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Is Your Business Financing Strategy Up-To-Date?


Debt financing, when used properly, is a tool to leverage growth opportunities and help businesses grow to their fullest potential. But what many entrepreneurs don’t realize is the importance of matching the type and maturity of their business with the size and structure of their business loans.

Evaluate Your Current Position

Is your current monthly payment a measurement of what you can pay, or does it reflect a past level of cash flow? The current climate has changed the situation for many business owners. Does your loan still suit your circumstances? Many times, when a business first gets a loan, they simply accept what is offered as a necessary cost of entry for a start-up to access capital. It is not necessarily the best match with the needs or wants of the company.

Did you get a loan because you needed it at the time, but now find that the terms and monthly repayments are a mismatch with your current cash flow? If so, refinancing might benefit you. Or perhaps you decided on a shorter repayment term when initially starting your business, but now need to extend it. It makes sense that when your position changes, so should the loan.

Strategies Should Mesh With Goals

The amount of financing that's healthy will vary widely from business to business; there is not a “one size fits all” formula. Your own aims as a business owner should guide the levels of good and bad debt needed to reach your objectives. What are you looking to achieve? While it may sound obvious, it's important to only take on the amount of debt to accomplish goals, spur the company forward, and provide the necessary purchasing power to build your business. Avoid taking on debt that accomplishes only one objective and leaves leftover funds. Every dollar should be allocated toward a goal.

Access to capital can extend runway and allow your business to make choices that help you compete in the marketplace. The type and amount of financing should be directly linked to your particular type of business. Using debt wisely doesn’t just mean choosing the lowest interest rate—it means identifying a loan term, structure and amount that maximizes assets and works with your strategies to accomplish future goals.

Matching Debt to Maturity

Along with the business type, the maturity level of your business is another important consideration. Loans should match the age of the business and your plans for succession. If you’re thinking of selling, too much debt on the balance sheet can limit your options. Your buyer or heir may not have the ability to secure enough financing to cover both the existing debt and the sale. Conversely, a new company will have more flexible opportunities to make choices that allow for long-term financing. Have you achieved ROI on your current loan? The age of your business will affect viable loan types and terms tremendously.

The Right Questions

It can be a challenge to determine the proper level of debt on your own. Fortunately, a lending partner that asks questions can make all the difference. Does your bank know what your goals are? Did they ask, or did you have to tell them? Has your business taken time to consult with an expert to create a plan?

You already have to focus on being an expert in your field. It can be a relief to work with a professional who understands healthy debt and avoids insisting on a particular number. Debt should be specific to your own growth plans and strategies, not a percentage from a formula or an online form.

Sunflower Bank and First National 1870 are committed to helping our local communities flourish. We always strive to help you find choices that nurture your business – not just close your loan. From conventional to specialty loans, our consultants are here to help you make good decisions and help you formulate a plan that leads to success.


Ready to explore how First National 1870 can assist you? Speak to a personal banker at a branch near you, contact a specialist on our Wealth Management team, or find the right financial partner on our Commercial Banking team for your business needs. 

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This article contains general information only. First National 1870 is not, by means of this article, rendering accounting, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, before making any decisions related to these matters, you should consult a qualified professional advisor..