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How can I access a loan that will actually make a difference in being able to be profitable and successful.

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Hi Cherie. The Small Business administration (SBA) is a good starting point for information and assistance --- . Also the Association of Women's Business Centers may help with venture capital --- --- And here some extra sources of grants and loans --- --- Have success.

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If you truly want to secure a loan that makes good business sense, then it helps to understand the numbers – namely finance. If you have a good understanding of finance, you will have a better appreciation of how to use loans to improve profitability and growth. There are two important financial measurements that can help most business owners when it comes to financing:

  1. Gross Margin – Do you know what your gross margin is for what it is you sell? It needs to be at least 30% or higher to meet all of your payments and still earn a profit.

  2. Return on Investment (ROI) – Do you know the percentage return you are getting from the business or the investment associated with the loan? The ROI needs to be higher than the Interest Rate on the Loan.

If you can pass these two important financial tests, then a loan can make sense. Regardless if you are seeking a loan, every business should be able to earn a profit. You must generate enough residual money after paying all your expenses. Once again, if you understand finance, you should get it right.

A complete discussion on these topics is beyond the scope of a posting on this message board. It requires a more in-depth discussion with examples on Gross Margin and Return on Investment as well as financial statements. In any event, here is a brief explanation:

Gross Margin is the difference between what you sell your products for and the direct expense of making and delivering it to the customer. In your case you are providing nail services. Start with the price you charge the customer. For example, suppose you charge someone $ 30.00 for Acrylic Nails. You have to know what the unit cost of this service is to calculate your gross margin.

Your unit cost is often considered your Cost of Goods Sold – direct expenses of the product or service delivered to the customer. It can be broken down into Direct Materials, Direct Labor and Indirect Overhead. In your case, perhaps it is the Acrylic Nail and Nail Polish for Direct Materials, the Nail Technician who renders the service for Direct Labor and the physical location where the service is provided would represent some Indirect Overhead. Let’s say it adds up to $ 19.00. Your Gross Margin is $ 11.00 ($ 30 - $ 19). Your Gross Margin Percent is 37% ($ 11 / $ 30) which is acceptable, but not great.

The second important financial metric is Return on Investment. You must know the total cost and expenses associated with the investment you have made into the business. You put in a lot of time and your own money into the business. You must realize and obtain total benefits (usually sales revenues or profits) from the investment that is greater than all of the cost or investment that you have made.

Whenever the ROI (Return on Investment) is higher than the interest on the loan, it often makes sense to take out the loan. If your ROI is less than the interest rate on the loan, then it does not make much sense to take out a loan since the cost of money (interest on the loan) is more than what you can earn with the money you have invested into the business.

The challenge for the business owner is to make sure you do in fact earn the profits from the investment you have made in the business. If you cannot sell and you do not collect the benefits (sales to customers) from the investment, then taking out a loan will hurt the business since you do not have enough / sufficient money coming in to make loan payments. Therefore, make sure you are realistic and honest about your estimates when reviewing the investment and its benefits compared to the loan.

In conclusion, you need to have sales to customers to make the loan payments and you must have a high enough gross margin to make the fixed loan payments. If you can create total sales and profits so that your ROI is greater than the interest rate on the loan and if you have good gross margins, then it can make good business sense to take out a loan. The two rules to follow are: 1) Make sure you have Gross Margins of at least 30 to 40% to cover all expenses and still earn a profit and; 2) Make sure the ROI on the investment is higher than the Interest Rate on the Loan.

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