Optilogic jules 2

Optimization for Small Business Loans

Jules Carson is back and ready to help her good friend find the right business loan. Let’s dive into their story and how she used Optilogic to help her friend make the best decision.

The business story

With a two-hour break between class and lab, Jules jaunts to her favorite coffee shop, a stone’s throw away from Liberty Street and 4th Avenue. She’s meeting her good friend, Ally Jennings—future rockstar business owner— to talk through some questions and ideas about finding the right business loan.

After years of successfully building a career working with large labels, Ally decides to break free and start her own business: a music shop full of records, instruments, composers, musicians, and sound. She wants to partner with local bands and the music college to create a space for growth, learning, and experimentation.

She needs the money for three different projects:

  1. Project 1: Find and buy a premium downtown space/location.
  2. Project 2: Buy all new high-quality products and equipment.
  3. Project 3: Build a streamlined digital presence (website, ads, online classes, digital performances, etc.).

But before she goes any further, she’ll need to acquire a business loan. She evaluates three banks to consider taking loans from. Her question is clear, and without Optilogic, anything but straightforward:

How much money can she take out from each bank for each project that allows her to pay back the least amount of money after interest?

In comes Jules and Optilogic.

How Jules helps Ally use Optilogic

Jules and Ally get to work. They start by assessing the data needed to solve this problem. She asks Ally several questions.

  • How much money is needed to fully fund each project?
  • What banks are in the mix?
  • What are the interest rates from each bank on each project?
  • What is the maximum amount of money that can be invested over a certain amount of time? (For Ally, the maximum amount she wants to take out is no more than $3,000,000 over 8 years to fund her business, with interest included).

With Ally’s answers, Jules feels confident with these data points and is ready to help Ally input her information in Optilogic. Ally is apprehensive at first, not being an avid coder, but Jules shows Ally how simple operating and running these models can be.

They dive into Optilogic’s Model Library, searching for a pre-built model that fits their needs. This search steers them toward the Choice of Loans model.

Since the model is already built, a.k.a the coding is done, Ally simply has to input her data points into the model. Jules walks Ally through each step of the model to ensure that its construction is a good fit for addressing this need.

If they wanted to get in the weeds, each model is outfitted with explanations on the mathematical formulation, but neither of them finds that level of detail necessary to answer this question.

Ready to see the Choice of Loans model in action? Set up an account and get solving!

Implementing the data points

The Choice of Loans model makes it incredibly easy to get started. Jules and Ally simply copy the model into their workspace so they can customize it with their specific inputs (loan amounts, interest rates, projects, etc.). Next, they look at the model’s variables and constraints.

Jules sees that this model accounts for the variables discussed earlier.

Total business funds for each project

Cost to open up shop

Number of banks considered

Number of set banks

Interest rates for each project at each bank

Rates for each shop

Investing terms

Number of years to invest

Both Jules and Ally are excited to configure this pre-built model to their needs, so Jules writes their data in a .dat file inside Optilogic.

Choice of Loans

The best part? Jules isn’t altering the pre-built model’s structure by using Ally’s data points. This customized version lives in an abstract model, meaning that the pre-built model wasn’t changed. This lets Jules and Ally re-run the model by swapping data whenever they want or need to.

Data File

Now, Jules can easily see the solution on the command line.

Command Line Results

Analyzing the results

In the blink of an eye, the isolver spit out some answers. This model is relatively simple and straightforward.

Should Ally need a more robust model, Jules could help her leverage commercial-grade solvers like Gurobi, which is now available through Optilogic’s platform.

Let’s take a look at what the current solver found.

  • Amount of money to be borrowed by bank 1 for project 1 is $2,500,000.
  • Amount of money to be borrowed by bank 1 for project 3 is $500,000.
  • Amount of money to be borrowed by bank 2 for project 3 is $1,200,000.
  • Amount of money to be borrowed by bank 3 for project 2 is $1,000,000.

The minimum amount of annual payments is 822,180.656176676.

Jules and Ally discover that bank 1 is the way to go for her first, and most expensive, project of buying a premium location. Bank 3 is best for her second project, purchasing all new instruments and top of the line equipment. Depending on her needs, Ally could turn to bank 1 or 2 to fund her third project, a revolutionary online presence.

Either way, Ally’s minimum annual payments land just over $822,000, which means she will reach her maximum investment of $3 million in under four years. Ally has some big decisions to make about profit projections before committing to these costly numbers.

Running the model through Optilogic with Jules gave her the concrete numbers she needed to move forward with purpose and confidence. Once the loans are secured, it’s time to workshop names and strum some guitars.