Debt can cover a timing gap, buy equipment, fund an acquisition, or support an ownership transition. Repayments continue when a client delays a project or invoices take longer to collect. Before speaking with a lender, write down the purpose, amount, date funds are needed, and specific source of repayment. Decide whether the need is a brief cash timing issue or a longer-term investment whose return may take years.
Build a cash forecast for the proposed borrowing period. Include payroll, taxes, subcontractors, insurance, existing debt service, and planned owner distributions. Prepare a base case and a slower-collection or lower-revenue case. Identify the month when cash would become tight in each case. If repayment depends on a project, confirm the work is authorized, funded, billable, and scheduled to generate cash before payments come due. Do not make an unsigned proposal the only repayment source.
Ask each lender for the full written terms and compare them side by side. Review the interest rate, fees, collateral, covenants, reporting duties, personal guarantees, prepayment terms, default triggers, and maturity date. Ask what happens if a covenant is breached, whether there is a cure period, and whether the lender can demand early repayment. Have an attorney review the loan documents before signing. Ask your CPA how interest and fees will be recorded and what records to keep for tax reporting.
Check who is taking the risk. A personal guarantee can put an owner’s assets at risk. A lien can limit what the firm can sell or pledge. A covenant may restrict future borrowing, distributions, or a sale. Have the owners review those limits together and record who has authority to approve borrowing and guarantees under the firm’s governing documents.
Compare borrowing with retained earnings, seller financing, or equity only after identifying the cost, control, and legal effects of each choice. Financing may not be approved, or its final terms may differ from expectations. Set a fallback plan, such as delaying a purchase, reducing distributions, or phasing an investment, and decide in advance what action the owners will take if cash collection falls behind.
This is general education, not financial, tax, legal, investment, or engineering advice; licensed PE judgment and local codes govern.
