Profit margins are an important financial aspect of your business. Loans can cut into your profit margins and deteriorate them. In some cases, you can refinance or consolidate your loans, but with 504 loans, that may not be in your best interest. As an SBA CDC in North Carolina, Virginia, and Maryland, 504 Capital has the experience you need to increase profit margins while maintaining your loan payments.
Small Business Profit Margins
Running a small business requires careful bookkeeping and financial management. The overall financial wellbeing of your business must be considered in order to reach your ultimate goal—increasing your profit margins.
Your net profit margin is the percentage of your sales that turn into profit. Profit margins are a key aspect of a business’s financial wellbeing. If you have a negative profit margin for multiple quarters—or years—in a row, it means there is something that needs to be adjusted long term.
Calculating Profit Margin
Calculating your business’ profit margin is relatively easy. The formula for the net profit margin is: Net Profit Margin = [ (Revenue – Cost) / Revenue ] x 100.
The cost that is referenced in the formula refers to the total amount it costs to create the service or product that is sold. Cost includes the overhead costs (salaries, utilities, rent, furniture, software, insurance, loan repayments, etc.) and the cost of materials.
For example, let’s say that a company spends about $10,000 in total costs a month and makes $15,000 in revenue. That would result in the following formula [ (15,000 – 10,000) / 15,000] x 100. The net profit margin would be 33%.
Loan Repayments Eating Into Profit Margins
Included in overhead costs are loan repayments. Let’s take the above company for example and state that $1,000 of the total costs ($10,000) is being paid towards business loans. In the above case, the total profit margins are still positive, but if early loan repayments are too large, they can eat into your profit margins.
Now, let’s say that the loan repayment was $6,000 a month instead of $1,000, but the rest of the costs remain the same. That would mean that the total costs are $15,000. As a result, the profit margin would drastically decrease to 0%.
504 Loan Repayments
Unfortunately, loan repayments are necessary for businesses. In many cases, loans are allowing the company to operate. As a result, loan repayments need to be paid. You can refinance or consolidate loans to decrease payment amounts, but you will still have to make payments.
CDC 504 loans are Small Business Administration (SBA) loans that already have a low-interest rate and longer loan periods. An SBA CDC in Virginia should try to provide you with the best loan terms. As a result, refinancing or consolidating these loans can be detrimental and lead to a higher payment amount. Instead, it is necessary to look at other ways to increase profit margins while maintaining payments. An SBA CDC in North Carolina can help you determine where to cut costs.
SBA CDC in Virginia, North Carolina, and Maryland
The right SBA 504 loan provider will offer you continuing assistance with maintaining your small business profit margins. 504 Capital is an SBA 504 loan provider in Virginia serving the Maryland, North Carolina, and D.C. areas.
We want our clients to succeed. That is why our team of supportive professionals is here to help you every step of the way. Discover how the right 504 lender can help you reach greater profit margins.
For more info, contact us today at (757) 623-2691.