NP Capital: Key Considerations About Debt When Cash Flow Gets Tight
- NP Capital Advisors Team
- Sep 5
- 6 min read
Article summary: Founders must understand four key aspects of debt: lender type, collateral security, lien perfection, and personal guarantees. SBA loans, while offering lower rates, almost always require personal guarantees, placing founders’ personal assets at risk. By auditing these factors, companies can negotiate from strength and avoid turning debt into a personal and financial time bomb.
Four Questions Every Founder Should Ask About Their Debt
At NP Capital Advisors, we often meet companies that are carrying significant debt without fully understanding the risks embedded in their agreements. Not all loans are created equal, and the details can make the difference between flexibility and crisis.
When assessing debt, we encourage founders and management teams to start with four essential questions:
1. Who is the lender?
The type of lender shapes everything about how a loan is enforced and renegotiated. Is it a traditional bank? A professional credit fund? A government-backed program like the SBA? Or an informal investor, such as a friend or family member? Each type of lender has different motivations and constraints.
“Understanding who sits on the other side of the table is the first step,” says NP Capital CEO Nick Desai. “Banks and professional lenders are far more likely to demand strict protections, while a trade creditor or family lender may be flexible.”
2. Is the loan secured?
A secured loan is backed by collateral – often the company’s assets, inventory, or receivables. An unsecured loan, by contrast, relies only on the borrower’s promise to repay. The more collateral a lender has tied up, the less room a company may have to maneuver during times of stress.
3. Has the lien been perfected?
Even when a loan is secured, a lender must formally file to “perfect” its lien, usually through a UCC filing. If this step is skipped, the lender’s claim on the assets may be weaker. While this is a technical, semi-legal detail, it can have major implications in restructuring scenarios.
4. Is there a personal guarantee?
Perhaps the most critical question: Does the debt include a personal guarantee (PG)? A PG means the founder or executive is personally liable if the company cannot pay.
“The worst kind of debt is secured, perfected, and personally guaranteed,” explains Desai. “The best is unsecured with no PG, like a vendor payable. Knowing where your obligations fall on this spectrum is essential.”
A Note on SBA Loans
Small Business Administration (SBA) loans are a common financing tool for entrepreneurs, but they carry important caveats. While SBA programs can offer attractive interest rates and longer repayment terms, they almost always require personal guarantees.
In fact, SBA rules typically mandate that any owner holding 20% or more of a business personally guarantee the loan. This means even if the company fails, the obligation follows the individual borrower, placing homes, savings, and other assets at risk.
“SBA loans look friendly on the surface, but founders often overlook the PG requirement,” says Desai. “In a restructuring scenario, they can become some of the most burdensome obligations because they tie directly back to the individual.”
Founders considering SBA financing should weigh the benefits of cheaper capital against the long-term risks of personal liability. In certain cases, alternative debt structures, though more expensive, may provide greater protection.
Final Thoughts
When times are good, debt feels like a simple financial tool. But when liquidity tightens, these four elements – lender type, security, lien perfection, and personal guarantees – determine how much leverage a founder truly has.
Too often, companies under pressure rush into refinancing without examining these basics. The result is higher costs, stricter covenants, and greater personal exposure.
At NP Capital Advisors, our role is to help clients audit their obligations, negotiate from a position of strength, and, where possible, reduce or eliminate the most onerous terms.
“Founders often have more power than they realize,” notes Desai. “The key is understanding the structure of your debt and using that knowledge to push back when needed.”
Before signing or refinancing any loan, ask these four questions. The answers will reveal whether your debt is a manageable tool for growth or a ticking time bomb for both your company and your personal finances.
New Team Member
We’re excited to welcome Edricco Reina to the NP Capital Advisors team!
Edricco Reina
"The Navigator"
Strategic Growth Advisor
Edricco Reina is a Strategic Growth Advisor to NP Capital Advisors and the Founder of BeyondRoots Growth Partners, a firm focused on helping emerging companies scale through go-to-market strategy, business development, and commercial acceleration.
With over 20 years of experience including leadership roles at SPINS and NielsenIQ, Edricco has led GTM and growth initiatives across SaaS platforms, data and analytics businesses, and consumer brands. He specializes in helping companies transition from product-market fit to scalable growth, with particular expertise in U.S. market entry, revenue strategy, and strategic partnerships. At SPINS, Edricco was part of leadership team that drove 10x revenue growth, leading to a $1B exit.
At NP Capital, Edricco works with prospective and existing portfolio companies to design and implement tailored growth strategies serving as a flexible, hands-on resource through fractional leadership, project-based execution, or strategic coaching.
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About NP Capital Advisors
NP Capital Advisors is a next-generation investment bank and consulting firm founded by a team of experienced entrepreneurs, bankers, and attorneys who have built, operated, and sold successful businesses. The firm offers tailored solutions across M&A, restructuring and turnarounds, and strategy and growth consulting in a variety of sectors. With a performance-driven fee structure and a track record of delivering exceptional results, NP Capital Advisors is dedicated to helping founder-led and emerging growth businesses maximize value and overcome challenges.
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