Fast capital needs clear boundaries
Owner, family, partner, employee, supplier, and customer advances are often a company’s fastest source of capital. The familiarity that makes them practical also creates relationship risk. Unclear expectations can blur the line between debt and equity, create disputes about priority, or complicate future diligence.
Use outside-lender discipline
Document the business purpose, repayment source, rate, maturity, remedies, security, and ranking against other obligations. Obtain approvals required by the company’s operating agreement, bylaws, shareholder agreement, or board policy. If a supplier advance or customer deposit supports an operating agreement, state what happens if that commercial agreement changes, is cancelled, or fails to perform.
Keep the record audit-ready
The IRS guidance on bad debts highlights the importance of a valid debt, intent to make a loan rather than a gift, and evidence of collection efforts if a debt fails. A signed note, proof of disbursement, payment ledger, and formal amendments help establish that evidence before a disagreement occurs.