An Owner’s Dilemma: Save Your Business or Keep Your Promise?

He promised his wife he would never put their home at risk, but that might be the only way to save the business.

Good Morning!

Here are today’s highlights:

• Half of the people on Obamacare either own or work for a small business.

• The Wall Street Journal editorial board is not in favor of subsidizing home builders.

• President Trump’s tariffs have done less economic damage than many expected.

• Saul Zabar wanted to be a doctor, but when his father died, he joined the family business temporarily (for more than 70 years).

FINANCE

In this week’s column, Ami Kassar writes about an owner who is trying to decide whether to pursue an SBA loan that would require him to use his home as collateral: “Every so often, a conversation with a business owner lingers with me long after it’s over. I recently had one of those experiences with an owner who has had a particularly tough couple of years. Like many, he has weathered the pandemic, rising costs, and shifting markets — all the recent entrepreneurial storms — and he’s got the scars to prove it. To stay afloat, he borrowed heavily, taking out approximately $550,000 from online lenders and another $500,000 in an Economic Injury Disaster Loan. This represents a significant amount of debt for a service business with approximately $4 million in top-line revenue.”

• “The monthly payments on that short-term debt now run about $35,000 — a crushing burden that’s squeezing cash flow and leaving little room for anything else. ... But there’s a potential way out. If he refinances the high-interest loans with an SBA loan, his monthly payments could drop to roughly $7,200. That’s more than $300,000 a year in freed-up cash flow — enough to turn the business around. There’s just one problem: the SBA lender wants to put a lien on his house and use it as collateral.”

• “Years ago, this owner promised his wife that he would never, under any circumstances, put their home at risk for the sake of the business. It was a boundary they set together — a way to separate family security from entrepreneurial risk. Now that promise is being tested. At first glance, it’s easy to sympathize with his hesitation. A house isn’t just an asset — it’s safety, stability, security, a home filled with memories. Risking it for a business that’s struggling feels reckless.”

• “But here’s the uncomfortable truth: the risk is already there. If the business falters and he defaults, creditors could pursue his personal assets, including the house. The safety he thinks he’s preserving might be an illusion.” READ MORE

THE 21 HATS SOUNDING BOARD

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