Should You Take a Loan
Loans can accelerate growth or spiral into debt. This guide walks you through a decision framework so you borrow wisely — or avoid borrowing altogether.
The Decision Framework
Before you visit the bank, work through these four steps in order. If any step raises a red flag, stop and reconsider.
Step 1: Why Do You Need the Money?
Your reason for borrowing is the single biggest predictor of whether the loan will help or hurt you.
| Reason | Verdict | Why |
|---|---|---|
| Upgrade truck to reach premium customers | Good | Revenue increase from Foodies, Managers, or Influencers likely exceeds interest cost |
| Open a second location (first is profitable) | Good | You have a proven model — scaling a winner is smart |
| Cover operating losses | Dangerous | Debt will not fix a broken business model. You need to fix pricing, recipes, or location first |
| Buy premium ingredients (staff Level 3+) | Maybe | Only worthwhile if you can raise prices to match the quality improvement |
| Emergency cash buffer | Risky | Find and fix the root cause instead of masking the problem with debt |
| Train staff to reach a higher level | Maybe | Training pays back permanently, but calculate whether profit growth covers repayments |
Step 2: Can You Afford the Repayments?
Do the math before you borrow:
- Look at your current monthly profit in Financial Management
- Estimate your monthly repayment: loan principal / 60 months + monthly interest
- Compare: does your monthly profit comfortably cover the repayment?
If your monthly loan repayment would exceed 25% of your current monthly profit, the loan is too risky. A bad week, a recipe change, or a competitor moving in could tip you into default. Leave yourself a margin of safety.
Step 3: Check Your Debt-to-Equity Ratio
The bank uses your debt-to-equity ratio to decide both your interest rate and whether you get approved at all.
| Debt-to-Equity Level | Bank Response |
|---|---|
| Low | Approved at the best available interest rate |
| Medium | Approved at a higher interest rate (bank margin increases) |
| High | Approved but at an expensive rate — think carefully |
| Very High | Denied — the bank refuses the loan entirely |
If you already carry debt, taking more pushes your ratio higher, making every future loan more expensive. Pay down existing debt before adding new obligations whenever possible.
Step 4: Consider the Economic Cycle
The simulation compresses a 10-year economic cycle into one game year. Interest rates fluctuate with the economy:
- Recession phase: Central Bank lowers rates, so borrowing is cheaper — but customer spending also drops
- Boom phase: Central Bank raises rates, so borrowing costs more — but customers spend more freely
The sweet spot is borrowing during a recession (low rates) to invest in growth that pays off when the boom returns. Avoid borrowing at the peak of a boom when rates are highest.
The Golden Rule
A loan should fund growth that generates more revenue than the loan costs. If you are borrowing because you cannot pay your bills, you need to fix your business model first — check your pricing, inventory costs, and location before reaching for debt.
Real Examples
Example: A Good Loan
Your Startup Burger Bike generates $200/day profit in the University Area. You want to upgrade to a Mini Burger Trailer to unlock Foodies in the Tourist Zone.
| Item | Amount |
|---|---|
| Current daily profit | $200 |
| Upgrade cost (loan amount) | $6,000 |
| 5% processing fee (upfront) | $300 |
| Estimated monthly repayment (principal + interest) | ~$120 |
| Expected new daily profit (Foodies pay premium) | $300 |
| Net daily gain after repayment | ~$96/day |
The loan pays for growth. Your revenue increases outpace the repayment cost, and once the loan is paid off in 5 years, all that extra revenue is pure profit.
Example: A Bad Loan
Your truck is losing $50/day because staff are undertrained and prices are too low. You take a loan hoping to "get through the rough patch."
| Item | Amount |
|---|---|
| Current daily loss | -$50 |
| Loan repayment added | -$20/day |
| New daily loss | -$70/day |
You are now losing money faster. The loan did not address the root problems (untrained staff, bad pricing). This is a debt spiral — eventually, you default and go bankrupt.
The 5% Processing Fee Trap
Every loan in Business Heroes incurs a 5% processing fee deducted upfront. If you borrow $10,000, you only receive $9,500 — but you owe repayments on the full $10,000.
This means:
- Small loans are proportionally more expensive (the fee hits harder)
- Borrowing slightly more than you need "just in case" costs you 5% of that buffer immediately
- Taking multiple small loans instead of one larger loan means paying the fee multiple times
Borrow what you need in one go when possible. Do not take a second loan a week later for something you could have included in the first.
When NOT to Borrow
- You have no clear plan for how the money generates returns
- Your debt-to-equity ratio is already medium or higher
- You are in a boom phase with peak interest rates
- Your current business is unprofitable and you have not diagnosed why
- You want a cash cushion "just in case" — build reserves from profits instead
Quick Decision Checklist
| Question | Answer Needed |
|---|---|
| Is the loan funding growth (not survival)? | Yes |
| Will the investment generate more revenue than the total loan cost? | Yes |
| Is your monthly repayment under 25% of monthly profit? | Yes |
| Is your debt-to-equity ratio low enough for a good rate? | Yes |
| Are interest rates currently favourable (recession phase)? | Ideally |
If you answered "No" to any of the first four questions, reconsider the loan.