How human capital helps in borrowing?

Every business requires money. Is there any growing business in this world that can say “No, we don’t need further investments”? Difficult to find one

So borrowing is a common term associated with doing business. It may be traditional or nontraditional. Last time, we were discussing about peer to peer lending and benefits availed by it.

Here I have few suggestions, if you are a small scale entrepreneur looking for lenders. In P2P lending, lenders are using unconventional data analysis to find out your credit worthiness. Same way it is also important to find out your debt equity ratio. Lenders or investors may not be interested if there is high debt equity ratio because it will negatively affect the repayment capacity of the firm. 

Intangible assets 

Here the borrower should really look into his intangible assets to make a fair debt equity ratio acceptable with the lenders.

How can he do that?

If you are doing a business where knowledge is the important factor, then transforming this intangible asset to tangible asset is your job. 

For Eg: Designer, architect or any other business where human skills are adding value to the growth.Before finding out the value of total intangible assets we have to look at the items constitutes for this category.

1. Individual competencies
2. Intellectual capital
3. Human capital
4. Trade marks, intellectual rights, Brand image, etc.
5. Strategic skills

There are many accepted norms for calculating the value of intangible assets. Higher the value greater is the chance for you to get the loan. 

So, next time when you are planning for applying a loan, assess your value of intangible assets.Other important point you need to consider is 

Key man insurance

Your firm is totally depending on the skills and intellectual capacity of your employees. What will happen to the company when death of a key employee adversely impacts the business? This is usually a big concern for lenders. 

How you can tackle it?

Easy method is to take a key man insurance policy. Premium expenditure will be treated in business expenditure and claims will be directly treated to business income. So having key man insurance will really increase your borrowing power. 

More than all, your credit worthiness is depends mostly on your book keeping policies, transparency, individual capacity to lead the business into target growth trajectory. 

Start preparing your financial plan run your business better than before

Visit website