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Any business people wanna give some info?

Discussion in 'Off Topic' started by buddytink, Feb 15, 2017.

  1. buddytink

    buddytink Senior Member

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    I have a question about business loans. How do people afford it? For instance, I see people who will buy a restaurant for 1 million. And I'm sitting here thinking "if i had that kind of cash to make payments on that I wouldn't be starting a restaurant???" So I'm wondering are business loans different than say a regular house loan as far as payments and all go?
     
  2. horseingreyflannelsuit

    horseingreyflannelsuit Full Member

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    How do people buy houses? They take out a loan. In many areas the lowest price starts at 250,000. That's a quarter of a million dollars. there is the expectation of paying the loan back. The same with buying a 40,000 car. How many people have money for a new car just sitting around? People who take out a loan for a business, make monthly payments just as someone buying a house does. There is X amount of dollars coming in every month from said business. A portion of the money coming in is used pay the business mortgage. In other words, they are making payments every month till the loan is paid off.
     
  3. Faster Horses

    Faster Horses Senior Member

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    The bank usually asks for some type of collateral from the person. A house, long term assets, etc.

    Banks will occasionally allow the payments for the first six months to be interest only. This allows the purchaser to get the business on its feet.

    From there, payments should come from the income of the business.
     
  4. Jim_in_PA

    Jim_in_PA Senior Moderator Staff Member

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    Business loans are often secured by the business, itself, in some form and are paid out of business proceeds. (not always the case, but often, depending on the type of loan) That's why cash flow is an important part of the picture when it comes to business loans. These loans are often necessary because either there isn't raw capital available to build/improve/expand the business directly to develop or increase that cash flow or even if it's available, it may not be financially prudent to use it depending upon a variety of situations and reasons.

    For example, a small business, upon careful research and planning, determines that they can double revenue in their market if they can increase production of "widgets" to a certain level from current. They do not have the space and manufacturing capacity to accomplish that increase in production without making an investment in space, machinery and people and do not have a hunk of cash lying about (or a rich relative :D ) to fund the required expansion, so they arrange for a business loan to cover the improvements, both during "construction" and for a period of time that they ramp up production and marketing to gain the revenue stream they anticipate will happen. Over time, the increase in revenue will theoretically outpace the cost of the loan, resulting in increased profits overall.

    The primary difference here from a personal loan is that a business loan is generally used to generate revenue. There are also a variety of different types of business loans; some of which mimic things in the personal world, such as lines of credit that smooth out cash flow impact on regular business cash needs, etc. They are not always to "buy" something or "build" something, in other words. Just as in personal finance, a business that uses financing wisely can get ahead and those that don't can get in trouble.

    Any business owner contemplating financing for the business must have a very well developed business plan, both for their own benefit and to prove to the lender that they are worthy of the financing. And this is the challenge for many small businesses...they don't have a formal business plan nor know how to develop one. A good accountant and attorney can help with that.
     
  5. Riosdad

    Riosdad Full Member

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    You are thinking small. $250,000 is not that much money nor is one million
    It is all what you are use to
    My son started a business a few months ago. A metal fabrication shop that he works in evenings and weekends
    The bank without a problem offered him $500,000 if he wants it
    He needed nothing but it is there if he wants it
    With a business everything is a right off
    He pays 17% total tax on the money the business earns
    He rents the shop to himself and it comes out of the 17% taxable income
    Hydro , gas, equipment, depressiation, vehicles, part of the house
    Everything is a write off to reduce taxes on money earned
    He has a great day job and his first month of after work income was $18,000 all at 17% tax rate plus write offs at the tax year end. He expects $200 an hour return
    It is partly about taxes or how little you pay
    ON a $200,000 income you pay over 50% before you spend it
    On the same income he would pay 17%
    Most people my age that I know can come up with a million dollars if they had to
    The $40,000 is something most of the older people like me can write a check on
    The average price of a house is now climbing to over a million, even tear downs on a 20 foot by 78 foot lot
     
  6. HayleyS

    HayleyS Senior Member

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    For anyone who is looking to start a business, this is not a legal way to go about tax write-offs. While some things do count as tax write-offs if you own a business, this is considered tax fraud, at least in the US. My aunt is a CPA, and this would give her a headache to see someone claiming this as what they did. If your son does run his business this way, he might not appreciate you posting it online. Good way to get an audit. I just don't want anyone else trying to get a business up and running thinking this is sound advice to follow.
     
  7. slc

    slc Senior Member

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    Suggest the OP buy and carefully read, some books on setting up a business and on understanding taxes for small businesses.
     
  8. slc

    slc Senior Member

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    Absolutely, this is tax fraud.

    Suggest that you not run your business this way, OP, or jail and 'depressiation' could result.

    These 'right offs' are right off, illegal.
     
    PureTrouble, mooselady and HayleyS like this.
  9. bobo and horses

    bobo and horses Senior Member

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    I read RDs post to my husband, and he about fell off his chair in hysterics, and then asked, does the IRS still give rewards to people who report this crap? We had a small business for many years, and I wish we could have rented the farm and barns back to ourselves and gotten a tax break.

    I'd be careful what I post for the public to know.
     
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  10. Riosdad

    Riosdad Full Member

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    Every thing is on the up and up. He has an accountant who he has to run everything past but owning a shop and renting it back to yourself is legal and keeps the business away from the house
    Buying equipment on the shop account and writing it off over 5 years is legal
    Hydro, gas, company vehicles, insurance, depreciation are all legal write offs
    He can buy a new truck, charge it to the company and then write it off over 5 years and sell the truck after that period and pocket the money without paying taxes on it
    It is all legal and above board
    The farm buys a new giant tractor, or a new combine, or new tractor trailers yearly to keep the taxes down
    Money is often made threw the tax breaks and again all above board
    If you guys know so much why aren't you all million airs ???
    Report all you want. It is legal
     

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