I just read this great post by Brian Hamiton, CEO of Sageworks,Inc about how to know if you should be borrowing money for your business. He states how he has heard (well we've all heard) that more and more businesses are being declined when they go to the bank for a loan. However, he's not worried about that. What he's worried about is if your business is borrowing too much money.
He also states "a prerequisite for even asking when you should borrow money is being able to answer "yes" to both of the following questions:
Is your business actually profitable?
Can you easily service the debt?
Answering the first question is straightforward. Answering the second is too, by calculating your debt-ratio."
Years back, before we had sufficient cash flow, I needed a little assistance from the banks because we were preparing for the Christmas season and I could have used the padding. I had heard so many ads on television about this bank and that one offering small business loans, etc. so I thought it would be pretty easy. We were profitable, had perfect credit, had the proven order history and yes, we could service the loan. Well, what happened is, "everyone" turned us down. One guy walked in, took a look around our warehouse and said, "We can't move this stuff ." I said to him, "So if you're not willing to take any risk, why do you advertise on TV that you help small business?" He didn't have an answer.
So many banks say they will help but they're often looking for perfect, no-risk scenarios. I know this isn't always the case but it certainly was in ours. It was very discouragng.
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