AmiSight 10/15: Sometimes the Best Loan Is the One You Don’t Take
I make my living helping entrepreneurs borrow money, but sometimes the best advice I can give someone is not to borrow another dollar.
A few years ago, an entrepreneur came to me after receiving a $500,000 SBA loan to start a one-person consulting business. I thought that was a crazy amount of debt for a business with almost no overhead. Three years later, she was struggling and considering spending another $40,000 on an appointment-setting service. She didn’t have the cash, and the financing she was looking at carried an effective interest rate of around 120 percent.
I begged her not to do it. Instead, I suggested she go back to her old line of work for a while, earn some money, see if she could get some relief on the SBA loan payments, and give the business time to rebuild. The answer wasn’t another loan. It was to stop digging.
Usually, I never find out what happens after conversations like this. But about every six months, I get a note from her. She followed the advice, gave herself some breathing room, rebuilt the business, and is doing really well today.
I love getting those notes. Not because I was right, but because when we’re under enough pressure, the answer that lets us keep moving can start to feel like the only answer.
Sometimes the best move is to stop, give yourself some room, and find another path before desperation makes the decision for you.
Comments