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New entrepreneurs, or business owners who have never dealt with a lending institution before often think that securing a business loan is as easy as demonstrating that you have generated a profit in the past, and your business plan “shows” that you will increase your profits if you get a loan.  Unfortunately, it is not that easy.  Maybe it should be that easy, but in reality the bank is going to look at a number of other key ratios.  Although ratios don’t make sense to the average entrepreneur, the bank will rely heavily on just 3 ratios to get a good picture of your business, so it is important for you to understand how to calculate them and more importantly what they mean and how you can improve. So here are the 3 important ratios that you must understand: Loan, Debt, Leverage​​​​​​


Your loan to value ratio is calculated by the total dollar amount of the loan divided by the appraised value of the collateral. Most lenders will require the appraised value of your collateral to be higher than the loan amount.  The lender is looking at this ratio to see how much breathing room they have.  If the business is to default on the loan and the bank ends up with the collateral, the bank wants to make sure they can sell the collateral for a value high enough to recover the entire balance of the loan.  You should simply provide the bank with collateral that is appraised for more than the amount of the loan.

This ratio is a bit more complex, but still incredibly important when applying for a loan.  You can calculate your debt service coverage ratio by dividing your annual net income by your annual debt service.  Debt service is a fancy way of saying your loan payments. Again this is simply a way for the bank to determine how much breathing room they have.  This ratio tells the lender how many times you could make the loan payment with your net income.  If you could make the loan payment 10 times with your net income each year, you have plenty of breathing room.  If you can only make the loan payments 1.25 times per year, the bank is going to be nervous that if there is any negative downtrend with your business, you won’t be able to make your loan payment.  This is simply a ratio that you should be aware of, so that you don’t request a loan that is larger than you can handle. ​​​​​​​

​​​​​​​​​​​​​​​​​​​​​Your leverage ratio is calculated by dividing your total business liabilities by total business equity.  Some suggest that a leverage ratio over 4 to 1 would significantly reduce your chances of securing a traditional bank loan.  The basic idea is that your lender doesn’t want you to simply borrow in order to grow the business.  You need to put something in as well.  So how do you improve your leverage ratio?  Pay off your debts and your leverage ratio will come down, or simply increase your cash balance without borrowing.

Small-business owners are in an unique position to market their products and services. To achieve results, however, marketers need to know how to reach their target audience. Target marketing is an old concept that is being reinvigorated to save businesses money and to help them increase their sales and exposure to potential customers.

Target marketing
It is essentially about demographic profiling. What this means is that your small business takes a serious and concerted look at the characteristics that make up the majority of your clients. Factors such as average age range, socioeconomic background, geographic location and gender are all parts of the demographic profile. Once you've identified these factors, you put them together to define a "target," which is the ideal customer for your business.

Understanding your audience
The goal behind creating a target market is to focus your marketing activities on a specific "type" of customer. This is what marketers call understanding your audience. he idea behind this is that there is power in knowing not only how to reach your potential customers but also in knowing who those potential customers are likely to be.

Finding the right communication channels
The struggle for small businesses once they've identified the target market is to find the correct communication channels, or "mediums," to communicate the business's messages. The key is to home in on who your customers are and then to do some research on what they are likely to read, watch or connect with.

Utilizing psychographics
The target marketing process is essentially twofold. Identifying the demographics will help your small business discover the communication channels that are the best fit, but the other part of target marketing comes with utilizing psychographics. These are the emotional and personality traits of your target market that help them identify with particular brands or businesses. The goal is to find out what works based on the demographics, the psychographics and your own observations. No one knows the customers better than you do; use this to your advantage to create a strong targeted marketing plan.

There are many ways that you can save money. Here are some money-saving tips from real small and mid-size businesses that are succeeding in a tough economy.

  • Cut traditional advertising in favor of low-cost alternatives​​​​​​​          
  • Outsource, outsource, outsource
  • Negotiate with vendors
  • Live in the cloud
  • Practice guerilla marketing
  • Save on shipping
  • Get interns
  • Cut down on maintenance
  • Cut down on employee time
  • Review all expenses, even the little ones
  • Create partnerships for marketing
  • Use open source software
  • Hire smart junior people
  • Think beyond the cash box
  • Know your customer​​​​​​​​​​​​​​
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