Borrowing Money? Get a CFO First

For many business owners, seeking a loan seems like the natural next step when cash runs tight. Whether it’s to fund growth, cover shortfalls, or seize an opportunity, they often head straight to the bank or investors without realizing a critical truth: getting the money is only half the battle—understanding how to manage it is what truly matters.

Debt Can Be a Powerful Tool—Or a Costly Trap

As a fractional CFO, I work with businesses that look great on the surface. Revenue is strong, EBITDA appears solid, and on paper, they seem profitable. But once you factor in debt service, the picture changes. Suddenly, cash flow turns negative, and the business owner is constantly scrambling to make payments.

Debt, when used correctly, can fuel growth, expand operations, and provide a return far greater than its cost. But if not properly managed, it can create financial strain that suffocates a business. The key isn’t just getting financing—it’s making sure it works in your favor, not against you.

Here’s why your company needs a CFO before it takes on debt—and how financial leadership can prevent common pitfalls.

Lenders Don’t Just Look at Revenue—They Look at Financial Health

Many business owners assume that if they’re bringing in revenue, lenders or investors will be eager to give them capital. The reality? Lenders care more about cash flow, profitability, and debt serviceability than topline sales.

A CFO ensures your financials tell a compelling story—one that gives lenders confidence in your ability to repay. If your balance sheet is weak or your cash flow is inconsistent, a CFO will help you fix those issues before you ever apply for a loan.

The Wrong Loan Can Do More Harm Than Good!

Not all loans are created equal. Some business owners take on debt that’s too expensive, too restrictive, or structured in a way that strains their cash flow. Others accept funding on unfavorable terms because they didn’t prepare or negotiate properly.

A CFO helps you:

Determine how much you actually need (instead of guessing)
Evaluate loan terms to avoid financial traps
Structure debt in a way that supports, not cripples, your business

Understanding Covenants: The Strings Attached to Your Loan

One of the most overlooked dangers in business loans is covenants—the conditions lenders impose to ensure borrowers maintain financial discipline. Many business owners gloss over these terms when signing a loan agreement, only to find themselves in technical default down the road, even if they’ve made every payment on time.

Why Are Covenants So Important?

Covenants serve as tripwires in your loan agreement. If you violate them, the lender can demand immediate repayment, increase interest rates, or impose restrictions that limit your ability to operate freely.

Examples of Onerous Covenants

Debt Service Coverage Ratio (DSCR) Requirements – Many lenders require that your operating cash flow covers debt service (principal + interest) by a certain margin. If your DSCR drops below the agreed threshold, you’re in violation—even if you’ve never missed a payment.
Restrictions on Additional Borrowing – Some loans prevent you from taking on any more debt without the lender’s approval. This can put your business in a bind if an unexpected opportunity or expense arises.
Personal Guarantees & Collateral Requirements – Some loans require business owners to personally guarantee repayment, meaning your personal assets (home, savings, etc.) are on the line if the business can’t pay.

A CFO ensures you fully understand your loan covenants before signing anything. They’ll negotiate favorable terms, set up financial strategies to stay in compliance, and prevent you from getting trapped by restrictive agreements.

Funding Without a Strategy = A Fast Track to Trouble

Getting a loan isn’t the finish line—it’s just the beginning. Without a CFO guiding financial decisions, businesses often burn through capital on inefficiencies, poor investments, or unnecessary expenses.

I’ve worked with companies that received substantial funding only to run into the same financial struggles a year later because they lacked a long-term financial plan. A CFO helps you build a sustainable strategy so that your loan fuels growth, rather than becoming a short-term fix.

A CFO Makes You a More Attractive Borrower

Banks and investors aren’t just looking for businesses that need money—they’re looking for businesses that know how to manage it. Having a CFO signals to lenders that you take your finances seriously. It increases your credibility and often improves your financing terms.

If You’re Struggling Without a Loan, a CFO May Be the Solution

Many businesses seek funding because they’re experiencing cash flow issues, unexpected shortfalls, or inconsistent profitability. While a loan might temporarily ease the pressure, it doesn’t solve the root cause.

A CFO can help you:

Optimize cash flow so you don’t rely on borrowed money
Identify cost inefficiencies that free up capital internally
Strengthen your financial position so that, if you do seek a loan, you get the best possible terms

In Texas, we say, “Just because there’s water in the well doesn’t mean you should drink it.” Debt can be a valuable tool, but only if it’s the right fit for your business. Before you take on financing, make sure you have the financial expertise to put it to work in a way that moves your business forward, not backward.