process at all.
We’ve all applied for a bank loan. You have to show them everything. There could be things going on in the economy that are outside of your control. Your business could be doing very well, but because of external factors, the bank may look at your loan or credit line application very differently than they would have during a time of economic prosperity.
During a recession, 30 to 50% of applications for loans get denied. Think about that. You need more money to run and grow your business to be successful but the bank looks at your cash flow, assets, revenue, everything, and still says, “This isn’t good enough. You’re too big of a risk right now. Sorry.”
So what do you do then? There’s that helplessness. You need access to capital, and the bank is turning off the faucet. That’s a very difficult position to be in. For business owners who don’t have access to a credit line or the ability to get loans, it puts them in a much more difficult financial situation and it inhibits their ability to run and grow the business.
Think about the stress that causes not just financially, but personally. That pressure spills into your health, your family life, and everything else. If you’re not doing well in your business, that stress can carry over into all other areas of your life.
Intuit did a study and found that 61% of small business owners struggle with chronic or cyclical cash flow issues. That same study found that 69% lose sleep or sleep less due to cash flow concerns.
There are countless studies linking lack of sleep and increased stress with health issues. Chronic stress increases the risk of heart disease by 200% and cancer by 40%. Even more alarming? The life expectancy of a small business owner is a full five years shorter than the average American.
So think about this: the stress from cash flow problems many of which are outside your control is literally killing business owners. The irony is that most people go into business to achieve financial freedom. Instead, what they often get is chronic and cyclical cash flow stress. The question becomes: how do we relieve that stress? How do we set ourselves up as business owners so that we are no longer affected by that stress?
The answer is by building a pool of capital that we have full liquidity, use, and control over. The key is to prepare yourself for the inevitable economic downturn or any external factor that could cut off your access to capital. You can’t afford to remain dependent on banks. You need to create your own capital.
That’s why we advocate putting money away during prosperous times so that when the downturn comes and others are struggling for access to capital, you are ready. They say hindsight is 20/20. Looking back, you may or may not have experienced a downturn. But looking ahead, we can all see that another is likely coming. Taking action now to prepare your business, no matter where you currently stand, will put you in a position of strength when times get tough. That preparation gives you an unfair advantage over your competitors and peers. Why? Because you will have access to capital when they don’t. When you have access to capital, you have access to opportunities. If you don’t have money, opportunities won’t come knocking because people know you can’t take advantage of them. As Nelson Nash told me many years ago, “When you have access to capital, opportunities will find you.” And that couldn’t be more true.
At Tier One Capital, we use whole life insurance designed for cash value accumulation. These policies build up a pool of cash that you have full liquidity, use, and control over plus a death benefit.
You can access that money through the loan provision while you’re alive. That means as a business owner, you can use those funds to cover payroll, expand the business, buy inventory, invest in new equipment or technology all of the things that inevitably come up and require capital to move forward.
If you’d like to learn more about how to put these strategies to work for you, your business, and your family, visit our website at www.tier1capital.com and click the “Schedule Your Free Strategy Session” today.
Thanks for reading, and remember it’s not how much money you make, it’s how much money you keep that really matters.