Do you have a realistic and believable projection of cash flow? Are you prepared to lose whatever you pledge as collateral for that debt? What are the prospects for the future? Is this a last resort that will tide the company over until things get better? And how do you know that? What trends have gotten your business into this situation, and what changes are you making to turn those trends around? Do you have a business plan you can believe in and a clear path towards the future?
If not--if you don't have a comfortable idea of how your situation will evolve in the future--then stop, and reconsider. Of course you have to deal with uncertainty, but put as much of an educated guess as you can into it. Then go back and answer your question with your business plan.
Tim Berry is the chairman of Eugene, Ore.-Palo Alto Software, which produces business-planning software. He founded Bplans.com and wrote The Plan-As-You-Go Business Plan, published by Entrepreneur Press. Berry is also a co-founder of HavePresence.com, a leader in a local angel-investment group and a judge of international business-plan competitions.