Debt sometimes feels like a scary thing. But some personal debt can be good, even necessary, like a home mortgage or car payment, for example. Too much personal debt, however, can be harmful like excessive credit card debt, for example. In the business world, well-managed debt is important, even necessary, to propel business growth.

Why is Debt Good for Business?

A wisely determined amount, proper use, and good management of business debt are beneficial because debt can help a business finance growth beyond the funds generated by daily operations. Debt can come in the form of bank loans, lines of credit, inventory financing, and other means. And debt can be cheaper than equity.

Securing business debt is a sign to all stakeholders that lenders see potential in your business, and that should instill confidence in everyone. It contributes to business credibility and helps an organization have disciplined relationships with suppliers and debt holders. Securing debt helps mitigate the risk of business failure by providing necessary financial support.

Another benefit of business debt is that the cost of debt (interest) is tax-deductible.

Key Considerations for Taking on Business Debt

Business debt can be beneficial when a business owner understands the cost of capital, carefully budgets for what may be needed, uses the acquired business debt to drive the key aspects of the business, and then shows a pattern of consistent payments on the debt service along with healthy cash flow.

Business debt should be considered when it can be used to help increase profits above the cost of the interest expenses. It is important to carefully forecast revenues to know that you have the funds and the proper timing to pay back the debt, including interest payments. And the business should examine its tolerance for risks.

Avoid bad debt—debt that you can’t pay back.

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Contact Capital Funding Source for customized funding solutions that will help your business grow beyond boundaries. We offer a wide variety of financing for small businesses.