How much money should a small business borrow? How much business debt is too much? How do you balance liquidity with debt? Though borrowing money is a way for many small businesses to grow and expand, it may not always be the best option in the long run because it adds risk to the business that does not go away until the business loan is paid off.
In this episode of Financial Cents, two long-time bankers, John Lewis and Brent Cannon, sit down to discuss an idea that you might not expect to hear from a business banker: just because you can borrow doesn’t mean you should. John, who is senior vice president and business banking manager at National Bank of Arizona, goes on to explain that “sometimes small business owners focus too much on buying new equipment rather than the end result.”
“I think what a small business owner should keep in mind is that that…although things are looking really good today, don’t assume the trendline is always going to trend upward.” – Brent Cannon
And while borrowing is how many businesses fund their growth and expansion, Brent, an executive vice president and director of community banking, explains there’s no guarantee that the growth will keep trending upward. “If you understand that your revenue and earnings are going to have some variability and volatility,” he explains, “big fixed payments like loan payments, that are fixed until the loan is paid off, when you place that on the business, there’s an added element of risk.”
Financial Cents is hosted by Brent Cannon and features insightful interviews and discussions with bankers at National Bank of Arizona. Based on decades of banking experience, Financial Cents provides the insights you can only get from a friend in the business.
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