This is a subject that most small business owners have no clue how to handle. Most owners misunderstand when small business loans are a strategically smart decision.

Too often business owners seek a business loan when they realize they are running out of money in their business! This is really the worst time to seek a small business loan. If you borrow money when you’re desperate you will pay dearly for the loan, if you can find a lender. If you find a lender they will offer difficult terms. Interest rates will be excessive, very short maturity, all of your assets will be pledged, you will not be able to get an unsecured small business loans and you will personally be on the hook for the loan.

How do you manage your small business debt issues? Here are 4 keys:

1. Do a cash flow forecast every month. Forecast out at least 6 months. Be honest and be conservative. It’s much easier to borrow money you’ll need 6 months from now than it is to borrow money you need 6 days from now. Do the forecast EVERY month. DO IT.
2. Debt is not the solution to negative cash flow in your small business. Getting a small business loan is nothing more than a bandaid if your pronlem is negative cash flow. Fix your business. Happiness is positive cash flow.
3. Only get a small business loan if you can employ the money for a return rate higher than it costs you. Confused? If you borrow money at 10% interest you have to use the money for something that creates a return of higher than 10%. If your business profit is 8%, why would you ever borrow money that costs you 10%? Most important is to make sure you understand the use for the money and the return on that use.
4. When things are going well look for lenders and start negotiating for a loan. Even if you just take the loan and put the cash in the bank. Negotiate hard, get good terms. Cash is flexibility. The best time to get a small business loan is when you don’t need it.

Be wise. Look ahead. Plan debt as diligently as you plan any part of your business.