“Borrowing is not much better than begging; just as lending with interest is not much better than stealing.”
-Doris Lessing
“Some Risks of Frequent Business Borrowing”
Borrowing can be a useful tool for businesses, helping them grow topline revenue, manage business cash flow, or handle unexpected business expenses.
However, when business borrowing becomes frequent and unplanned, it can create serious problems that hurt the long-term health of a business.
Here’s a closer look at how frequent business borrowing can lead to a financial mess and what businesses can do to avoid it.
Business Cash Flow Problems
Frequent business borrowing means regular repayments, including interest.
Over time, these payments can drain a company’s cash flow, leaving little money to cover operating expenses or deal with emergencies.
Example:
A business takes multiple small loans to handle everyday expenses but soon struggles to make payments.
This leads to missed deadlines with vendors or payroll, creating a cycle of financial stress.
What to Do Instead:
• Borrow only when it’s truly necessary.
• Make sure loan repayments fit into your budget without disrupting operations.
Getting Stuck in a Debt Cycle
When businesses borrow frequently, they can become dependent on loans to survive. Instead of solving underlying financial issues, they keep piling on debt. This often leads to borrowing more to pay off previous loans, creating a cycle that’s hard to escape.
Example:
A retailer uses loans to restock inventory but doesn’t address poor sales or high operating costs. With each new loan, the debt grows while profits shrink.
What to Do Instead:
• Focus on improving profits and reducing expenses before taking more business loans.
• Use business debt as a tool for growth, not as a band-aid for cash flow problems.
Higher Costs Over Time
Taking out multiple loans can lead to higher interest costs. If you’re borrowing frequently, especially at high-interest rates, more of your money goes to lenders instead of helping your business grow.
Example:
A small business takes out short-term loans at high rates to cover monthly expenses. Over time, the interest payments eat into profits, leaving no room for reinvestment.
What to Do Instead:
• Consolidate business debt into one lower-interest loan if possible.
• Plan ahead to avoid last-minute, high-cost borrowing.
Harder to Get Future Loans
Frequent borrowing can hurt your credit score, making it harder to secure loans when you truly need them.
Lenders may view your business as high-risk, especially if you’re struggling to keep up with repayments.
Example:
A company that repeatedly borrows without paying off debts on time may get flagged by lenders, resulting in higher rates or outright loan rejections.
What to Do Instead:
• Pay off old loans before taking new ones.
• Build a financial buffer to reduce reliance on borrowing.
Overcomplicating Finances
Managing multiple loans from different lenders can be confusing and stressful. Missed deadlines, miscommunication with lenders, and unclear repayment schedules can quickly spiral into a financial mess.
Example:
A business with several overlapping loans loses track of repayment dates, leading to late fees and penalties that worsen its financial situation.
What to Do Instead:
• Keep business borrowing simple by consolidating loans or working with one lender.
• Track all loan details carefully to avoid mistakes.
Borrowing Smart, Not Often
Frequent borrowing may seem like a quick fix, but it can lead to serious financial trouble if not handled carefully. Businesses that rely too heavily on loans risk cash flow problems, rising debt, and even the inability to secure future financing.
Tips to Stay on Track:
1. Borrow only when absolutely necessary.
2. Pay off existing loans before taking new ones.
3. Focus on improving operations to reduce reliance on borrowing.
“By keeping borrowing under control, businesses can avoid financial messes and focus on long-term growth.”
Don’t wait for the situation to get worse.
The sooner you act, the more options you’ll have. Schedule a consultation today and take the first step toward saving your business—and your future.
Remember, more business debt isn’t the answer. A more effective business strategy is…
Click to setup an introduction meeting to discuss your situation and next best steps.
Bernarsky Advisors
Business Finance and Strategy Advice
Refinance. Restructure. Reorganize.
(See more of our articles about Business Finance and Strategy below…)
WHAT IS THE BEST AND SAFEST WAY FOR YOUR BUSINESS TO DEAL WITH HIGH BUSINESS DEBT PAYMENTS?
It is NOT by stopping ACH payments.
It is NOT by taking on another business loan.
It is NOT ALWAYS a Refinancing
It is NOT by entering into a debt settlement program.
Find out the BEST strategies to get your Business back to where it was
Setup a brief meeting with a business finance & strategy expert to discuss all of your options!
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