Have you borrowed money to finance your business?

When a business borrows money, the lender usually requires the signing of a loan covenant agreement, along with a promissory note that says the business will pay off the debt. Sometimes the bank even asks for a personal guarantee from the owner of the business.

Loan covenants are long, detailed documents full of fine print. Often they place restrictions on the borrower, such as controlling their extension or credit to customers, limiting management salaries, restricting capital spending, and regulating other business decisions. A primary lender can even dictate the order in which other creditors will be paid in the event of insolvency. If a borrower violates any part of a loan covenant, the banker can declare the loan in default and require immediate repayment. Just as Solomon warns in the Book of Proverbs, "the borrower becomes the lender's slave."

It might be necessary for your business to borrow money in order to accomplish your objectives, but don't make such a decision unwisely. Remember, when you borrow from the bank, you become a servant to the banker.

Scripture: The rich rules over the poor, and the borrower becomes the lender's slave (Proverbs 22:7).

 

 

Outline for developing a business plan