Manging your finances is tricky whether you’re a business owner or member of the public, and there will be times when you need to borrow some money to see you through. For instance, in a financial emergency, you may look at taking out a payday loan or perhaps you might apply for a credit card to help you may some immediate purchases for your business. When borrowing money as a business, there are other things considered that wouldn’t be if you were applying for a personal loan. For instance, the size of your company, your profitability etc are all things that lenders will look at. One other aspect that might be considered is the value of your stocks.
Increased Borrowing Costs
The pandemic has hit a lot of businesses hard, and it’s made a lot of thing much more difficult. In fact, since the pandemic, the costs of borrowing have increased by over 10%. This means that a lot of investors and lenders are now looking at the stock value of a company instead. The S&P 500 Growth index has actually declined by 3.8%, and this includes huge companies like Apple and Amazon! This just goes to show how much the pandemic has impacted every business, no matter how large they may be. Because of such drops in the stock market, this forces the interest rates up higher than ever. This then means that it will cost businesses a lot more money to borrow in the long term, as they’ll end up paying back way more than their original amount.
Each business will have a different borrowing need, and the right amount of debt for your specific business will vary. It’s important that you try to work out what your projected growth is versus your stock value and figuring out by what percent you could increase your debt by. For example, if you predicted that you would have a growth of 48%, and would swap $1000 worth of stock for $1000, then your company value should increase by 0.28 times the amount of debt you’ve accumulated. This means you’ll have a projected value increase of $280, which doesn’t really make the debt worth it. However, if your value were to go up by 0.75 times, that would be an increase of $750, making it much more worthwhile.
Value of Stocks
Because of the pandemic, most businesses have seen a decrease in their stock value, but as we seem to be coming out of the other side, there have been some increases. This means that the overall value of the company should also go up and be inline with the stock value. You’ll find that business that have higher value stocks are able to borrow a lot more finance as they’re able to demonstrate the viability of their business model. So, it’s important that you always ensure your stocks have value if you’re wanting to seek out financial support.
Managing your business stock value is something that all owners need to do and stay on top on of. As you can see, there’s been a trend in increased borrowing costs and lower stock value, so you really need to work at keeping your debt to a minimum. Don’t let your business fall victim to the aftermath of the pandemic, and pay close attention to the stock market.