Need a loan? Get to know your bank – and avoid merchant loans | Business Banter

Published 11:00 am Friday, June 12, 2026

Kerry: Okay Tom… let’s jump right into one that makes small business owners immediately uncomfortable: borrowing money. Is it smart to borrow for your business?

Tom: In general? Yes.

I know debt has developed a really negative reputation, but not all debt is bad debt. There’s bad debt… and then there’s smart debt. In business, smart lending is typically borrowing that creates a positive long-term return on investment.

Banks and the SBA actually look at this mathematically all the time. They want to see that the impact of the loan will eventually increase profitability and cash flow for the business.

That’s really the key. A loan should be creating something. Maybe it’s a new piece of equipment that allows you to take on more work. Maybe it’s a vehicle, a larger facility, additional staff, or technology that makes your operation more efficient. The question isn’t “Can I get the loan?” The question is “Will the impact of this investment generate more value than the cost of borrowing?” If the answer is yes, now we’re talking about smart lending.

Kerry: I think that’s the part most small business owners miss. They think borrowing automatically means failure or struggle, when sometimes it’s actually strategy

Tom: Exactly.

And honestly, one of the hardest things for me to watch is businesses trying to grow only off leftover profits after taxes. It usually slows growth dramatically. Meanwhile, larger companies are leveraging financing to move faster and stay competitive. One important thing to remember is that debt itself is not taxable income. That becomes part of the equation when you’re investing in infrastructure, equipment, expansion, staffing, or systems that improve the business long term.

Kerry: So when does lending actually start making sense for a business owner?

Tom: Usually after a couple years in business.

Not that startups can’t get loans, because they absolutely can. But most businesses start reaching the point where “smart lending” becomes part of the conversation around years two to three. By then, you’ve usually established some business history, some creditworthiness, and there are simply more programs available to you.

Kerry: Which is also probably why relationships with banks matter more than people think.

Tom: Huge.

Your bank relationship absolutely matters. Business checking, savings, merchant processing, even personal accounts… all of those things help establish a relationship before you need funding.

I think a lot of owners view their bank as a place to park their money, but it should be much more than that. The strongest lending relationships are usually built long before an application is ever submitted. When a banker already knows your business, understands your history, and sees how you operate, those conversations become much easier when the time comes to explore financing options.

And here’s another truth people don’t always want to hear: the better lending options are usually the ones that take more effort.

The SBA process is not quick or easy. Traditional bank lending takes preparation too. But those are often far healthier options than the “money in 24 hours” type lenders.

Kerry: Okay… let’s talk about the scary side of this conversation. What qualifies as bad lending?

Tom: Merchant loans. Without hesitation.

Those are basically the payday loans of the business world in my opinion.

The structure can be incredibly misleading because they often don’t even present the cost as an APR. Instead, they frame it as an upfront “fee.”

I recently saw a business owner take out a $50,000 merchant loan with a $20,000 fee attached to it. At first glance, they thought it sounded manageable because they were in an emergency situation. But when you calculate it over the six-month repayment period, the effective interest rate was roughly 80 percent.

That’s devastating for most businesses.

Kerry: Eighty percent is absolutely wild.

And honestly, I think desperation is where a lot of business owners get trapped. They need fast cash and don’t always realize what they’re signing up for.

Tom: Exactly. Easy lending is usually expensive lending.

That’s why business owners really need to pause and ask:

“Am I borrowing to cover losses… or am I borrowing to build something stronger?”

If the investment can realistically create more long-term profitability than the cost of the loan itself, then you’re probably entering the realm of smart lending.

On the other hand, if you’re borrowing simply to delay a problem, cover recurring losses, or buy yourself a little more time without addressing the underlying issue, that’s when things can get dangerous. Lending should be a tool that helps move a business forward, not a crutch that keeps it standing still.

Kerry: I actually love that perspective.

Because small businesses deserve to think strategically too, not just survive month to month. And sometimes the smartest thing a business owner can do is stop being afraid of every form of borrowing and start understanding the difference between smart lending and dangerous lending.

Tom: Exactly. Smart businesses don’t just work hard.

They work intentionally.

Kerry: Well Tom, I think the takeaway is simple: don’t be afraid of lending. Be afraid of bad lending.

Tom: That’s a much shorter version of everything I just said.

Kerry: That’s why people read my parts.

As a Chamber, we’re always looking for ways to bring business owners practical education, valuable connections, and resources that help them make smarter decisions. Whether it’s financing, marketing, staffing, succession planning, or growth, our goal is to help local businesses thrive.

If this conversation sparked a question or two, good. Questions lead to better decisions.

Tom: And better decisions usually lead to better businesses.

Kerry: Exactly. Until next month, keep asking questions, keep learning, and keep building.

Tom: And please read the fine print.

Kerry: Always read the fine print.

Kerry Solmonsen is the Executive Director of the Enumclaw Chamber of Commerce and community advocate with a passion for helping local businesses grow and thrive. With a background in leadership, sales, nonprofit development, and business development, she brings both heart and hustle to her work. Whether she’s organizing a parade, launching a community initiative, or championing small-town entrepreneurship, Kerry is all about connection, collaboration, and creating momentum that matters.

Thomas Sauvageau is a lifelong entrepreneur and seasoned business coach with a passion for helping small business owners succeed. Over the past 20+ years, he’s owned or partnered in more than 30 businesses across industries like finance, real estate, and hospitality, many of them right here in our community. While he’s no stranger to the highs and lows of entrepreneurship, Tom’s true calling is helping others grow thriving, values-driven companies. As a Certified EOS Implementer®, he now works with business owners across the region to bring structure, clarity, and momentum to their vision. www.eosworldwide.com/thomas-sauvageau