Learn

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Is borrowing money good or bad?

Time:Set the timer to 60 minutes for the Learn section.

Discuss:Think of someone you know who borrowed money. Did borrowing money help them or hurt them?

Read:Personal household debt and business debt are different.

Personal loans are used to spend more than we have means to pay. Business loans are used to produce more than we have means to produce.

Read the quotes to the right. Prophets have counseled us to avoid personal debt.

“Some debt—such as for a modest home, expenses for education … may be necessary. But never should we enter into financial bondage through consumer debt without carefully weighing the costs.”

Joseph B. Wirthlin, “Earthly Debts, Heavenly Debts,” Ensign or Liahona, May 2004, 41

“Now I do not mean to say that all debt is bad, of course not. Sound business debt … is one of the elements of growth.”

Ezra Taft Benson, “Pay Thy Debt, and Live” [Brigham Young University devotional, Feb. 28, 1962]; speeches.byu.edu

Business debt can help us grow our business. But business debt is not always a wise choice. We must know when it is “sound,” as President Benson said.

Read:QUESTION OF THE WEEK—How do I know if I should use a loan to grow my business?

ACTION OF THE WEEK—I will (1) talk with at least 10 customers to learn if they would buy more if I had more to sell and (2) visit at least four lenders and ask them the questions on the loan terms worksheet.

During this meeting, we will learn and practice skills to help us know if borrowing money is a good idea for our business.

How will the “four rights” help me decide?

“Get a Loan?” (No video? Read page 136.)

Discuss:How would you know if a loan would help you or crush you?

Read:Read aloud and briefly discuss each of the “Four Rights.”

THE FOUR RIGHTS
1. Right Reason	Borrow only if it will help my business make more money.
2. Right Time	Borrow only if I have been in business long enough to know my business well and can show that enough people will buy what I am selling.
3. Right Terms	Borrow only if I can find a good lender.
4. Right Amount	Borrow only if I can show that I know I can pay it back.

Practice:As you watch the following videos, decide if you think Maria and Carlos can answer the questions for each of the Four Rights.

Check “Yes,” “No,” or “Not Sure” for Maria and Carlos.

“Right Reason?” (No video? Read page 137.)

Discuss:Are Maria and Carlos borrowing for the right reasons? Why or why not?

Successful business owners use the Four Rights to borrow wisely.

REASONS FOR BORROWING	MARIA			CARLOS
	Yes	No	Not Sure	Yes	No	Not Sure
Am I borrowing for productive business (not personal) reasons?
Will the things I buy with the loan make me money immediately?
Is getting a loan better than saving cash to grow my business?
Have I thought about all the risks?

“Right Time?” (No video? Read page 138.)

Discuss:Are Maria and Carlos borrowing at the right time? Why or why not?

TIME FOR BORROWING	MARIA			CARLOS
	Yes	No	Not Sure	Yes	No	Not Sure
Have I been in business long enough to know my business well?
Is this part of a plan I have to grow my business?
Can I show that customers will buy more if I have more to sell?
If I buy something for my business (like a chicken or truck), will it last longer than my loan?

“Right Terms?” (No video? Read page 139.)

Discuss:Are Maria and Carlos borrowing on the right terms? Why or why not?

TERMS FOR BORROWING	MARIA			CARLOS
	Yes	No	Not Sure	Yes	No	Not Sure
Can I list three to five good lenders?
Do I know the true cost of the loan?
Can I explain all of the terms of the loan?
Can I explain why one lender is better than another?

“Right Amount?” (No video? Read page 140.)

Discuss:Are Maria and Carlos borrowing the right amount? Why or why not?

AMOUNT FOR BORROWING	MARIA			CARLOS
	Yes	No	Not Sure	Yes	No	Not Sure
Have I made a six-month cash flow statement?
Can I make a payment and still make money?
If I don’t have extra sales, can I still make the payment?

Read:We learned how to use a cash flow statement to know if we will have enough available cash to make payments. This will help us know if we are borrowing the right amount.

Practice:After you meet with lenders this week, use the cash flow worksheet on page 143 to make sure you can afford the payments. (Look at the things we learned last week if you need help creating a cash flow statement.)

When Maria is not sure about the answer to one of the Four Rights questions, she makes a plan to find out the answer.

Before we borrow, we should also find out the answers if we are not sure. Ask group members or others for help if needed.

Should I borrow for my business?

Practice:Here are some tools to use during the week to gather information and make decisions. Go to pages 141–43. Take five minutes to look at the Four Rights Checklist and the Loan Terms Worksheet and discuss how to use them.

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Four Rights Checklist

See page 141.

During the week, review these questions and check them off when you can answer “yes.”

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Loan Terms Worksheet

See page 142.

During the week, use this loan terms worksheet to learn about at least four lenders.

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Lender Information

See handout from facilitator. If not available, ask other business owners for suggestions of good lenders in your area.

During the week, use this information to find and contact lenders.

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Six-Month Cash Flow

See page 143.

Use this worksheet to create cash flow statements to know which loans you can afford.