How Much Debt Should You Take On?

Sorry to be offline for a while; a lead validation program called Optify put a program into our login that screwed up the login procedures…..took us a while to figure it out. Fortunately, Optify is out of business.

Anyway, this is part of an article in the NFIB Monthly Small Business magazine, which you might not see. We haven’t seen it on, either, but it might be there. The mag only goes to about 450,000 of the over 3 million NFIB members, for some reason, too. Here are their parameters (with a little ed comment):

1. How much cash will be available to make monthly payments? How much variability is there in the monthly cash flow?

2. Are there weaknesses to address? I.e., do revenues normally not cover expenses? Should the company be selling equity instead?

3. Will the loan utimately increase the company’s cash flow? Is the project a revenue generators, or is the new loan replacing older, higher interest debt?

4. Are you paying too much interest on another loan? (This is really an extension of item 3 above)

5. What will happen if your business can’t pay off the loan? What are profitability trends? What steps can the business take to improve profitability (short of getting into Solutions Forum)

We hope these guidelines work for you….they also happen to be questions that most bank loan officers would ask.

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