How much debt are you dragging around?
Entrepreneurs are borrowing than they did last year: a dangerous trend for small business owners or anyone else.
The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to U.S. small businesses, rose 2 percent in July compared to the same month last year.
My advice to entrepreneurs is to continue to be very cautious about expanding their use of debt. The use of debt brings added risks.
New debt will add to the overhead of a business. This means that additional sales and profits -- more importantly additional cash flow -- will be necessary to cover the additional monthly expense associated with repaying new loans. Just like all small business debt, any new debt will add to the risk from having to personally guarantee business loans with personal assets, such as the owner's home.
I am still concerned with long term interest rate risk. Higher interest rates are still one possible scenario in our intermediate future. Be aware that this will add to the pressures on your monthly cash flow.
My advice to entrepreneurs continues to be to minimize the use of any new debt. You can do this by getting back to your startup roots and turning to your bootstrapping strategies once again.
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