Question:  At what point do you decide that a short-term business loan is the right move in order to not miss out on things like vendor discounts, seasonal advertising promotions, long-term branding as well as short-term call to action advertising?  Also, where do you look for cash flow financing when you are ready. Google? Local banks? Mailings?

Answer:  I’d be leery of responding to a telemarketer, FB ad or google search unless you already know about the lender and trust them. If you decide to look for a short-term business loan, I would start with your own bank or look for local banks that do lending. Most won’t lend unless you have been in business for at least two years, have strong cash flow to support the repayments, and/or have collateral like inventory or real estate. The banks will be the cheapest. If you are newer, look for a bank that does SBA lending. The upfront cost will be higher but the bank is more willing to lend since the loan is guaranteed by the SBA. Banks tend to lend based on your sales or cash flow, but if you’re not profitable, they may not touch you. Also, you have to have good personal credit, with credit scores at least in the high 600s.

Also, look in your industry or industry organization. Some banks specialize in certain industry niches (like healthcare, veterinarians, CPA firms, etc). You may find a willing lender there.

Lastly, I would consider someone like if the other options don’t pan out. I’ve had a client use them with success, but the rates are high. But if it’s short-term and it moves your business forward, then it could be worthwhile.

To address the question on if you should borrow, it really depends on the reason. I don’t like borrowing to support your operations, but if you can take advantage of seasonal sales opportunities (sales meaning sales to your customers), it can be profitable. I would not do it for things like long-term branding, funding losses or anything that does not have an immediate payback that increases your profits or increases your sales. But do a ROI calculation to see if it makes sense. Borrowing $20,000 to increase bottom-line profits by $5,000 is not a good investment. Whenever you can, try to use your own business or personal cash flow first. Eat cheaper meals, sell the expensive car, pull back on the spending, save up, and then use that to invest in the business. That is almost always the best way to go in cases like this.

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