How a Loan Didn’t Save a Company

A few months ago, I received a call from a former client that I thought would be a routine check-in. This was a client I worked with shortly after starting Foothills Capital. They ended up taking on an SBA loan with another advisor who specializes in SBA lending.

After our brief time working together, we developed a relationship of mutual respect and admiration. We kept in touch, sometimes just talking about the economy and business environment, and how things are going personally and professionally.

This time the conversation took a different turn. They were letting me know that after trying everything, it was time to shut the company down. Despite their best efforts, the change in consumer buying patterns, the impact of tariffs, and the market for large discretionary purchases weighed too heavily on the business.

During the conversation, they said something many founders say in hindsight:

“Maybe I shouldn’t have taken the loan in the first place.”

As we talked it through, we realized that the decision to take the loan was sound. It was just the outcome that was not what they hoped.

If they had to do it all over again, they would not have done anything differently.

The Hindsight Trap

It’s easy to judge decisions based on outcomes, but the right question is whether the decision was sound at the time it was made, based on the information available then.

When this owner took on financing, the decision wasn’t reckless or emotional. It was deliberate. The capital wasn’t used to delay reality—it was used to confront it and extend the runway so they could take all the actions necessary to try to save the company.

Over the months that followed, they did exactly what responsible operators do when conditions deteriorate:

• Reduced costs

• Shrunk the business footprint

• Liquidated inventory below cost for cash flow

• Negotiated discounted prices from vendors and reduced lease payments from landlords

• Managed and refinanced obligations

• Made painful job cuts while preserving as many jobs as possible

• Reduced employee benefits

This wasn’t theoretical planning. It was execution under pressure.

What Was—and Wasn’t—Within Their Control

Despite those efforts, the economics no longer worked.

Industry dynamics had changed.

Tariffs affected margins in ways that couldn’t be offset.

Under realistic assumptions, the business could not generate the profits needed to service debt and remain viable long term.

This wasn’t a failure of effort, strategy or discipline. It certainly wasn’t denial. It was a clear-eyed assessment of reality after every reasonable lever had been pulled.

The Real Value of the Loan

As our conversation continued, we realized that a hidden value of the decision they made. If they hadn’t taken the loan, they would never have known whether the business could survive with time, additional capital, and additional corrective measures. They might have shut the company down earlier—but with permanent uncertainty.

Instead, the financing bought time; created optionality and it allowed them to try all the tactics available to them. In short, the loan didn’t delay the inevitable—it confirmed it.

That confirmation is extremely valuable.

The Sleep Test

We didn’t label it this way explicitly, but the idea was clear.

There’s a simple test many founders apply to their hardest decisions: Can you sleep at night knowing you did everything reasonably within your control?

For this owner, the answer was yes.

They had tried. They had adjusted. They had protected stakeholders where possible. And when the numbers no longer supported continuation, they didn’t cling to false hope.

The loan didn’t save the company; it saved them from a lifetime of second-guessing. They could sleep at night knowing that they tried everything and could move forward with no regrets, constantly wondering “what if?”

A Responsible Exit Requires Leadership

I offered to help introduce them to counsel and others who were experienced with how to wind down a company responsibly and fortunately, they were already engaged with excellent counsel that I know. I walked away feeling confident they were taking the right steps and had experts to guide the process.

Rather than hide in a protective cocoon, they were moving forward; proactively communicating to all stakeholders and taking all the steps to achieve the best possible outcome for employees, vendors, lenders, and themselves. That, too, is leadership.

Shutting down a business is often framed as failure. Often, closing one door opens another opportunity. While I do not know what the next chapter might bring, I do know they should have solace in the fact that the life and business lessons they learned the hard way can be tremendous assets going forward.

The Takeaway

Just like many decisions, taking on debt to extend the life of a business cannot be judged simply on the outcome. We can only look back and assess whether the decision process was sound. In this case, taking the loan provided clarity – and removed any possibility of regret.

Being able to sleep at night is priceless.