Growth Trap in Business Finance: How Cash Timing Mismatches Kill Profitable Companies (Case Studies)

Even profitable companies can fail when cash and debt timing don’t align. Two real stories reveal how timing traps derail growth.

Introduction

Growth is exciting—new customers, bigger orders, and rising EBITDA. But the growth trap in business lending catches companies when they borrow to fuel expansion without understanding their cash cycle. The cash timing trap in finance strikes when debt payments come due before cash inflows arrive. This article examines two real-world cases—Company A and Company B—showing how EBITDA growth vs cash flow risks can sink even profitable businesses.

Case Study 1: Company A – The Growth Trap

A consumer goods brand generates $2 million in EBITDA and lands a $2.5 million receivables loan (1.34 factor, $43,000 weekly payments over 18 months). The company is growing fast, with new retail contracts driving demand. But here’s the catch:

• Inventory Slowdown: Stock takes 120 days to sell due to seasonal trends and tariff-related supply delays.
• Cash Flow Reality: Cash Flow Available for Debt Service (CFADS) is only $700,000, while annual debt service is $1.45 million.
• DSCR: 0.7 / 1.45 = 0.48× (48¢ of cash per $1 of debt).

The inventory slowdown loan stress crushed liquidity. Despite strong EBITDA, the company faced constant cash shortages, forcing it to delay supplier payments and risk relationships. The growth trap emerged because the loan was sized for profits, not cash.

Case Study 2: Company B – The Timing Trap

A media company earns $1.5–$1.8 million in EBITDA, with clients in advertising paying 60–90 days after project delivery. To fund new equipment, it takes a $1.2 million term loan with fixed monthly payments of $80,000.

Problem: Receivables delay in business growth means cash inflows lag far behind debt obligations.

Result: CFADS supports a DSCR of only 0.8×, leaving the company cash poor but EBITDA rich.

Outcome: The company scrambled to refinance, incurring fees and stress.

The timing trap profitable companies face hit hard: profits existed, but cash didn’t.

The Common Thread

• Cash Tied Up: Inventory (Company A) or receivables (Company B) locked away liquidity.
• Debt Outpacing Inflows: Fixed payments demanded cash before it was available.
• Structural Mismatch: Loans weren’t tailored to the business’s working capital rhythm.

The result? DSCR below 1 in growing firms, signaling stress despite strong profits. These cases show why cash timing trap in finance is a bigger threat than high interest rates.

Lessons for Small Businesses

• Map Your Cash Cycle: Know your CCC (from Article 2) before borrowing.
• Choose Flexible Loans: Opt for structures like receivables-based revolvers that align with collections.
• Monitor DSCR: Aim for a cash-based DSCR above 1.25× to handle unexpected delays.
• Plan for Delays: Build buffers for slow inventory or late-paying clients.

Key Takeaway

Growth and profits don’t guarantee success if cash timing fails. The growth trap in business lending and timing trap profitable companies face can turn opportunity into crisis. Focus on cash flow, not just EBITDA, to borrow sustainably.

Related Reading

Catch up on earlier parts of this series:

EBITDA vs. Cash Flow: Why Profits Don’t Always Mean Liquidity
Many business owners rely on EBITDA as the gold standard for performance, but cash flow tells a different story. This article breaks down why positive EBITDA can mask dangerous cash gaps—and how to spot trouble before it hits your balance sheet.

Working Capital Cycle Explained: The Hidden Driver of Business Health
Understanding your working capital cycle (CCC) is key to avoiding the growth trap. Learn how to measure the timing between payables, inventory, and receivables—and why cycle velocity, not interest rate, often determines financial survival.

What’s Next?

In Part 4, we uncover how to measure the true cost of debt—and why low rates can still hurt.