The rule: the 1.2× Rule.
Take the extra money the capital will bring in and compare it to what the loan costs you. If the gain is at least 1.2 times the borrowing cost, borrow. If not, bootstrap.
The 1.2× buffer is the whole point. Loans have a way of costing more than the quote — fees, a slow quarter, the month revenue dips. If the math only barely works, it does not work. You want the capital to earn its cost with room to spare.
This rule assumes the capital actually grows the business — more inventory you can sell, equipment that unlocks jobs, marketing with a track record. If the money just covers losses or funds a hope, no multiplier saves it. Bootstrap until the growth story is real.
Educational estimate only. Based on YOUR capital needed, expected annual revenue lift from this capital, loan APR, and loan term in years you enter. Uses 1.2x Rule: take the extra money the capital will bring in and compare it to what the loan costs you. If the gain is at least 1.2 times the borrowing cost, borrow. If not, bootstrap. Ignores fees, slow quarters, revenue dips, collateral, and personal guarantees. Not financial advice.
Disclaimer: Educational only, not legal, tax, or business advice. Consult an attorney or accountant about your situation.
Frequently Asked Questions
What is the 1.2× rule for business loans?
Take the extra money the capital will bring in and compare it to what the loan costs you. If the gain is at least 1.2 times the borrowing cost, borrow. If not, bootstrap.
Why 1.2× and not just breaking even?
Loans have a way of costing more than the quote — fees, a slow quarter, the month revenue dips. If the math only barely works, it does not work. You want the capital to earn its cost with room to spare.
What if the capital doesn’t grow the business?
If the money just covers losses or funds a hope, no multiplier saves it. Bootstrap until the growth story is real — more inventory you can sell, equipment that unlocks jobs, marketing with a track record.
When should I ignore this rule and talk to a professional?
This is educational only, not legal, tax, or business advice — consult an attorney or accountant about your situation.
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