Select Page
Should I Take Out a Business Loan?

This year has been a challenging year especially for small businesses. Some businesses may be struggling on deciding if they need to take out a business loan to keep things above water. This reminded me of a joke I heard the other day… I recently met a friend of mine while on an afternoon walk. “Hey there George, why do you look so down today?”  “Kevin, man, I’m in trouble.  I need money for my business, and I have absolutely no idea where to get it from!”  “Oh, I’m sure glad to hear that” I said.  “I was afraid you might ask to borrow it from me!”

Jokes aside, having access to business capital can be crucial to your company’s success.  Natural disasters (like the current global health crisis), market changes, new product development and countless other risks, challenges, and opportunities all scream for working capital.  There is a tremendous amount to unpack in this topic, but here we will cover some of my opinions on the concept of debt-free vs. leverage and how you can use working capital to do what you do best. You can also view one of our latest blog posts here for recession-proof business planning.

What is financial peace?

Dave Ramsey’s financial model outlined in his New York Times best-selling book “Financial Peace” illustrates the psychological solutions to staying out of debt. Mr. Ramsey, in my opinion, correctly hits the proverbial nail on the head regarding many people’s view on borrowing money, in this case, a business loan.  The world these days tells you that you can afford anything if you can just make the monthly payments.  Many people want what they want, and the lenders tell them they can afford it, so they buy it on credit.  Financial Peace provides the psychological solution that many people need to make the right decisions.  He teaches the zero debt, pay-off your lowest loan amount first approach.  This helps folks who see their mountain of debt, such as a house, couple of cars, student loans and credit cards, as something that can eventually be conquered.  And he is right, it can!

Financial Peace purposes that no debt is good debt.  While I see an enormous amount of value in this psychological solution for what is essentially a mathematical problem, some are able to see above that and into what it can be easily boiled down to.  Pluses and minuses.  In your business you likely deal with pluses and minuses every day.  So, let’s assume you can see beyond the psychological barriers of debt weighing you down and you’re able to use borrowed funds to earn you more than the interest you pay.  Leverage, when respected, can truly be a beautiful thing!

Assets vs. Liabilities

Now let’s use a counter point to Financial Peace. Robert Kiyosaki’s “Rich Dad Poor Dad”, also a New York Times best-seller, essentially takes an opposite view on debt.  Rich Dad Poor Dad explains the true value of your money earning you more money, teaching that the rich get richer because of this concept.

This can be applied to our topic, and specifically to you since it takes working capital for you to produce your product or service in your business.  In his book, Mr. Kiyosaki instructs that you can either purchase assets, or liabilities.  Assets earn you money while liabilities cost you money.  In your case, you and your business are the asset.  The more you invest, the more opportunity you have to grow.

Both books make fantastic points and really help to grow the reader’s understanding of fundamental financial concepts.  I would highly recommend them to readers of any financial background.  For me, it was crucial to get both sides of that “debt-free vs leverage” argument before I truly understood either.  It can be very easy to get caught up in one or the other and quickly desire radical change, but by consuming both I was able to find what I call the healthy middle.

How Do I Know If I Need a Business Loan?

Ultimately, as the decision maker in your business, it’s up to you to know your numbers.  Will a business loan net you the return on investment to exceed the interest costs?  Or, are you knowingly borrowing funds that you think will help you solve an immediate need, but cost you more in the long run?

While one may be superior to the other, both are viable reasons for taking out a business loan.  I only encourage that you make that decision knowingly, and with as much data as you can collect.  I also urge you not to fall into the psychological pitfalls of solving math-based problems with emotional reasoning.  Don’t listen to the world saying, “you can afford it”.  You very well may be able to, but you should come to that conclusion yourself or with the help of a financial professional.

Debt is a regular, and often essential tool in building a successful business.  Leveraging the capital you have access to, at the right time, and increasing your ability to consistently produce your product or service, can be the best business decision you’ll ever make.

We Would Love to Help You

I love helping business owners and individuals solve tax headaches and build financial vision.  Good business dictates you work your strengths and hire out your weaknesses.  At Molen & Associates we are passionately engaged, and we guarantee you will learn something new every time you work with us.  Give me the opportunity to teach you something new today by calling us at (281) 440-6279 or emailing us at info@molentax.com. I would love to work with you!

Kevin Molen
Tax Advisory Manager

The Molen & Associates Difference

Mike Forsyth

“Super helpful and timely. This is our first year with them and we look forward to trusting them with our taxes and business books for years to come.”

Caitlin Daulong

“Molen & Associates is amazing! They run an incredibly streamlined process, which makes filing taxes a breeze. So impressed with their attention to detail, organization, and swift execution every year. Cannot recommend them enough!”

Sy Sahrai

“I’ve been with Mr. Molen’s company for few years and I felt treated like family respect and dignity. They are caring, professional and honest, which hard to find these days. Love working with them.”

Corporate Transparency Act – Beneficial Ownership Reporting: Are You Prepared?

he Corporate Transparency Act (CTA), enacted as part of the Anti-Money Laundering Act of 2020, introduces significant changes in beneficial ownership reporting requirements for certain entities operating in the United States. These regulations, set to take effect on...

The IRS is Cracking Down on S-Corp Salaries: How To Your Reasonable Compensation is Safe

The IRS is turning its attention to S-Corporations (S-Corps) and the salaries paid to shareholder-employees. Ensuring that you are paying yourself a "reasonable compensation" is crucial to staying compliant with the law and avoiding potential financial consequences....

Should You Be Making Quarterly Payments?

Tackling your taxes as a small business owner can often feel like a high-stakes game of strategy and a little guesswork. One of the key moves in this intricate game is mastering the art of quarterly tax payments. If you're looking to stay ahead in the tax arena and...

Slash Your Self-Employment Tax

Hey there, hardworking small business owners! Tax season is no walk in the park, but we've got a game-changing secret to share that could put more money back in your pocket. If you're tired of paying hefty self-employment taxes and want to keep more of your...

How Tax Planning Can Help You Grow, Preserve and Protect Your Wealth

Tax planning services from Molen & Associates help you make smart decisions regarding your taxes. We provide individualized advice and information that can save you money and protect your wealth. Our tax planning strategies go beyond just filing your taxes – we...

Why a Local Family Tax Firm is Your Best Co-Pilot in Space City!

Howdy, Houston small business owners! Tax time can be a real whirlwind, but fear not – we've got your back! When it comes to saving time, money, and headaches on your taxes, partnering with a local family tax firm can be the ultimate secret weapon. In this article,...

Uncovering the Top 5 Deductions to Save Time, Money, and Stress!

Howdy, fellow Houstonians! As small business owners in the heart of Texas, we know that taxes can be a daunting and complex puzzle to solve. But fret not, because today, we're here to equip you with some mighty tax hacks that will not only save you time and money but...

Streamline Your Finances with Molen & Associates: The Power of Corporate Accounting

In the fast-paced corporate world, managing finances with precision and expertise is paramount for the success of any business. Corporate accounting plays a vital role in ensuring that financial records are accurate, compliant, and capable of driving informed...

Mastering Your Numbers: The Secret to Small Business Tax Triumph!

Hey there, fellow small business owners! As entrepreneurs, we know that taxes can be a bit overwhelming, especially when you're trying to run a successful business. But fear not – we're here to equip you with the ultimate tax-saving superpower: mastering your numbers!...

Should I Get Life Insurance For My Kids?

Should I Get Life Insurance For My Kids? No parent wants to consider the possibility of collecting a death benefit on their child's life. And this is the reason many families are exploring the option of investing in a child life insurance policy to ensure their...

Request an Appointment Today

9 + 12 =

Call us at

Pin It on Pinterest

Share This