34 MARCH 2022 WorldWide Drilling Resource® Drilling Into Money Not Boring by Mark E. Battersby Avoiding an Ownership Cash Crunch Setbacks in a slowly improving economy, combined with the disappearance of many pandemicrelated government funding options, has left many in the drilling industry struggling to survive financially. Small businesses continue to have a hard time borrowing money. The poor showing of so many businesses during the COVID-19 economic slowdown prompted banks and other lenders to deny loan requests - even now that the economy is showing signs of improving - all of which leaves the question: “How to fund cash-strapped operations?” Obviously, it is wise for every business owner to have at least some personal funds at risk since it shows potential investors that the owner is committed to the success of the business. Unfortunately, our tax laws make self-funding a touchy, complex strategy. Using personal or family funds to finance a business is called “Bootstrapping.” Bootstrapping can involve personal investment by the founders, their family, and friends. Whenever a loan is made between related entities, or when a shareholder makes a loan to his or her incorporated drilling operation or business, our tax laws require a fair-market rate of interest be included. Obviously, a business owner seeking to borrow faces many challenges. Will the money be available and, if so, at what cost? What will be the actual cost, including fees? Is the loan good for an extended period of time or can payment be demanded early? Conventional financing has not completely disappeared, it has just become more difficult to obtain. Much of today’s small business funding requires the “personal” touch. Still, alternative lenders are an option when the bank says no. As discussed previously, crowdfunding is helping many small businesses. It relies on investors who help get an idea, project, or business off the ground, often rewarding investors with perks and/or equity in exchange for cash. With the government programs exhausted or gone completely and traditional banks continuing to limit access to capital, online lenders have become popular, especially for businesses and their owners who are struggling with bad credit. Good times or bad, the hardest question to answer is: “What kind of capital should my business seek?” The owners, shareholders, and managers of every drilling business admittedly have options, but their first stop should be their local bank. If practical, comparison shopping for lenders, rates, and terms is recommended - as is seeking help from tax and accounting professionals. Mark Mark E. Battersby may be contacted via e-mail to michele@ worldwidedrillingresource.com
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