Tips for New Business Owners and Loan Covenants
Starting a new business can be an exciting and rewarding venture, but it also comes with its fair share of challenges. As a new business owner, there are several key things you need to know to set yourself up for success. This month we’ll be sharing some essential tips to help you navigate the world of entrepreneurship.
— The Noseworthy Chapman Team
Helpful Links & Guides
Have A Clear Business Plan!
Before you dive into starting your business, it’s crucial to have a clear and detailed business plan in place. Your business plan should outline your goals, target market, competition, marketing strategies, financial projections, and more.
Having a well-thought-out plan will help guide you through the various stages of starting and running your business.
Check out this article by Forbes, “16 Tips For Creating A Personal Or Business Financial Plan For The First Time”:
Stay Organized and Manage Your Finances!
As a new business owner, it’s essential to stay organized and keep track of your finances.
Implement systems to track your income and expenses, monitor cash flow, and set aside funds for taxes and other business expenses. Consider using accounting software to streamline your financial management.
For further information on how to stay organized and manage your finances contact our Accounting Services Department!
Should Your New Business Incorporate?
One crucial decision that entrepreneurs often face when first starting their business is whether to incorporate their business.
Incorporating a business involves creating a separate legal entity that is distinct from its owners, offering numerous advantages and opportunities for growth.
Incorporating your business has many benefits such as:
- Limited Liability Protection
- Tax Benefits
- Ease of Ownership and Management
- Access to Capital
Call us to discuss if incorporating your business is the right step for you.
What Are Loan Covenants?
Your new business has just received a loan and there are loan covenants but you’re not sure what that means.
Don’t worry, we’ll help you understand!
Loan covenants are an integral part of any loan agreement between a borrower and a financial institution. These covenants are essentially a set of rules and guidelines that the borrower must adhere to in order to maintain the terms of the loan.
Understanding loan covenants is crucial for businesses and individuals alike, as violating these covenants can have serious consequences, including defaulting on the loan.
Types of Loan Covenants
There are several types of loan covenants that may be included in a loan agreement, each serving a specific purpose.
There are three main types of loan covenants. They are:
Positive covenants, also known as affirmative covenants. They require borrowers to adhere to certain terms to affirm the borrower’s financial health.
Examples include:
- Requirement to pay taxes
- Requirement to maintain total assets of the business
Negative covenants, also known as restrictive covenants. They restrict the borrower from following through on certain actions.
Examples include:
- Restricting the repayment of shareholder loans
- Restricting the amount of debt a business can carry
Numerical or financial covenants which are tied directly to the borrower’s financial performance.
Examples include:
- Debt-to-equity ratio
- Total assets to debt ratio
The type of covenant assigned to a loan will be determined by the level of risk associated with the loan.
Noseworthy Chapman has been a trusted partner to hundreds of businesses in the province for over 40 years. Contact us to see how we can make 2024 the most profitable yet.
