What if that "non-dilutive capital" just put your house on the line?
Most founders think equity is their only option, but 73% of businesses seeking financing actually apply for loans. The gap isn't about availability—it's about understanding what you're signing up for. In this episode, we break down SBA loans, personal guarantees, convertible debt, factoring, and the brutal truth about when debt accelerates your business versus when it destroys everything you've built.
Picture that scene from Pirates of the Caribbean where Johnny Depp's ship sinks the moment he steps onto the dock. If that's how your business feels, debt won't save you—it'll just make you sink faster. The question isn't whether debt is good or bad. It's whether you understand what you're actually signing and when it makes sense.
SBA loans come with something buried in the fine print: the personal guarantee. Your home becomes collateral whether you intended it or not. When you sign your social security number on that document, you're putting your personal assets on the line. Declaring bankruptcy won't protect your home equity when you've personally guaranteed business debt.
The irony? Banks primarily care about your EBITDA and your track record of profitability over the last three to five years. They want proof you can service the loan. But if you already have strong enough financials to comfortably make payments, you probably don't need the loan. You qualify for debt when you're already succeeding, not when you're trying to survive.
Debt accelerates businesses that already work. Buying equipment that doubles your capacity to meet existing demand? Debt finances that expansion. Manufacturing business that needs to expand facilities for orders you already have? Debt makes the growth possible. The pattern holds: debt works when you can draw a straight line from borrowed capital to measurable revenue increase that exceeds the cost of the loan.
The best financing often comes from customers, not banks. Offering existing customers a discount to prepay for a year of services gives you immediate capital without personal guarantees or interest payments. This approach has natural limits, but it should be exhausted before you consider institutional debt.
Here's what most founders miss: debt holders are senior to equity holders in the capital structure. If your business fails and liquidates, lenders get paid before your investors see a penny. Your equity partners stand behind the debt holders in line. The bank is your boss before your board is.
Convertible debt introduces another layer of complexity. The name sounds like equity with a safety net, but it's debt first. The conversion option benefits the investor, not you. They can choose to convert to equity or demand repayment. If they want their money back and you planned on conversion, you're facing the same crisis as any other unpaid loan.
Factoring—financing your receivables so net-30 invoices become immediate cash—creates a trap most founders don't see coming. You get one month of benefit. Factor your invoices today, and next month you need to factor again to maintain the same cash position. You've borrowed one month of cash flow and now you're financing that gap in perpetuity.
The question that matters before you sign anything: if this goes sideways, what happens to me personally? Not "what's my plan to avoid failure." What actually happens to your house, your savings, your family's financial security if the business fails with this debt on the books?
If your business can't succeed without you taking on personally guaranteed debt, it shouldn't succeed. You are not your business. You're a founder who will start multiple companies over your career. This particular venture is just one vehicle. If it demands you risk your home to keep it alive, you're better off shutting it down and building something else.
Debt belongs in a growing business with clear line-of-sight to revenue increase, not in a struggling business hoping for a turnaround. Exhaust customer financing first. Only take debt when you can draw a direct line from borrowed capital to measurable growth. And never forget: when you sign that personal guarantee, your business loan becomes your personal problem.
Watch the Full Episode on debt vs equity financing with Chris Hurn, Anthony Franco, and Stephanie Hays below:
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