“I pay everything in cash, I never finance anything” or “I’ve never had to ask for a loan, I don’t believe in that.” From time to time, I come across this type of comment from a business owner. The attitude is often accompanied by a strong, no-nonsense work ethic for an owner who has built his business from the ground up. They have worked long hours, experienced ups and downs, and have sacrificed family time and vacations to make their business survive. Their belief is that if they can’t pay for something with cash, then they don’t need it.

I respect the energy and devotion, but I also note that the strategy seems to apply to small, family-owned businesses with few employees that have been flat on their growth and stopped expanding years ago. Expansion and access to new markets are not usually part of their business plan and they are content with a steady income, often serving the same clientele they have for years.

The downside of never funding anything is the limited amount of expansion that can occur. In essence, they cannot grow beyond what is in your bank account at any one time. For example, a small business with $100,000 of capital wants to buy a new $40,000 machine that will speed up production or take them to a new market or simply replace an old machine; if they decide to pay cash, that will leave them $60,000 in cash reserves. If they run into an emergency that requires $30,000, that will leave them with little cash cushion in their account. They’ve also limited themselves in the event that another opportunity comes along at the same time that they can’t take advantage of, such as prepaying for inventory to get a nice discount.

The other downside to never borrowing is that your business will not have any comparable credit in place, so in the event that you do decide to finance something, the chance of getting approved is marginal. A lender will not be able to assess his ability to pay the debt since he has never had any. Some business owners feel that it should be viewed positively that you’ve never had to borrow, but in the world of finance it’s not a positive. No credit history equals no loan.

The mantra in financing is “it’s easier to finance equipment than money”, which is mostly true. Yes, you can get low-cost capital from your bank if you have an established line of credit, but there will be a limit to that line. It is not a good idea to use your line of credit to finance an asset or equipment because that line should be used as a last resort for emergencies or short-term loans. Financing rates are now at 4-6% which can be extended to 5 years and sometimes longer. Many times, by expanding in a carefully and planned way, the financial payoff will be less than the additional income from your new team. This is the case for industrial machines, solar systems and LED lighting that save energy and costs.

Financing equipment for your business offers you the opportunity to expand, generate more profit, and reach new markets and customers. For those who want to know the benefits of never financing anything, this is it; You will never owe anyone anything—no monthly payments, no interest, and no ability to borrow more than you can afford—but in that perceived security there is also some risk and missed opportunity.