thirdsnitch wrote:Thank you so much ayelisme for the response! Where do I base the interest rate or can you me an idea of what a reasonable rate is?
It depends on the amount of loan. Check the feasibility of your business. then try to allocate some of the Net Income to the interest.
Sales = 100,000
Less: Cost of Sales = 60,000
Equals: Gross Profit = 40,000
Less: Expenses = 10,000
Equals: Net Income Before Income Tax = 30,000
Less Income Tax = (30,000 x 30%) = 9,000
Equals: Net Income = 21,000
If the amount of loan is about 100,000. Then try to allocate 5,000 of your earnings. So roughly, that is 5%.
If your sales grows bigger, include a clause on the loan agreement a % of sales in excess of certain amount.
if the sales exceeds 100,000. 10% of the excess shall be added to the interest
Sales = 150,000 Less 100,000 (threshold) = 50,000 x 10% =5,000 (This is on-top of the interest of 5,000. So it will be 10,000 for that month