How to Handle a Cash-Flow Crisis Without Taking Out a High-Interest Loan

It is inevitable that your company will hit a financial speed bump at some point, but how you handle the crisis is critical to your survival.

Hopefully it will never happen to you, but many entrepreneurs face a day when things hit the fan.

Things may be going along swimmingly, but sometimes there are warning signs that are ignored, and things are out of your control, and you find yourself in a financial crisis.

The usual reaction by entrepreneurs is to want to fix the problem as quickly as possible. That often means securing a loan–and many people will turn to an online business loan to deal with the cash crunch.

At one level, it makes sense. The loans are easy to apply for, approvals happen quickly, and you can then throw the cash at the problem and proceed apace.

But online business loans really should be a last resort, given their sky-high interest rates and the usual rapid amortization periods. Paying back the loans typically becomes onerous, especially if the problem that caused the cash crunch isn’t corrected.

Here’s what you should do instead.

1. Swallow your pride.

Rather than get stuck in a debt spiral, a better option is to gut out the problem. It may well be a blow to your ego, but groveling a bit can be beneficial here.

For one thing, you can stretch out your payments. You don’t want to ruin your credit, but paying your debts more slowly is one possibility.

In the same vein, you can ask lenders for relief. If you’ve been a good client in the past, they might be willing to give you a break. In any case, it can’t hurt to ask.

You also should cut expenses and overhead wherever possible. Unless something is vital, you don’t need it. For some things, a less expensive option might suffice for a while. You might consider having some independent contractors do your marketing work instead of an agency, for example.

You can even ask your employees if you can stretch out their salary payments. You need to tread carefully here because unpaid employees aren’t going to remain employees for long, but even a few days might give you some leeway, especially if you have a strong, trusted team.

2. Do without.

Too often, entrepreneurs–especially ones with fledging companies–get stuck thinking that the only way to conduct business is to move ahead and not look back (or scale back).

That’s a recipe for trouble, because when your business is in its early stages, you need to do everything you can to survive. If that means circling the wagons, so be it. You need to think about what is absolutely essential to get you to the next level, and what can wait.  That might mean slowing down some hires, or buying one machine now instead of two.Yes, it can be embarrassing, but bankruptcy is even more so. 

You won’t be the first entrepreneur to find yourself in this position, and you won’t be the last. Dealing with a bit of adversity might not be pleasant, but the old saw about building character rings true. Everyone deals with failure at some point.

And finally, remember that if hunkering down doesn’t work, you always have the option, if you’re so inclined, to try an online business loan as a Hail Mary. However if you do so, explore several options and absolutely pick the plan with the lowest monthly (or daily) payments to get you through your tough spot.

3 Guidelines to Consider When Deciding to Spend or Borrow Money

You will never find a definitive answer but there are guidelines to follow when considering which option to take.

I often get asked the question: If I have cash available in the bank, should I use it to make the investment I have in mind– or should I borrow the money and save the cash?

There are some general principles to think about when making this decision. First off, it’s a good idea to have at least six months of reserve in your bank account (when possible). If you have more than six month’s reserve, it’s likely fine to spend it– if not, you should be careful.

You should also check in on your line of credit, which should be the greater of ten percent of your top-line sales or eight-five percent of your accounts receivable and fifty percent of your inventory. However, you should not use the line of credit for making long-term investments. It’s there for seasonality, working capital ebbs and flows, and emergencies.

Consider This

As an example, let’s say you have $350,000 in cash available to you, sitting in your bank accounts. And let’s pose the question: Do you invest it in your business to fulfill an unmet need, fund growth, hire staff, buy real estate or inventory, or a multitude of other options? Or should you hold onto your cash and borrow it on a 10-year note at a 7.5 percent interest rate (a reasonable assumption with a Small Business Administration-backed loan)?

The Solution

On the one hand, you have the cash now, so using it is a reasonable choice but, is there something else worth investing in at this time or in the near future?

It isn’t outside the realm of possibility that you could get rates better than 7.5 percent, especially now since the Fed just cut their rates.

Then again, what happens if the economy goes south and you need that $350,000? Will you still be able to borrow? Maybe, maybe not.

Ok, I realize I’m waffling a bit here. So what should you do?

A gut reaction is that in a good economy, go ahead and use your cash. Ideally, your business is doing well, and you need to spend to take advantage of a growrth opportunity. You won’t have to take on debt, and the risk/reward ratio suggests you’ll be compiling cash to replace what you just spent.

And if things go even better than expected and other opportunities present themselves, you can always take a loan at that point.

That said, remember things can change quickly. You’ll need to think about contingencies. There’s no telling when the next downturn will be, and memories tend to be short.

As the 2000s progressed, there often was talk that the economic cycles that have occurred throughout history were ending. Of course, by late 2007, when the so-called Great Recession started, all that talk disappeared.

Yet even today, little more than a decade later, some of that talk has resurfaced. Don’t be fooled: There will be a downturn at some point.

There are never any definitive answers when it comes to financial decisions. You cannot eliminate risk, nor can you ever entirely read the market, let alone the state of your own business. Meantime, you can’t predict how lenders will react to both your business as well as economic trends.

While it may seem disconcerting that there are no definitive answers, you can make educated guesses, especially if you trust your gut. If you don’t trust your gut, find a trusted advisor or mentor who can provide a fresh perspective on your situation.

The one thing you can’t do however, is to let yourself be paralyzed by fear and not make any decisions. As hockey ledgend Wayne Gretzky once noted, you miss one-hundred percent of the shots you don’t take. Even if you have to scale back expectations, you eventually have to make a decision.

And as you make your decision, you need to think offensively and defensively.

The Moment You Find Yourself Jealous of Another Entrepreneur’s Success, Stop. It’s a Trap

You will most likely sabotage your own business growth without even knowing it.

Cold, hard facts and reams of numbers may rule the business world, but there’s no question that the human element plays a significant roll, too.

And one of those extreme emotions is one of the seven deadly sins — envy. Envy has been around for a long time. Its first recorded appearance may well have been what prompted Cain to kill Abel.

But I’m here to tell you the grass isn’t always greener, as I’ve learned from fisthand experience.

When I founded my business more than a decade ago, I decided to take a slow but steady approach to growth. I was in no hurry to be running a behemoth and figured organic growth would be fine. I also has a friendly investor/mentor, which proved to be a big help.

I was able to avoid multiple rounds of funding in exchange for the hope that I could develop a long-term, stable business and still maintain control.

A decade later, I’ve done that.


Sometimes I see friends who have taken more agressive paths that appear (outwardly) to have made them wildly successful. And I admit I am jealous.

As any magician will tell you, things aren’t always what they seem.

I sat down recently with a fellow entrepreneur who started about the same time as I did. His business seemed to be doing well — better than mine.

Yet he’s had to endure several rounds of equity and finds himself a slave to many masters. He told me he’s going crazy trying to keep everyone happy and get their approval for significant decisions. That’s proven to be a near-impossible task.

So, while his bank account may be more impressive than mine, I’ve got something more valuable than any luxury — peace of mind.

I’m happy with my business. I’m taking it in the direction I want it to go. I’m not beholden to anyone except my trusted hand-picked staff, whose goals mirror mine. And I sleep just fine at night

Don’t look back

The point of all of this is to trust your self. Choose your path and be comfortable with it.

There’s no one set way to run a business, so you have to take your strengths and weaknesses into consideration as you develop your plan.

Hopefully, you’ll do better than most other entrepreneurs, but that doesn’t matter in the long run. You can only control what’s in front of you — and that includes your happiness.

If someone does better than you, so be it. Sure, you should strive to be the best at what you do, and use a successful competitor as motivation — but there’s also a point where good enough is good enough.

Enjoying a reasonable work-life balance should always be a priority. If you can’t enjoy the fruits of your labor, what’s the point of killing (and doubting) yourself?

Why Learning to Trust Outside Opinions Can Solve Your Biggest Problems

Why Learning to Trust Outside Opinions Can Solve Your Biggest Problems

Whether we like it or not, when we make decisions about careers, risks, and investments, to name just three things, our prior experiences will influence us.

That means your behaviors and attitudes today are impacted by the past, even if there’s no direct, obvious correlation.

While this can be good or bad, you should be aware that by seeking some other opinions, you might get a clearer perspective on what is currently on your plate.

Trouble in the past

Here are three examples of how past financial mistakes impact entrepreneurs today.

I know one entrepreneur who took a one-year, 36% interest loan over a 10-year, 6% Small Business Administration-backed loan that would have required him to place a lien on his home. He felt he was more conservative, but the loan bankrupted him.

Today, he’s nearly paralyzed with fear when it comes to loans, severely limiting his growth prospects.

Then there’s the husband-an-wife team I know who found themselves financially overextended a few years ago. They managed to mostly clean up the mess, but the experience led them to raise equity for a new startup instead of borrowing money and doing it on their own.

As readers of this blog know, I’m not a fan of giving up equity — too many people fall for the “Shark Tank” philosophy – and almost always prefer lending. That’s not to say the couple won’t succeed, but they passed up some reliable lending options in exchange for equity partners who may or may not have their best interests at heart.

And the third example involves me. The Great Recession walloped the company I worked for a decade back in 2008 and 2009. This experience has made me more fiscally conservative in my decisions. I may be enjoying success now, but I still find myself fighting the scars from a decade ago when I make significant decisions today. It’s always in the back of my mind.

Looking ahead

It’s OK to make mistakes – as long as you learn from them. That’s what the learning process is all about. Remember that Albert Einstein (who I’d classify as a pretty smart guy) said the definition of insanity is doing the same thing repeatedly but expecting different results.

So, what does this all mean for you?

When you make a decision, you must consider all the information available to you. Naturally, your past experiences will come into play — and must carefully weight how much value to give them. Was your experience typical? Were there extenuating circumstances? How similar are the situations?

I mentioned it earlier, but this is where getting a second (and maybe third) opinion can be usefull because you get an unbiased view looking at the problem. Of course, those people have their own biases ct=reated by their personal histories, yet since they’re different than yours, they can be valuable.

In any case, don’t let past biases paralyze you into not making decisions today.

Moving From Corporate to Founding Your Own Startup Requires a Huge Ego Check. Here’s How to Adjust

Just because you had great vendor relationships in your past work life doesn’t secure those relationships when you go out on your own, and you may even be forced to do the work yourself.

There’s an age-old story that no doubt will continue to play out among entrepreneurs across the country for time eternal:

An employee working at a large, established company begins to chafe at working for “the man.” The rules and regulations seem onerous. The bureaucracy is infuriating. The lack of decision-making ability is frustrating. The status quo is intolerable.

Or maybe the employee has what he or she believes is a great idea that will never see fruition — or they think they can do things better on their own.

So, they leave the company and hang their shingle, develop their product or service and do things their (theoretically better) way.

All is great at first, but some unforeseen problems soon develop.

When Things Go South

Here are a few common examples which I see happen often to fledging entrepreneurs.

I’m working with one now whose startup is in its first year. He’s doing reasonably well, and a path for long-term success is apparent. But like many newer businesses, there are financial challenges, and he needs a loan to fund further growth.

Unfortunately, the entrepreneur has grown frustrated that the lenders treat him far differently than they did when he was at a more prominent, established company. He wants his loan structured similarly to how it was at his prior job, and that just isn’t going to happen. He laments that the same lenders he worked with before, who knew him, but now don’t seem to respect him.

Meantime, another entrepreneur I know is a marketing person who used to work in tandem with numerous agencies. Now that she’s on her own, she is overwhelmed with new tasks.

The Need to Adjust

When you set out on your own, you’re working with a blank slate in more ways than one. Yes, you get to do things your own way, but for the people you’re working with, you’re also an unknown. How you operate on your own may be completely different than when you’re inside the structure of an established business.

The entrepreneur with lender woes has to realize this. Lenders may know of him from his previous gig, but the former employer primarily shaped their opinions. That means he has to prove himself all over again.

As for the entrepreneur with the marketing background, she’s going to have to learn that there’s more to business than just her fiefdom. Plenty of business people make the mistake of thinking that their one area of expertise will provide them with enough familiarity to handle all aspects of the new business.

That’s not the case.

None of this is meant to dissuade you from leaping into entrepreneurship. Plenty of people who do so are successful and figure things out promptly.

Reality Check Exercise

The key to obtaining that success as quickly as possible is by realizing that once you’re on your own, the rules change. You are now an unknown entity.

Is your new situation causing you to knock your head against the wall? Have you hit a bump and can’t push through it?

Use this exercises to bring clarity and help you push through:

  1. Identify the problem or struggle
  2. Think about how you would have solved the problem in a previous role
  3. Consider if this approach is realistic in your new situation– be honest with yourself here
  4. Make adjustments based on current reality and resources 

If you can’t adjust, you may need to go back to work for “the man.”

Your Bank Could Be Holding Your Business Back From Growth. Here’s When You Should Consider Breaking Up

Sometimes you have to know when to walk away, even when loyalty is in your DNA.

The bankers you work with may seem like great men and women, and they probably are truly nice people. They greet you by name, ask about your spouse and kids and appear to take a real interest in how well your enterprise is doing. Their financial products may be meeting your needs to a T.

But how strongly do you feel about your relationship with your bank? How do you think they’ll cooperate with you when the stuff hits the fan — which it most certainly will at some point? That’s the real test.

True colors

Here’s a true-life example: I’ve been working with an entrepreneur who finds himself in a down cycle. The company’s business plan is sound, the management team is experienced, and the product remains viable, so the problem isn’t terminal. But it may be awhile before the company’s prospects brighten.

The company works with a popular bank, which is starting to get nervous about its loans and is considering adding demanding conditions or even calling the loans.

The entrepreneur, however, feels a sense of loyalty to the bank, which has worked with him for several years. I have counseled him to consider other options. The reality is that bankers seven states away that he’s never met, not his local team — are the ones making the decisions.

He’s holding fast– and that’s a big mistake.

The entrepreneur has the opportunity to move to a smaller, regional bank. That bank’s rates may be slightly higher, but they’re more interested in a relationship.

And there’s certainly value in being in the room with the actual decision-makers — for both sides. Yes, your financials are going to be the primary determinant in lending decisions, but the human element can sway an on-the-fence lender to your team. Meantime, you’ll be able to tell a lot about the banker by meeting in person. Sometimes, it’s okay to trust your gut.

Loyalty only takes you so far

I get why entreprenuers are loyal to bankers that have brought them success, but passing up the opportunity for a better financial situation is akin to resting on your laurels.

As an entrepreneur, your best chances for success are by finding every possible edge you can. Incremental gains add up nicely ove time, you should be taking advantage of them.

As for your spurned banker — they will get over it. Yes, that’s cynical, but that’s the way the business world works, especially with the larger banks. Remember also that your financial needs are a living, changing thing. What worked for you at one point may not be the most appropriate thing for you now.

The most successful entrepreneurs and companies are never satisfied with the status quo. Neither should you.

Why It’s So Hard to Delegate and Why You Need to Do It Anyway

The benefit of freeing your mind to concentrate on the important stuff is smart business, if you can actually do it.

No matter how well you think you multitask, your brain can only handle so many things at one time. And the more tasks you’re trying to accomplish, the less likely you’ll do them all well.

That brings me to this question: What do entrepreneurs use brainpower on that they should delegate to someone else?

Me as a micromanager

I suffer from the same syndrome. My company is now more than a decade old, well established, and has a dependable, trusted team in place.

Despite this, I still want to know about every transaction my team is working on — no matter how trivial or peripheral. Even though I’ve written before in this space about trusting your team, the micromanager in me wants to keep tabs on everything.

That’s the case even though I have team members whose jobs specifically are to keep track of those things — team members who are doing an exemplary job.

I know it’s a waste of brain space and I fight it all the time, but it’s a fierce, ongoing battle.

 Free Your Mind

All this begs another question: What can you let go, and how do you train yourself to do this?

This question is essential for fledgling, or less-experienced, entrepreneurs, especially those whose companies are in their early days and have minimal staff.

Much of it is a mindset. Entrepreneurs tend to be creative, big-picture types, but I’ve found a surprising number of them are incredibly detail-oriented as well. You might even call them control freaks.

I don’t have a magic pill, a secret formula, a cellphone app, or a wizard’s magic that can get you to stop wasting brain space. You have to decide for yourself what’s valuable and worthy of your brain cells and what’s not.

Maybe the best way to accomplish your goal is with a virtual brain dump. Think of all the work-related topics that are using bandwidth in your mind, then write them down. Place them in order from most important to least important.

Which items on your list could someone else do? Those will be the things to drop from your mind.

This process isn’t always easy, and you might not fully trust your judgment. If that’s the case, doing the above exercise with a trusted senior employee could be helpful; there’s no reason you have to go it alone.

To summarize, less is more. Focusing on a smaller number of high-importance issues will always work better than being a jack of all trades, master of none.

No Time to Get Everything Done? There’s a Specific Loan That’ll Help You Hire a Much-Needed New Employee

Affording that desired new-hire may be possible after all.

I travel often for work, meeting entrepreneurs from across the country. No matter where I might be, I hear the same recurring complaints over and over: entrepreneurs simply don’t have the time to get done all the things they need to do.

Of course, entrepreneurs aren’t alone in facing this problem– just ask anyone with kids– but business leaders hold a heavy responsibility for fixing that problem because there’s no possibility it resolves itself on its own.

Sure, you can partially fix the problem by better delegating responsibilities, but many entrepreneurs– especially those with early-stage companies– tend to be control freaks and personnel tends to be limited.

There’s more to it than just delegation. Think of the tasks that take you the most time to complete, especially the ones you don’t particularly enjoy.

What changes could you make or what person could you hire so you don’t have to do that task anymore? It’s a simple question, but it’s not asked often enough. Have you really ever thought about how you can make your work life easier?

Money (or the lack thereof) talks.

There’s a strong probability that the answer to the question above is to hire someone to take over the work you can’t or don’t want to do. There’s likely also a strong probability that the biggest drawback with that solution is that you think you can’t afford to hire someone.

The logic many entrepreneurs cite for not hiring someone is usually sound: They contend they either already are losing money or, if they are profitable, their margins are so narrow that hiring an additional employee would send them into the red.

But what you might not know about or be overlooking is Small Business Administration-backed loans that can be used for hiring an employee. They generally make that much-needed hiring affordable.

Let’s do a little math: Say you obtain a $60,000 loan through the SBA’s 7(a) program that you’ll pay back over 120 months with an interest rate of 7.75 percent.

That means your monthly payment is just $720. That’s not exactly chump change, but if that amount is going to break the bank for you, you’ve got bigger problems than being overworked.

Ideally, the new employee will provide more than $720 of value to you by freeing you to work on things that will improve your bottom line.

If things go as well as expected, you can always pay that loan back early. And if things take a while to get going (but they’re going), you could always take out a second loan to cover another year of the employee.

The point is that you have options that can prevent you from getting stuck. As an entrepreneur, one of your key duties is making sure obstacles are overcome– something that a bit of financing can accomplish.

Remember that while too much debt is crippling, a manageable amount is a tool that can lead to the growth you desire.

Avoid the Temptation of Short-Term Loans and Consider This Before Signing Any Agreement

Having seen too many businesses crash and burn from short-term lending, I want you to know there are other options.

Time after time, I’ve run across companies that make a rough financial patch much worse by “solving” their problems with short-term loans. Here, I’d like to modify Nike’s famous slogan and tell business owners considering taking a short-term loan to “Just Don’t Do It.”

Case in point: I received a call from a retail business recently who I consulted with about a year earlier. The company had recently taken a four-month loan with an annualized interest rate of 200 percent. They never realized the rate was that high.

The owner wanted to get an SBA loan now to consolidate his debt, but he’s not making a profit so he couldn’t get a loan. Also, he’s making a daily repayment of several hundred dollars, which puts pressure on his entire operation.

Tempting but evil.

What exactly are short-term loans? 

Short-term loans generally are easy to obtain. The loan process takes only a couple of days, and you can apply online. Borrowers don’t need extensive credit histories or even good credit scores to be approved.

The ease of securing a loan is helpful to struggling businesses because it offers increased cash flow. That might mean making payroll or paying rent if you’re otherwise stuck waiting for accounts receivable

It also might allow a business to take advantage of a short-term opportunity. Say, for example, that you’d be able to buy critical raw material for half price for a limited time. Those savings might enable you to increase your profit margins or expand your production.

But the price you’re going to pay is a high one in more ways than one.

The interest rate surely will be outrageous– triple figures aren’t out of the question– and the repayment terms will be onerous and frequent. If your business doesn’t have a regular cash flow, this can be especially problematic.

The other main problem with a short-term loan is that it can lead you into a debt cycle that you’re unable to break. It’s not uncommon for companies that take out a short-term loan to take out another one before the first one is paid off. That debt cycle can then become a death spiral.

I counsel clients not to fear debt– but it has to be the right kind of debt. That’s not a short-term loan.

A different path.

So, what should my former client have done instead of taking a short-term loan? I would have told him to forgo the loan and cut expenses.

Entrepreneurs are conditioned to be in growth mode perpetually, but no business grows in a straight line, and downturns are a part of the process. Hunkering down and even shrinking your company during stress points is a viable option, and it’s certainly better than getting stuck in a debt cycle.

Now, my client’s only slim hope is to avoid further debt and cut expenses to the bone, but it may be too late. Don’t make this same mistake yourself.

How to Maintain a Healthy Cash Flow at Your Business

Here, I break down two difficult financial decisions faced by business owners and what they should do to stay afloat.

In the same hour last week, I had two conversations with entrepreneurs at very different stages of their ventures. And while their specific issues were very different, the theme of how to manage and balance cash flow was the same and consistent.

In the first situation, two partners are opening a new retail business and need signage to entice traffic.Their budget allows for $10,000 of signage, but the quote for the electronic sign came in at over $20,000. The vendor then offered them their “next best thing” for $12,000. Or a competing vendor offered a wooden sign for $6,000.

The partners must decide how to allocate their money.There is a lot of uncertainty of a business that has not opened its doors yet.

As I hung up the phone and ended that conversation, the next entrepreneur had a different dilemma.They were in the process of refinancing $1,000,000 of debt and were debating between a five-year note at 6 percent interest or an SBA note at 8 percent that amortized over ten years. Their accountant had crunched the numbers and was strongly advising them to take the lower-priced note, even though their monthly payment would be $10,000 more with that option.

In both situations, the entrepreneur must look forward, and think about what is coming up over the next 12 to 36 months — and make their decisions accordingly.

For the new start-up, while they have a budget of $10,000 for a sign– if they can get a good option for $6,000 — this allows them to put some money into reserve for the unexpected. After all, early-stage forecasts rarely go to plan.

And for the more established entrepreneur– the accountant is technically right from a pure dollars and cents perspective that the shorter-term note is cheaper. But what they are not taking into consideration in that analysis is what happens if the economy flips, or business slows down dramatically. If this happens, they will regret not taking up the cash flow savings from the more extended offer.

So how do you make these decisions? My advice is always to stand on the side of the caution. For the start-up, I would encourage them to take the cheaper sign to start. If things start going gangbusters in their business, they can consider replacing it one day.

And my recommendation to the business owner who is refinancing the debt is to take the longer-term loan. In a good year, they can pay it down. And when they hit a rough spot, as will invariably happen along the way, they have the benefit of the smaller payments.

Ultimately, cash is king. Play your hand accordingly, and you will likely enjoy a long journey.