Is a fast business loan too expensive? Paul Stone does the maths on a whiteboard

The deal that kept going to a competitor

Before he founded HomeSec, Paul owned a group of high-volume shoe stores. Importers would ring with the last of a line at a fraction of the usual wholesale price, on one condition: the money had to move now. When the cash was not there, the stock went to a competitor.

The worked example

• A pair normally costs $60 wholesale and sells for $120.
• The importer offers the last 10,000 pairs at $20 each, paid for straight away.
• Every pair carries $40 more profit than usual: $400,000 across the lot.

Set the cost of a short loan for the purchase against that, then halve the benefit to allow for discounting the stock to move it. The deal still comes out comfortably ahead. The loan was never the expensive part. Missing the deal was.

Paul's test

If the benefit of getting the funds quickly outweighs the cost, go ahead. If it does not, walk away.