At Fingleton Peters Tyrell we believe borrowing can be an important part of growing an Irish business, funding investment or managing a major opportunity. However, taking on significant debt is a decision that can affect cash flow, profitability and financial flexibility for years. Before committing to a major business loan, SME owners should understand not only what the borrowing will cost, but whether the business can comfortably support it under different circumstances.
1. Can the Business Afford the Repayments?
The first question should be straightforward: can the business comfortably afford the repayments?
It is important to look beyond the current bank balance. A business may have enough cash today to make repayments, but that does not necessarily mean the loan is affordable over its full term.
Consider your projected cash flow and assess how the additional repayment would fit alongside existing commitments such as:
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Payroll
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Supplier payments
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VAT and other tax liabilities
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Rent and utilities
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Existing loans and finance
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Planned investment
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Owner drawings or remuneration
It is also worth considering how the business would cope if revenue declined temporarily or certain costs increased.
A loan that is affordable under current conditions may become much more difficult to service if trading conditions change.
2. What Will the Loan Really Cost?
The interest rate is only one part of the cost of borrowing.
Before signing a loan agreement, understand the total financial commitment over the entire term. This can include interest, arrangement fees, security costs, legal fees, early repayment charges and other associated costs.
For example, a loan with a relatively attractive interest rate may still have a significant overall cost if it is repaid over a long period.
Ask for a clear breakdown of:
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The amount being borrowed
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The interest rate and whether it is fixed or variable
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The repayment frequency
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The total expected repayment
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Arrangement and administration fees
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Any penalties or charges
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The consequences of missed payments
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Whether additional security or guarantees are required
Understanding the total cost makes it easier to compare different financing options and assess whether the investment is commercially worthwhile.
3. What Will the Borrowing Actually Achieve?
Debt should have a clear purpose.
Before taking on substantial borrowing, identify what the money is expected to achieve. Is it funding new equipment, additional premises, technology, working capital, an acquisition or expansion into a new market?
The more clearly the purpose is defined, the easier it becomes to assess whether the borrowing makes financial sense.
Consider the expected return on the investment. If you are borrowing €200,000 to fund an expansion, what additional revenue or profit do you realistically expect that investment to generate?
Forecasts should be based on reasonable assumptions rather than optimistic expectations.
A major loan can place pressure on a business if the anticipated benefits take longer to materialise than expected.
4. What Happens If Things Do Not Go to Plan?
Business owners naturally focus on the expected outcome when considering investment.
A stronger financial assessment also considers what happens if the outcome is weaker than expected.
Create several scenarios for the business. For example:
Base case: Revenue and margins develop broadly as forecast.
Downside case: Revenue is lower, costs are higher and the investment takes longer to generate a return.
Severe downside case: Trading conditions deteriorate significantly for an extended period.
Look at how the business would manage loan repayments under each scenario.
This type of stress testing can reveal whether there is sufficient cash headroom to absorb a difficult period.
It can also highlight whether the business is becoming too dependent on continued growth simply to service its debt.
5. What Security or Personal Exposure Is Involved?
A major business loan may involve more than the company’s finances.
Depending on the borrowing arrangement, a lender may request security or personal guarantees from directors or shareholders.
This can create additional financial exposure for business owners.
Before agreeing to any guarantee or security arrangement, understand exactly what you are committing to and the circumstances in which the lender could enforce its rights.
The structure of the borrowing also matters. Existing loans, overdrafts and other finance arrangements may contain conditions that could be affected by additional borrowing.
Professional advice should be obtained where necessary before entering into significant financing arrangements.
Borrowing Should Strengthen the Business
Debt is not inherently negative. In the right circumstances, borrowing can allow an SME to invest ahead of growth, purchase productive assets or take advantage of an opportunity that would otherwise be difficult to fund.
The key is ensuring that the borrowing strengthens the underlying business rather than creating financial pressure that limits future choices.
Before taking on a major loan, review your current profitability, cash flow, working capital position and existing debt. Then consider how the proposed borrowing changes those figures.
A business with strong financial visibility is in a better position to determine how much it can afford to borrow and whether the expected return justifies the commitment.
For Irish SMEs, the most important question is not simply whether finance is available. It is whether the business can use that finance productively while retaining enough financial resilience to deal with uncertainty.
Taking time to answer these five questions before borrowing can help business owners make a more informed decision and avoid discovering the true cost of debt after the commitment has already been made.
If you would like to discuss your business, contact us by email chris@carberyfingleton.ie or visit fingletonpeterstyrrell.ie.
Disclaimer
This article is based on publicly available information and is intended for general guidance only. While every effort has been made to ensure accuracy at the time of publication, details may change and errors may occur. This content does not constitute financial, legal or professional advice. Readers should seek appropriate professional guidance before making decisions. Neither the publisher nor the authors accept liability for any loss arising from reliance on this material.
