Written By: Roberta M. Fisher, Gadd Business Consultants
Let’s not mix apples with oranges, personal debt is not good, I am referring to business debt. This can be in the form of a business loan or a line of credit (not an equity deal).
Remember the value of the debt is determined by how you intend to use the loan or line of credit.
Three ways a debt can be an advantage to small business owners.
- Do not give up any control of the business you have worked to build. Borrow only what you need and pay back the principal and interest over a specified time frame. The good part about this type of loan, once the loan is paid, it goes away. Unlike relinquishing part control of your business, which last the life of your business.
- A good business idea is determined to be profitable by measuring the return on investment (ROI); it must exceed its after-tax interest costs to be deemed worthwhile. Do the math before taking on more debt, if it doesn’t outweigh the ROI, don’t take on the debt at this time.
- Prepare for future sales during quiet times. Buying seasonal items when sales are available makes good sense when you know the inventory will move once the product’s busy time arrives.
Loans are available to business owners that are well established, have good credit scores and have collateral by most major banks.
If your business doesn’t fall into this category, try using an online lender. They care more about annual revenue, bank deposit frequencies, percentage of business you own rather than about your credit score.
Where ever you get your loan from, remember the important thing is to remember to focus on the bottom line and your cash flow!
References: Kevin O’Leary, TV Shark Tank