Finding access to capital is a challenge for many business owners. It takes money to fuel growth—borrowed money for many small businesses. As online small business lending becomes more mainstream, and many business owners enjoy increased access, it becomes important to ask, “Does a business loan really make sense for my business?”

I started working in my father’s small business as a teenager, and learned a lot in the years I worked with him. I must admit, his conservative approach to borrowing money has definitely influenced my opinions on small business borrowing. In fact, his advice is particularly relevant today.

“Borrowed capital is expensive. Make sure you need to borrow.”

He felt like any time he borrowed it was expensive money—even if it was a low-interest loan. “Interest never sleeps,” he would say. “Over time it adds up.”

While there are more options available today than he had available 30 or 40 years ago, borrowed money is still expensive. He felt like borrowed capital needed to provide extra value or extra profits to the business. If it didn’t, he wouldn’t borrow. For example, we used a shipping company that could send a truck with a lift gate for the first few years before we purchased a forklift. I didn’t realize it at the time, but he was setting aside money every month to eventually purchase our own forklift. He felt like we could get by without it until he had the cash to make the purchase. It didn’t add enough value to borrow to buy it.

“Don’t borrow unless it will earn more money than it costs.”

He always wanted to know the ROI (return on investment) before he would borrow. If he could purchase inventory at a substantial discount, or buy a new piece of equipment that would significantly reduce maintenance costs, he would borrow. He paid close attention to costs and could identify a real opportunity to increase profits, and would borrow extra capital to do it. If he couldn’t identify such an opportunity, he wouldn’t. Sometimes that meant passing on inventory he didn’t think he could move quickly or he would walk away from a “super deal” on a new piece of equipment he didn’t think would add value to the family business.

I don’t think he ever rolled the dice with borrowed capital.

“Can you make the payments?”

He never borrowed money if he wasn’t confident he could make the payments. If something went wrong and the inventory wouldn’t move or he wasn’t able to generate the extra business, he still wanted to make sure he could make the payments. He knew that defaulting on a loan today made it more difficult to get a loan tomorrow.

What’s more, he understood that qualifying for a loan didn’t necessarily make the loan a good business decision. He wanted to make sure a loan was the right thing for the business, before he signed on the dotted line.

This is a great time to be a small business owner. Even though finding capital to fuel growth and fund other business initiatives can still be a challenge, there are more options available than ever before to help your business grow and thrive. It’s up to you to ask yourself these questions to determine whether or not a business loan is the right thing for your business.

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